Stretching a Dollar: Tips for Living on a Fixed Income

When couples make the decision about whether to retire, roles change, incomes may shrink, the whole issue of whose money is whose or how the money is spent moves quickly into focus, particularly if the members of the couple each enjoyed their own careers. The two-salary income may soon be replaced by pensions, Social Security and investment income.

Added to the shrinking monetary picture, healthcare benefits are often discontinued or minimized once the employee retires, so the cost of healthcare becomes an additional out-of-pocket expense. For couples who are fortunate to have paid off their homes and cars, the shock of living off of a fixed income is not as great as for those who still face a large mortgage and/or car payments and credit card debt.

Assuming the couple followed all the rules of preparing for retirement, and they sit with a healthy pension, a solid healthcare program, a mortgage-free home and no debt, the adjustments are not quite so difficult.

For those without a pension, no or small healthcare benefits, minimal Social Security benefits and debt, money becomes a new topic of discussion and sometimes a source of conflict.

A fixed income can be a nightmare or a blessing. Some couples find they need a budget for the first time; others who have already lived on a budget will have less angst when facing this challenge. A budget can be healthy for those who, while working, tended to be frivolous or who lived beyond their means. It forces decisions about household expenses, vacations and discretionary income. The non-negotiables such as mortgage, insurance, utilities and car payments merit no discussion. The negotiables are those such as discretionary income, money for vacations, education for children or grand-children, monthly living expenses and emergency funds for household repairs or household maintenance costs.It is the discretionary income which can initiate conflict when one person wants to save and the other feels it’s time to spend.

The obvious risks for those living on a fixed income for the first time are the uncontrollables: health concerns, hikes in taxes or utilities, increased gas prices, increases in homeowners fees or, as so many have experienced recently, a major decrease in the value of their property. For those who are no longer in the work force, the state of the economy has a much more profound affect on spending.

Many without pensions rely on their investment income to live. For those whose investments have suffered, their lifestyles have most likely been altered. The loss of as little as $50 to $100 per month for many on fixed incomes can be devastating.

The wonderful rewards of retirement, such as more unstructured free time, lack of deadlines, flexibility to travel and freedom to plan every day at the last minute, can sometimes prove negative if one does not have the funds to enjoy such luxuries. While a $100 dinner for two at an upscale restaurant used to be the norm for some, it has now becomes a luxury and perhaps even unimportant.

One CPA said, “It is time to enjoy life, travel, kick up your heels. You don’t have to save anymore.”

That 7-year-old statement is no longer true in today’s fragile economy.Retirees still need to have an emergency fund (a kind of savings) for the unexpected.

Some even have a vacation savings account. Unfortunately, the days of putting money in a bank and gaining interest are gone. CDs went from over 17 percent in the ‘70s to less than 2 percent today. Trying to find a liquid account that pays interest is like looking for a cheap flight to Tibet.

The family philosophy about money plays a crucial role in a couple’s financial harmony. If one person believes that living it up while still healthy and vibrant translates to traveling extensively and buying impulsively, and the other person is conservative and worries about unexpected financial crises looming ahead, there will be issues. Discussing the philosophy ahead of time and coming to terms with a compromise, if necessary, is the best way to avoid allowing a fixed income to interfere with living comfortably and harmoniously into the “golden years.”

Basically, living on a fixed income means giving up some control and some flexibility. This is a huge adjustment for some, and a non-incident for others. Listening to groups of seniors talking, one can hear anything from “We have a nice comfortable nest-egg for our future, and nothing will disturb that” to “Oh, Harry, at your age, you should deprive yourself
of nothing.”

The following are seven tips to succeeding while living on a
fixed income:


According to the Ohio State University Extension, seniors living on a fixed income should list fixed expenses and variable expenses and weigh that according to income. Expenses such as car payments, electricity, cable, cell phone, internet, etc., are all common and fixed expenses associated with monthly living expenses. Writing down expenses and comparing them with income allows for a realistic view of what income can be used for non-essential purchases.

Live Below Your Means

As an undergraduate, I pursued a degree in business and economics, and the topic of living below your means was commonplace. Having 25 percent or more of income not used for necessities gives seniors more options to enjoy vacations, traveling to see family and
impulse purchases.

Impulse Purchases

Everyone at one point purchases an item because it seems like a good idea at the time, or it is being sold at a great deal. However, impulse purchases can leave you with a lower standard of living and unexpected expenses. Impulse expenses should be budgeted the same way that fixed expenses are.


Mortgage payments, car loans and credit cards or any other purchases that carry interest rates or large monthly bills can be devastating to any senior living on a fixed income. Make sure that debt interest is accounted for under your expense chart, or else you could be hit with payments you cannot realistically afford.

Life Expectancy

Death is a simple, unpleasant fact, but with life expectancies rising, planning for retirement can be very tricky. According to the World Bank, the average life expectancy is 78.4 years. When budgeting under a fixed income, be sure to keep in mind average life expectancy and the possibility that you could live longer. If you plan on living on $40,000/year and live for 10 years longer than you plan, you will fall $400,000 short of your budget. Always plan and save more than you need.


Downsizing your home and vehicles can give you extra money to invest with. For instance, if you downsize your $500,000 house and $50,000 vehicle to a house for $250,000 and a car for $25,000, you would have $275,000 extra investment income. Downsizing not only gives you extra spending/investing money, but it also lowers your property and luxury taxes. Downsizing is one of the best options to make the most of your money when you plan on retiring.

Be Realistic

Living on a fixed income means you must be realistic with the amount of money you actually have. This means not overspending on luxury items that you cannot afford, or purchasing an expensive home because you “deserve it” after working your whole life. Of course, your investment and savings will determine what standard of living you can afford upon retirement. LOL