How to Prepare for Living on a Fixed Income

When setting retirement savings goals, it\'s wise to plan on saving more than you anticipate needing.
When setting retirement savings goals, it’s wise to plan on saving more than you anticipate needing.

Retirement is appealing because it gives you the freedom to slow down, relax and do whatever you want to do with your time. Of course, that freedom comes at a cost. You will be drawing from the nest egg you have accumulated, while being careful not to outlive your savings. Living on a fixed income means learning how to have the lifestyle you want on the money you already have.

Living comfortably on a fixed income involves some careful planning, as well as room for adaptive budgeting when life takes an unexpected turn. The transition into a fixed-income mindset can be challenging, but there are ways to make the process more comfortable. The first step is to be realistic about your ability to retire before you quit your job. If you are still employed and planning for retirement, take the time to really consider the lifestyle you want to have after you retire.

Look at your set annual expenses (mortgage, utilities, insurance, etc.) and also factor in your retirement goals. Do you plan to travel? Do you dream of buying a boat or an RV? What other expenses will you have once you have the time to pursue your hobbies and dreams? When imagining your future, you should also include practical matters. Consider your age and your life expectancy. You can use online calculators like the Life Expectancy Calculator from the Social Security Administration.

You should also take a serious look at your health and weigh your risks for expensive healthcare needs down the road. There are many resources available to help you learn how to budget your money once you do retire. You can hire a Certified Financial Planner, use online budget calculators and buy personal money management software to use on your home computer. Once you have an overall budget, you may even find it helpful to use simple spreadsheets to break down the costs of each specific trip, project or other large expense.

Your budget should be conservative to avoid outliving your savings. It’s better to come in under budget and have more money leftover for another day. During retirement planning, this means setting savings goals which are higher than you think you will need. After retirement, it means spending less than you think you can afford. The lifestyle you have during retirement will be largely determined by the amount of money you have been able to save.

You may find that retirement comes with some trade-offs. Perhaps you will downsize to a smaller, more affordable home to free up money for traveling or other hobbies. Maybe you will choose to travel less often, but live in a community which offers a more diverse schedule of regular activities and events. The best way to prepare for living on a fixed income is to start doing so before you actually retire. Get in the habit of tracking your income and budgeting all of your expenses.

Set aside a specific amount to put towards your retirement savings each month. By the time you are ready to retire, you will have a better understanding of your expenses and feel more comfortable transitioning to life on a fixed income.

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