How to Save Money on a Tight Budget in Retirement

Retirement is a time to enjoy what you love most, from family and friends to traveling and gardening. However, affording your desired lifestyle isn’t automatic, even if you have a healthy retirement account and consistent Social Security checks. When you retire, you end up with a fixed income. Here are eight common ways you can save and stretch your money on a tight budget.

A financial advisor can help you create a financial plan for your retirement needs and goals.

Unexpected expenses can disrupt your budget, put you in debt and force you to put savings on the back burner. An emergency fund is crucial because it anticipates the fact that life happens. You can build an emergency fund by setting aside at least three to six months’ worth of living expenses in a separate savings account. This fund provides a financial cushion, preventing you from dipping into other sources for sudden, unforeseen costs.

Plus, your money can go to work while it sits in the emergency fund. You can use a high-interest savings account to earn interest rates as high as 4.5%, helping your cash grow beyond the rate of inflation. This way, you could prepare for an unforeseen medical bill or car repair down the line.

Spending can get out of hand even when you plan ahead. For this reason, it’s recommended to regularly review your monthly expenses to identify areas where you can cut back. For example, you might have a streaming subscription you no longer use or online shop for items you don’t need.

Documenting your spending habits along the way can help you see where your money is going. You can track your spending habits using budgeting tools, apps, or the old-fashioned way of pen and paper. This awareness can help you make informed decisions about where to reduce expenditures and prioritize essential needs.

Evaluate your current living situation to identify where you can cut retirement costs while maintaining your quality of life. For example, downsizing your home in retirement can shrink your housing costs. Likewise, moving to a state with a low cost of living can lower how much you spend on essentials. You can also look into states without income taxes to help your income go further.

Benjamin Franklin is credited with saying, “an ounce of prevention is worth a pound of cure.” This proverb applies to most areas of life, and healthcare is no exception. Routine doctor visits, regular exercise, and a healthy diet can reduce more expensive ER visits, physical therapy sessions and surgeries.

Proactive measures will improve your quality of life and minimize health expenses. This is critical because retirement advisors have identified healthcare as one of the top costs in retirement despite Medicare coverage.

Specifically, the Fidelity Retiree Health Care Cost Estimate shows that a single retiree spends about $157,700 out of pocket on healthcare throughout retirement. This figure translates to $315,000 per couple. As a result, every aspect of life that improves your health also helps your wallet.

While getting a tax return in April is better than owing money, it’s also a sign that your withholdings are high. So, it’s advisable to examine how much of your retirement account distributions are going to the government as taxes before they hit your bank account.

Typically, your retirement account manager will withhold 20% of your income for taxes. You can reach out to your account manager to adjust this percentage based on your circumstances. For example, if you’re married filing jointly with an income under $94,300 in 2024, your top tax bracket will be 12%. So, you could direct 8% more of your paycheck to your bank account instead of letting Uncle Sam hold it all year without paying you a nickel of interest.

Retiring after your mortgage is paid off takes a load off your budget. However, carrying a mortgage into retirement raises your monthly costs. Refinancing can lower your mortgage payment by reducing your interest rate or extending your payment period. You can see exactly how doing so can benefit you by using a refinance calculator.

For example, say you want to lower your monthly payment regardless of interest rates. You have $75,000 left on your mortgage with a 3.25% interest rate and pay $732 monthly. You could refinance to a 30-year mortgage with a 7.5% interest rate and pay $524 monthly, over $200 in monthly savings.

Remember, refinancing can drag out your mortgage loan and increase overall costs. You can pay between 2% and 6% of the loan amount in closing costs, which is usually due upfront. Rolling this cost into your loan is an option, but doing so will increase your loan balance.

Another caveat to refinancing is high current interest rates, although this isn’t always a deal-breaker, if the math works in your favor.

Even if you don’t have a car payment or a mortgage, your insurance needs won’t stop. Insurance is a consistent expense regardless of age or employment status, and rates can increase without you noticing. As a result, shopping around for auto and homeowners insurance can ensure you’re getting the best rates. Remember, bundling and taking advantage of available discounts will help you lower insurance prices.

Explore part-time job opportunities or freelancing in areas where you have skills and experience. Supplementing your retirement income with additional earnings can significantly impact your financial stability. Plus, working 20 hours or less per week can structure your time, connect you with your community and provide a sense of purpose.

However, it’s crucial to balance work with other priorities during retirement. A job can take you away from friends, family, and the goals you set for yourself during your golden years.

Additionally, if you’ve begun receiving Social Security, working can reduce your monthly check. For example, earning above $59,520 from a job the year before reaching your full retirement age (which is 67 for those born in 1960 onward) in 2024 incurs a penalty. Specifically, the Social Security Administration will lower your check by $1 for every $3 earned over the limit.

Maintaining an emergency fund can help you protect your retirement savings. Additionally, monitoring expenses, reducing living costs and prioritizing health can contribute to long-term financial stability. Finally, you may also explore refinancing options, compare insurance rates and consider part-time work as strategic moves to optimize financial resources.

• Retirement can mean adjusting to a lower income than your working years provided. For this reason, you may want to work with a financial advisor to create a spending plan for your needs. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Healthcare is a top expense in retirement. Fortunately, you have options for coverage depending on your needs, such as Medicare Advantage or Medicare.

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