While the idea of retiring can be exciting, it also comes with some common concerns. No longer having a job means relying on a fixed income from the savings plans and tools you put in place during your career.
When you’ve carefully planned for retirement and are right on track, it’s still understandable to have some fears about switching to a fixed income. If you find yourself retiring earlier than expected due to layoffs or a medical necessity, retirement can be even more frightening. Fortunately, there are tools which can help you generate income and navigate retirement spending.
It takes some careful planning to make sure you won’t outlive your savings, and the first step to living on a fixed income is creating a reasonable budget. Consider all of your expenses and weigh them against your expected income. You must be honest with your planning and be sure you don’t overlook little items which can add up quickly. It often helps to meet with a financial planner or use home finance software to track your spending.
When creating your budget, it’s always a good idea to pad in money for emergencies. You never know when you might get sick, have a car accident or need a root canal. Falling into debt over emergencies can add extra fees, and you never want to be in a position where you have to choose between groceries and paying for a new crown. Having an extra cushion for the unexpected will give you peace of mind. And, if an emergency does come up, be sure to rebuild your emergency fund as soon as possible.
It’s also important to use long-term thinking when planning your budget. The value of your money can change through inflation. You want to keep the bulk of your savings in a vehicle which will allow it to grow at a rate that is faster than inflation. A good financial planner can help you understand which investment options will let your savings grow without inviting too much risk for your stage of retirement.
Although retirement may mean the end of working, there are other ways of adding to your income. Many retirees find that their best option is to bring in more income through annuities or a reverse mortgage. Various types of annuities allow you to save on a tax-deferred basis while you are working and then receive payouts on a fixed, monthly schedule. Reverse mortgages allow homeowners with sufficient equity to essentially take a loan against their property which will not have to be repaid as long as they live in the home.
When it comes to living on a fixed income, knowledge is your most important tool. Research your options and work with a financial planner to create your retirement plan. There is no single right answer which will work for everyone, but careful research will help you create the plan which will work best for you.