Retiring on a Fixed Income? 3 Ways to Control 3 Major Life Expenses

Posted on: 29 December 2016

If you're going to be retiring on a budget—especially if fixed income sources like Social Security are a primary part of the plan—it's important to find ways to control and plan for costs. But, with so much about retirement always being up in the air, that can seem like an impossible task. However, you can control some retirement expenses with some pre-planning. Here are a few tips for controlling expenses in three categories: taxes, health care, and housing.

Use a Roth IRA

Taxes can be a wild card, often going up or down based on factors you can't control. One way to even things out during retirement is to use a Roth IRA instead of—or in addition to—a traditional IRA. Money in a Roth IRA is taxed before contributing it rather than when you withdraw it later in life. This means that you should consider contributing or converting money to a Roth IRA during years when taxes are low (possibly as early as 2018) so that you won't have to pay taxes on withdrawals when the rates are high.

Work with a qualified accountant who is experienced in retirement planning to determine how to add a Roth IRA to your portfolio and how to convert money from a traditional IRA if you wish. 

Buy Insurance

Two types of insurance will go a long way toward helping you control your retirement health expenses. These are health insurance and long-term care insurance. If you retire under age 65, be sure to maintain health coverage as long as possible to avoid surprises before Medicare kicks in. And, long before that, shop around for long-term care insurance as well. Buying long-term care coverage early will help reduce overall premiums, so talk with a retirement planner about this option. 

Try Renting

Renting a home instead of purchasing one may seem counter-intuitive for many retirees. However, the regular monthly cost of owning a house such as mortgage, insurance, taxes, and utilities can often pale in comparison to irregular and surprise expenses, like installing a new roof and replacing appliances.

Renting has some uncertainties (like rent increases) but even these can often be budgeted for more easily than anticipating home repair costs. And you'll be more mobile and flexible if the time comes when costs are high enough to warrant looking for a new place to live.

Implementing any or all of these cost-control tips will help you get a better handle on your retirement planning. And, no matter where your income comes from, that can only make your retirement easier and less stressful all around.