By Jane Brown
After 30 or 40 years of working full-time, you might be ready to hang up your work boots and retire. Retirement can be the beginning of a whole new chapter in your life. For the first time, you’re able to do what you want without a job or employer hanging over your head.
But while retirement gives you new found freedom, your retirement income might be considerably less than your regular income. This can trigger a major lifestyle adjustment, especially if your new income isn’t enough to keep up with your present expenses.
If retirement is in the near future, it’s important to get a handle on your personal finances now. Ideally, you want to retire with as few expenses as possible. This involves cutting back and making personal sacrifices. It can be difficult, especially if you’re used to buying what you want when you want. But there are ways to make the transition a bit easier.
Here are five tips to prepare your personal finances for retirement.
1. Pay off your house
Your mortgage is probably your largest monthly expense. And unfortunately, if your retirement income is only a third or half of what you were earning, a mortgage payment hanging over your head can be stressful and burdensome.
If you’re retiring in the next few years, now’s the time to get serious about paying off your house. Paying off the house early might seem impossible, but if you start making bi-weekly payments or increasing monthly payments, this can reduce how much you owe the bank in interest, thus reducing your principal balance faster.
Then again, retirement might be right around the corner. If you still have a mortgage loan, yet a lot of home equity, you can also look into downsizing. Run the numbers to see how much you can realistically walk away with if you were to sell the house. Depending on where you live, you might be able to sell, and then use the equity to pay cash for a smaller, cheaper place, thus eliminating the burden of a mortgage payment.
2. Pay off your credit card debt
It’s a sad reality, but too much credit card debt causes some people to delay retiring. If retiring slashes your income, the last thing you need is thousands of dollars of credit card debt. Your minimum payments might be hundreds every month, and if you continue to charge, your balance will only grow.
Credit card debt can be the difference between retiring early and working longer than you want. To prepare your finances, stop using credit and only use cash. Also, come up with a plan to pay off existing balances.
Negotiating your interest rates and paying more than the minimum is an excellent start. Also, you can start liquidating personal belongings you no longer need and use the proceeds to pay down balances. If you have more whole life insurance than you need, talk to a financial planner about borrowing cash from this policy. You don’t have to repay this money, but a loan will reduce the value of the policy, and reduce how much your beneficiaries receive.
3. Get rid of a car
If you and your spouse are both retiring and you spend the majority of your days together, see if you can get by on just one vehicle. Getting rid of a car payment can save you hundreds a month, plus you’ll pay a cheaper auto insurance premium and you’ll lower the amount you spend on gasoline and car maintenance. If it doesn’t work, you can always add a second car, or buy a used car with cash and avoid an auto loan payment.
4. Lower utility costs
Even if you’re able to get rid of your mortgage payment, you still have other household expenses like utilities. Gas and electric bills can cut deep into your budget, but you can shop around and compare rates offered by other utility providers in your area (if available) and save. In many cases, you have the power to choose the electricity company you want as your provider, says Amigo Energy in Texas, a retail electricity provider for both residential and commercial customers.
5. Use your senior discount
If you like shopping, going to the movies and dining out, don’t be afraid to use your senior discount. This discount can be as much as 10% to 20% off, depending on the restaurant or retailer. It’s a practical and cost-effective way to enjoy a little entertainment and recreation on a fixed income.
Retirement can be one of the best times of your life. Finally, you have the freedom and flexibility to do what you love. Your income might drop in retirement, but this doesn’t have to slow you down.