If you are a relatively new retiree and you find that your spending is greater than your income, there's no need to panic. Give yourself time to adjust.
Retirees spend more in early retirement and gradually decrease their spending as they age, according to the Health and Retirement Study (HRS).
Most of the decline in retiree spending is driven by nondiscretionary expenses. As retirees age, they spend less on food, housing, and transportation. Some discretionary spending on things such as entertainment and travel also declines.
If you just retired and find yourself spending more than you can afford, follow these steps to bring your expenses in line with your income:
- First, consider all of your sources of income, including Social Security, your pension, rental income, investment income, other savings accounts, and/or income from a part-time job.
- Next determine what your current monthly non-discretionary spending is for items such as rent or mortgage, utilities, food, and transportation. Determine what your discretionary spending is for items such as entertainment, travel, and gifts.
- Look into ways you can modify your non-discretionary spending as well as the discretionary, to more closely align your spending with your income. While non-discretionary expenses are often thought of as fixed, they really are not as rigid as we assume. For example, you may choose to move to an area where housing costs and taxes are lower or to shop at cheaper supermarkets.
Rather than thinking of retirement as a destination one arrives at, it is better to think of it as the start of a new chapter in your life. Start with a plan, but be prepared to make adjustments as needed along the way.
