Are the golden years really that ‘golden’ In the realities of 2018, although you will hopefully be retiring with a pension, can you live off the interest earned on retirement savings once you add in rising costs of living and low rates of interest? Often, people find life too busy to invest properly. Some see it as complicated, time-consuming and, let’s face it, a bit boring. Keeping cash in a bank or building society is often seen as a safe idea: it’s secure and, even if the bank goes bust, you’re unlikely to lose your money because of protection in place for UK savers. However, at the moment inflation is higher than interest rates achieved on some saving account, so the value of cash savings is actually falling as each year goes by – meaning that your money cannot buy you as much this year as it could in previous years.
What does this mean if you’re approaching retirement or already living on a fixed income? You may want to consider other ways to manage your money but the good news is that those with a good approach to looking after their money can and do rule retirement. You could live well on a fixed income if you keep these tips in mind:
1) Live below your means
This phrase has never been more important than at this current stage of your life. If you’ve been saving up for retirement since your teens and can afford to live it up with a 5-star holiday to the Maldives every year, good for you. If not, you need to think about the reality of receiving less income while making sure you can afford the unexpected, whatever that may be. Perhaps review if there are any areas that you could reduce costs without affecting your lifestyle. Could you benefit from additional pensioner benefits? The winter fuel payment, free bus pass, prescriptions, free TV licence to name but a few.
2) Micromanage your budget
Living below your means on a fixed income leaves very little wiggle room when it comes to budgeting. Prioritise your expenses, starting with set costs such as insurance, healthcare, rent or mortgage and utilities. Then add the average amount you spend on discretionary expenses each month, such as entertainment, food and gas. If your total expenses aren’t 20 to 25 percent below your monthly income, cut from your discretionary costs until you have enough money earmarked for savings.
3) Avoid adding new debt
Now is not the time to add more expenses and debt. You have looked forward to this time of your life so you don’t need to scrimp and save but look at controlled treats instead. Review your requirements regularly with your financial adviser to ensure you can still afford the treats and make sure you can earmark some of your income to go shopping.
4) Downsize to a smaller home
If you’re still living in the family home, now may be the right time to sell and move into a smaller, less expensive house. By doing so, you can generate additional money to invest and save, and a smaller home will cost less to run.
5) Have fun for free
It’s ironic that when you finally have time to pursue hobbies and interests, your income is limited. It is possible, though, to enjoy yourself by spending little to no money at all. If you embrace your age, shout about it wherever you go and you’ll probably find yourself in line for a discount on the admission price. Alternatively, check local publications and websites for free local events.
Living on a fixed income does take some adjustment, but with some creative budgeting, you can enjoy a satisfying retirement.