Living on a fixed income in 2024 can be a tough task for U.S. retirees. Here are some tips to help you make the most of your budget well into your golden years.
Downsize
From scaling back on personal possessions to moving into a smaller home, downsizing for retirement is all about improving affordability. Downsizing is not always the right move, but can help rein in your monthly costs. Those already considering moving for other reasons — such as to live in a state with more retirement-friendly tax laws — might find the strategy of downsizing as an added financial bonus.
“The financial benefit of downsizing in retirement typically results when going from a large mortgage to a small mortgage, or from a small mortgage to no mortgage at all,” Greg McBride, chief financial analyst for Bankrate, said in a report. “If you have substantial equity in your existing home, downsizing can mean taking that equity when the home is sold and using it to pay cash or make a large down payment on a lower-priced home, reducing your monthly living expenses.”
Location, location, location
When it comes to paying income taxes, some states are better than others for retirees. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming, for instance, have no state income tax. That being said, not all income tax-free states are necessarily more affordable for retirees.
Florida remains one of the best states in the country for retirees because of its tax laws overall, according to U.S. News and World Report.
“Making the move to Florida comes with multiple tax benefits,” U.S. News reported. “It doesn’t charge income, estate or inheritance taxes, and its state and local effective tax rate of 9.1% in 2022 was the 11th lowest in the country, according to the Tax Foundation.
“Florida’s state sales tax rate is 6% and local governments add an average of 1.02% in sales taxes for a combined rate that ranks in the middle for the U.S. Property taxes are below average and residents 65 and older and veterans can receive extra breaks.”
Account for inflation
Within reason, it is best to underestimate your income and overestimate your expenses when financial planning on a fixed budget. This is because, over time, inflation can significantly damage your spending power.
According to Corebridge Financial, an average inflation rate of 3% over 20 years would turn a $60,000 budget into the equivalent of $33,220.55 — nearly half its original value.
“Inflation erodes the value of savings and will continue to do so after you retire,” the company reported. “Considering the near-zero interest rates of savings accounts, retirees who are living off their savings are especially vulnerable to high inflation. Therefore, it’s important to assess your investment strategy and retirement income plan to see if you’re protected against inflation for the long term.”
