How to Live Happily on Your Retirement Income

Many things can get in the way of our ability to save as much as we’d hoped for retirement, whether it’s repaying student loans for much of adulthood, encountering emergencies or medical expenses, or experiencing unpredictable employment.

Fortunately, if you haven’t been able to save enough, you have options to help you boost your retirement income.

During retirement, Social Security provides some level of income, but most experts agree that it won’t be enough – especially if your vision of retirement includes travel and leisure. Without sufficient savings in place, your actual retirement lifestyle may look a bit different than you expected.

The 80% Rule

When it comes to saving for retirement, the commonly accepted rule is that you need an annual retirement income that equals at least 80% of your final annual working income. If you bring in $100,000 annually pre-retirement, then you will need at least $80,000 annually to maintain a similar lifestyle after you retire.

But what if you don’t want to maintain your lifestyle? What if you want to start traveling more or indulge in your favorite expensive hobby – or just stay home and read? The 80% rule can be used as a guide, but from there you need to adjust up or down according to your retirement plans.

4 Tips for Living on Retirement Income

1. Work Part Time

Working during retirement is a reality for many individuals. Whether it’s to supplement their income, to stay physically and mentally busy, or to have fun and make friends, seniors remain in the workforce for much longer – a trend that’s expected to continue.

If you’re intrigued by the idea of working during your retirement, you have many employment options to choose from that don’t require extensive special training or additional education, such as:

  • Grocery store associate
  • Dental assistant
  • Consultant
  • Bank teller
  • Plant nursery associate
  • Customer service representative
  • Receptionist
  • Nanny
  • Pet sitter
  • Event staff
  • Tutor
  • Blogger

Additionally, today’s evolving gig economy offers many opportunities for you to work as a freelancer or consultant. If you have a specialized skill that’s in demand, this may be a great way to earn income and keep a flexible work schedule.

If you start working again after you begin drawing Social Security benefits, your benefits might be reduced if you earn above a designated amount. Check with the Social Security Administration for the most current information on work limitations after retirement.

2. Take Advantage of a Health Savings Account

An HSA is a specialized savings account that may be available to individuals with a high-deductible health plan (HDHP). An HDHP may offer you a lower monthly premium, but you’ll pay more for healthcare services until your insurance coverage kicks in. When you combine an HSA with an HDHP, you set aside money on a pretax basis to pay for qualified medical expenses. Your HSA balance rolls over every year, so this account allows you to build up your savings to pay for healthcare services and supplies you may need later. HSAs are helpful in covering medical costs, but what many people don’t realize (or take advantage of) is that HSAs can also be an investment tool that helps pay for expenses in retirement.

HSAs can save you money on taxes in three ways:

  1. The money you deposit into your account, including through payroll deduction, is not subject to taxes.
  2. Earnings from investments or interest are not taxed.
  3. Money you withdraw from your account is not taxed as long as the funds are used for qualified medical expenses.

The money you contribute can be used to pay qualified medical expenses for:

  • Yourself, as the primary covered individual on the insurance plan
  • Your spouse, even if you have self-only coverage
  • Your tax dependents, even if you have self-only coverage

You can use your HSA money to cover a wide range of health-related expenses, including:

  • Deductibles
  • Copayments
  • Coinsurance
  • Prescriptions
  • Dental expenses
  • Hearing aids
  • Eyeglasses

3. Downsize

Minimizing your living expenses by downsizing can give you more breathing room in your budget and more cash to put toward things you love, as well as encourage a more sustainable lifestyle. A multifaceted approach to downsizing is often the most effective.

  • Shrink your housing costs. Moving into a smaller place in a more affordable part of town can reduce your living expenses by a notable amount, especially if your current home is large or not fully paid off. Consider making this change if it would decrease expenses like your mortgage or property taxes.
  • Profit from your unused items. Old furniture, instruments, clothing, and other items that have been kept in your attic, basement, or storage unit for years could earn you some cash. Host a garage sale or list items on digital marketplaces to have more space in your home and more cash in your pocket.
  • Rethink your transportation. If you have more than one vehicle or live in an area with affordable public transportation options, consider selling your car. This can help decrease your total debt and ongoing expenses like auto insurance, registration, fuel, and maintenance.
  • Make and maintain an updated budget. Your post-retirement needs, wants, income, and financial goals are likely different than your pre-retirement ones, so you need a budget that reflects this. Calculate your annual retirement income – including from Social Security, personal savings, retirement accounts, and investments – and determine if it will cover your current expenses. Then, review your expenses to identify opportunities to cut back, such as eliminating unused subscriptions or switching to less expensive grocery brands. Even changes that seem small can have a big impact on your finances over time.

No matter your situation, downsizing can offer benefits that make it a good financial strategy. Doing so proactively can help you avoid being forced to downsize later due to financial strain and allow you to reap the rewards for longer. Benefits of downsizing include:

  • Lower taxes. Taxes on smaller homes may be lower than taxes on large homes, as square footage influences estimated value. If you buy a smaller home in an area with the same tax rate as your existing home, your annual tax bill should go down.
  • Smaller mortgage. A smaller mortgage refers to reducing your monthly payments and your overall debt. Shortening the time it will take to pay off your mortgage can positively affect your retirement planning and other long-term savings goals. You may even be able to eliminate your mortgage altogether by downsizing to a smaller home that you can pay cash for or by moving into an apartment or other rental unit.
  • Less space to clean and maintain. A smaller living space will take less time, energy, and money to maintain, so you can redirect those resources toward enriching activities or hobbies. A lower-maintenance home can also help you maintain your quality of life despite physical health changes.
  • Lower utility bills. A smaller dwelling uses fewer resources, and properties built more recently than your previous home may be more energy efficient. Combined, these factors can lead to serious improvements in utility costs and carbon footprint.

4. Relocate

The work-from-home phenomenon has opened up relocation opportunities for many, including part-time retirees, but not every place will offer a more affordable cost of living. Before moving, research aspects like sales tax, income tax, property tax, food and fuel prices, home prices, income levels, and approximate utility costs to get a real sense of an area’s affordability.

Several states in the U.S. are popular destinations for retirees. Florida offers beachfront living and robust retirement communities, with more than 20% of the state’s population aged 65 or older. It also has no state income tax, so more of your retirement income – such as Social Security benefits or a pension – goes right into your pocket. Tennessee, Texas, and Wyoming don’t have state income tax, either.

Another frequent choice for retirees is Arizona, which boasts a warm, dry, and stable climate; numerous retirement communities; and low income and property taxes. North and South Carolina are also popular options for their climate, competitive cost of living, and appealing lifestyle considerations, such as recreational activities. Both states also offer programs that allow retirees to take college courses tuition-free.

If you’re ready for an even bigger adventure, you could join the numerous retirees who decide to live out their golden years in foreign lands. Reasons to retire abroad include experiencing different cultures, having more travel opportunities, living in your ideal climate, or connecting with your heritage. One of the biggest motivators, however, is the improved financial prospects.

Many countries outside the U.S. – like Germany, Spain, Portugal, and Japan – have lower costs of living for retirees. You can still usually collect Social Security benefits when you retire abroad, but you will no longer be eligible for Medicare. Factors to consider when researching places to move include:

  • Cost of living
  • Purchasing power
  • Average rent or home price
  • Typical grocery costs

You may also want to research countries’ laws, quality and affordability of healthcare, work opportunities, and safety rankings. Be aware of your voting rights, tax obligations, and immigration requirements for the U.S. and your destination country.

With the ability to work virtually from nearly anywhere, you’re free to choose a location that fits your needs and helps your budget.

Reach Your Retirement Goals

Just because your savings aren’t quite what you’d hoped doesn’t mean that you can’t live well in retirement. With a few adjustments to your lifestyle and expenses – and being open to the possibility of working during retirement – you can build a healthier financial picture to support your golden years.

Ready to explore the financial tools, products, and services that could help you thrive in retirement? Connect with us today.

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