The truth is a lot of retirees will be living on a small budget. According to U.S. Census Bureau data, the median average retirement income in 2021 for retirees 65 and older is $47,357.
And the average retirement savings for people aged 55 to 64 is $375,000. For most people, these savings will decrease when they start spending them in retirement.
With not that much money in your pocket, retirement is getting more difficult than ever with the growth of inflation and just about everything getting more expensive.
Living well on a small budget in retirement can be challenging, but it is possible. There are a few things you can do to make it work.
Pay attention to your spending.
When you have to live on a small budget in retirement it is important to know where your money is going. Not many of us like to spend time tracking our expenses. But you cannot afford to slip money away on something that is not important while living on a tight budget. Every dollar should be accounted for.
Here are the biggest expenses in retirement – housing, transportation, food, and healthcare.
Take a careful look at your expenses and see how you tend to spend money each month. Divide all your expenses between fixed and variable and see where you can cut back.
Fixed expenses such as mortgage/ rent, utility bills, and car insurance are set and hard to change. However, variable expenses such as clothing, dining out, travel, and entertainment are easy to reduce.
There are many budgeting apps that make tracking your spending easier than it used to be.
Reduce your housing costs.
Keeping a roof over your head is always one of your biggest budget items. But how much money you can spend on housing is critical when you have to live on a limited budget.
Luckily, we have many options to choose from:
- Downsize to a smaller home or condo
- Move to a cheaper location
- Rent an apartment
- Relocate to 55+ community
- Age in Place
First, think about where to live in retirement and the monthly costs of that place including rent or mortgage, taxes, maintenance, and repairs.
Second, decide how close you want to live to your family and friends and what your other priorities such as climate, rural or urban areas, and proximity to medical facilities.
Third, if you choose to age in your home, figure out the cost of renovation for retiring in place and how much help you will need for maintaining that big house when you are older.
Choose your place to live in retirement carefully because it is your biggest budget expense.
Reduce your transportation costs.
Cars are expensive. You do not need to spend a lot of money on your car to have a happy retirement.
Typically, most retirees spend less time on the road driving than the average driver. According to stats, people over age 65 spent an average of $7,062 annually or $588.50 per month on transportation.
Owning 2 or 3 cars is often required when you live in the suburbs and work in the city or have kids. But when you retire, you do not need to have 2 or 3 cars. It stops making so much sense and hurts your budget.
If you have been a two-car family for years, it is time to downsize to one car so you can spend less money on insurance, gas, maintenance, and taxes. And if it is time to replace your old car, do not buy a new car. Consider buying something that is about 2 or 3 years old so you can pay less.
Most vehicles lose about half of their value by the time they are five years old. So, if you decide to buy a used car, a three-year-old car will cost you less in upfront expenses and maintenance.
In case you are planning to move from the suburbs to the city, you should sell all your cars and take advantage of public transportation. In this scenario, you do not need to worry about the costs of your vehicles at all. Buses, subways, and other public transportation can cost you around $526.80 per year with a senior discount. Just buy a monthly public transportation pass and enjoy car-free retirement.
Reduce your food costs.
Food is going to be your third biggest expense in retirement after housing and transportation.
On average most retirees spend around 20 percent of their income on food. According to stats, in the last 5years households run by people 65 or older spent $6,207 annually or $517.23 monthly on food. Those aged 65 to 74 spent on food $6,864 per year, and people over 75 spent $5,274. These food expenses include groceries, alcohol, and dining out.
Food costs will vary depending on your diet and habits. For example, people who prefer to buy organic produce will likely spend more money than people who do not.
If you are retiring on a small budget, you need to be creative with your food and how you eat.
Learn to cook
Eating at home more frequently will cost less than eating out. The reality is that the food you cook yourself is the cheapest food you eat. When you retire and have plenty of time there is no more excuse such as “I do not have time to cook”. After all, learning how to cook can become your new hobby.
Plan meals in advance
I noticed that frequent trips for a few extra grocery items often lead to a higher food bill at the end of each month. That is why planning your meals in advance before you go grocery shopping is important.
For example, use a Monday morning to decide what dishes you want to cook at home during the coming week and additional snacks you will want to have in your pantry. After making a list, you can go grocery shopping just once for the whole week.
With current prices skyrocketing and inflation on a rise, it is getting tougher to find new ways to save on grocery shopping.
However, there are always ways to shop smart:
- Shop seasonal food. Seasonal food is cheaper since there are no traveling and storage expenses involved. Purchasing seasonal produce is always cheaper than buying that same fruit or vegetable during its off-season. In addition to that, produce is fresher and tastes better in season, and is often perfectly ripe. So, take advantage of the low prices at harvest time.
- Shop generic brands. The huge benefit of buying generic brands instead of name brands is saving money. Typically, generic brands are cheaper than name brands. The packaging may not be as colorful as a name-brand product, but often there is little to no difference between both products.
- Shop the perimeters. Fresh foods are healthier than processed foods. In a typical grocery store layout, fresh foods such as fruits and vegetables, meat and fish, milk, eggs, and cheese are on the outside perimeter. But processed foods are typically stored in the center aisles.
Many foods in the center aisles contain preservatives that make them last longer on the shelf. If foods do not have any added preservatives, then it needs to be refrigerated to keep them fresh.
Try to avoid buying pre-cooked meals or processed foods to maintain a healthy diet and cut the costs of your groceries.
Learn to eat out for less
Cooking only for one or two seems unrewarding. However, if you are living on a tight budget, you should avoid eating out frequently. It is not that you should never eat out. But if you are retired and worried about inflation and rising food prices, reducing the number of times you go to the restaurant can help to reduce the cost of it.
There are still many ways to have the restaurant experience on a small budget:
- Have your meal at home and then go for coffee and dessert.
- Instead of eating out dinner, go to the same restaurant for lunch. Many restaurants have the same menu for lunch and dinner, but they mark up their prices for dinner.
- Instead of eating out once a week, start eating out only once a month.
- If you still want to go to an expensive restaurant, avoid ordering appetizers, alcohol, and dessert to save money on the highest price increase items.
- Be selective, look for coupons or Groupons, and only go to places offering deals and discounts.
- Go to happy hours at restaurants, where wine and hard liquor are less expensive, and the bar food can serve as dinner.
Take care of health to reduce medical costs.
We all know that medical care is expensive, and the cost of healthcare is rising every year. According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2022 may need approximately $315, 000 saved (after tax) to cover healthcare costs in retirement.
Many health issues are age-related. Our body gets weaker as we age.
There are still many retirees who spend days lying on a couch watching TV and snacking. Some people gain weight when they stop working because they are not active and eat more because they are bored. Being overweight and lack of exercise put retirees at great risk of many chronic diseases such as diabetes, stroke, and cancer.
That is why regular medical check-ups are a must.
You should visit your doctor regularly and do not skip any recommended health screenings and tests. Keep an eye on your blood pressure and cholesterol level to avoid a heart attack or stroke.
If you want to eat healthy, follow a diet rich in whole grains, vegetables, fruits, and low-fat dairy products. Additionally, do not forget to shop smart and always read food labels to avoid foods high in cholesterol and saturated fat.
Another way to keep your medical expenses down is to stay active and fit. Start with developing good habits in your new life. Create an exercise routine and follow it thoroughly.
You do not need to spend extra money on expensive personal trainers or gym membership. Walking, running, or cycling outdoor is more than enough to stay in good physical shape for years. Explore your local walking and jogging trails. Those 30 minutes a day you need to spend walking can be done in your local park.
Travel and entertainment on a small budget.
One of the most exciting parts of retirement is enjoying your new lifestyle.
For many retirees, travel is a big part of that lifestyle. However, traveling is expensive. It includes hotels, air tickets, restaurant meals, rental cars, entertainment, tours, and more. According to stats, the average retiree spends $11,077 per year on travel.
Travel off-season. If you want to travel on a small budget, look for travel deals or travel off-season. In retirement, it is much easier to save money on travel because you have the freedom to travel when the best deals are available.
Find cheap accommodations. Instead of paying a lot of money for the hotels, look at websites like Airbnb, VRBO, or Vacation Rentals to see what they have to offer at your destination.
Check airline prices and find the cheapest flights. Sign up for free price alerts. Be flexible on dates and be flexible with your travel destination. Fly out early because the lowest-priced flights are the first flights in the morning. Fly on the cheapest days of the week – Tuesday, Wednesday, and Saturday.
Look for senior discounts. Many museums offer free days or evenings for visitors. When you do not have to work, it is much easier to visit museums on a weekday with a smaller crowd. Also, you can ask for a senior discount at museums, concerts, parks, and other tourist attractions. With available discounts and deals, you can save a lot of money and travel for less.
If you like to travel but are concerned about spending too much money, do not travel far. Drive a few hundred miles rather than fly to your destination. You will save money on air tickets, airport food, overpriced hotels, rental cars or taxi, currency exchange, and other charges.
Find free activities. As a retiree, you can find many great things to entertain yourself for less money. There are many free local summer concerts, fall festivals, events at libraries, or social activities at a senior center.
It is good to remember that money and wealth are important, but it is not everything. Happiness is not about being able to purchase a fancy car, a big house, or indulge yourself in luxury vacations. It is small and simple things such as family, friends, and having a purpose in life that make us happy.
How do retirees manage to live on a small budget? Share your ideas in the comments below.
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