How To Adjust To Being On A Fixed Income In Retirement

So, you made it to retirement with a decent nest egg to live off of. That’s worth celebrating! Now for the million-dollar question: How do you make it last for the next 20-30 years?

You’ll probably need to make some adjustments.

Transitioning to retirement can be one of the most jarring times in a person’s life. You go from being busy, busy, busy to having nothing you must do. You go from constant social interaction at work to sitting at home with your spouse. You go from working as much as you want, and earning accordingly, to living on a fixed income.

No matter the situation you find yourself in, here are five key tips for making the transition to a fixed income as smooth as possible.

1 - Create A New Budget

No matter what kind of career you had, your expenses are going to change when you retire. Thus, you need to update your budget or create a new one. Without your job, you may not spend as much on gas and car repairs or eating out and nice clothes. However, you may counteract that with more travel, a new hobby, or buying more gifts for the grandkids.

Because your income is fixed, you need to be more aware than ever of what you’re spending. The way to stay on top of your spending is through a budget.

2 - Respect Your Budget

A budget is a tool. Like any tool, it doesn’t do much good unless you actually use it. The most detailed, precise budget is just a waste of paper if you have no respect for it. If you’ve calculated that you can only afford to spend $250 a month at restaurants on your new fixed income, then do that. Tell yourself no and eat at home. If you want to stay on track in retirement, you have to respect your budget. It’s there for your protection.

3 - Avoid Debt

Adding debt, like overspending, will quickly derail your retirement plan. It’s a one-time pleasure that you will be paying for for years to come. While you were working, it might not have been a big deal to upgrade your vacation by $2,000 and put it on a credit card. You could simply get a few more clients or use your next bonus to pay it off. You don’t have those options on a fixed income, though.

What happens if you put $2,000 on a credit card to upgrade to the best cabin on a cruise ship and only make the minimum payments to pay it off? If your minimum payment is the greater of 2% of the balance or $10 and you have an annual rate of 18%, it will take you 370 months to pay off that $2,000. That’s just over 30 years that you will have to tighten your belt and cut from other areas of your budget just to pay for that one vacation upgrade.

4 - Forgive Yourself For Mistakes

As you can see, financial mistakes have much bigger consequences when you’re on a fixed income. But after earning an income for 40-50 years, it’s really hard to adjust to living on a fixed income. You will likely make some mistakes, and that’s normal. As long as it’s a $2,000 cabin upgrade and not a million-dollar yacht, you will be able to recover from it, even if it isn’t comfortable.

Try to follow your budget and behave wisely, but expect to make some mistakes. Then, when you do make mistakes, don’t beat yourself up over them. Forgive yourself, move on, and try not to make the same mistake twice. Remember, you’re only human.

5 - Trust The Plan

When you’re living on a fixed income instead of earning your living, it can sometimes feel like you don’t have as much control over your situation. This can be scary for many people. We like to be in control and feel like we can determine our own destiny rather than live at the mercy of the markets and economy.

To avoid living in anxiety and fear, it’s important to have a financial plan. When you’ve worked with a professional to develop a comprehensive plan, your plan has already taken into account market ups and downs and economic woes. Your advisor should run different scenarios with you to show you how things like a 30% stock market drop would affect your retirement. If you do that, you’ll have a rock-solid plan. Then, when the markets and economy get shaky, you can trust your plan, knowing that it was built to last whatever you experience.

6 - Meet Regularly With Your Advisor

*Bonus Tip!*

A budget and a plan are the foundation of living successfully on a fixed income. However, nothing replaces a trusted financial advisor.

Your financial plan may have the numbers to show you that you can weather a drop in the markets, but it can’t talk to you, explain what’s going on, and help you feel confident in the moment.

Life is unpredictable and constantly changing. Even the best financial plan and budget will need to be adjusted from time to time based on your changing needs and life circumstances.

That’s why it’s important to meet regularly with your financial advisor. An experienced professional can provide you with the reassurance that you’re on the right path and help you figure out the best way to proceed when you’re forced onto a different path.

If you want to live confidently in retirement on a fixed income, you need to work with an experienced financial advisor that you trust.

If you don’t already have one, we would love to take some time to get to know you, let you get to know us, and see if we might be a good fit for you. Call (617) 630-8787 or click here and reserve a specific date/time to chat if you’d like us to be a part of your retirement journey and go through our trademarked 365 Retirement Plan process.