Senior Living on a Budget

By Janice Estey

Sometimes financial words such as taxes, mortgage, and interest can be intimidating. Another important financial word that many people avoid is budget. Unfortunately, because many avoid living on a budget — not to mention even creating one — their financial situation suffers. This suffering can be greater if the individual is a senior adult.

When to Create a Retirement Budget

To be really smart about retirement, it’s important to create a budget to prepare. “Believe it or not,” writes Dana Anspach, founder and CEO of Sensible Money, LLC, a registered investment advisory firm which provides retirement income planning, “a retirement budget can lead to more fun in retirement.” A budget during your retirement can reduce stress and help you avoid spending too much money too soon after retiring — a big mistake many people make.

There are many factors that affect retirement income — inflation, your rate of return on savings and investments, your retirement date, taxes, spending, part-time earnings, Social Security, pensions, etc. But there is one thing you have the most control over spending. Ms. Anspach continues, “Getting a handle on your upcoming retirement budget puts you in a place where you’ll be able to make smart choices about the retirement lifestyle you want.”

If you have already retired, and you haven’t yet created a budget, it’s not too late to put one together. It’s never too late to begin a good habit.

How to Create a Retirement Budget

Start by gathering information. You need to look at bank account statements, credit card statements, income records, and old tax returns. Use the information to see how you have spent your money in the past so to plan how you will spend it in the future.

List fixed expenses: essentials (food, clothing, housing, transportation and healthcare), non-essentials (cable, gym memberships, subscriptions, etc.), and required non-monthly expenses (property taxes, insurance premiums, auto registration, home warranties, etc.).
Create a sheet with columns of expenses for each month. For non-monthly expenses, divide the amounts to spread them out across all 12 months. It may be helpful to visually separate essential and non-essential costs.
Account for the possibility of changing health care costs.
Don’t forget about fun stuff like travel, hobbies, sports and entertainment.
Total all your expenses, total all your fixed expenses separately, then divide your fixed expenses into your total expenses. How’s the percentage? Good or too high?

If your fixed expenses are a higher percentage than you like, there are ways you may be able to reduce them. You could consider a lifestyle change, such as selling a car or downsizing your home. Take a look at those non-essential expenses. Could some of those be reduced or eliminated? “As a general rule of thumb,” Ms. Anspach concludes, “if you want more fun in retirement, find ways to lower fixed expenses so you can have more flex funds available to spend on the interests you most enjoy.”

According to the Consumer Law Project for Elders, “financial experts suggest that you spend no more than the following percentages of monthly income on each item below:”

Housing: 35%
Transportation: 15%
Food: 15%
Medical: 20%
Miscellaneous: 5%
Debt: 10%

Budget Killers

So, now you have your budget created, and you’re being careful not to spend more than you’ve budgeted, when — oh, no! — you’ve gone over your budget. How did it happen? Unfortunately, there will sometimes be unplanned expenses that pop up, but if you plan ahead, those times can be greatly reduced.

Health insurance/medical expenses. Be sure your retirement budget includes expenses such as over-the-counter items, insurance deductibles, co-pays, vision and dental expenses, and premiums that may have been previously covered by your employer.
Vacations. Been vacationing using work bonuses that have suddenly stopped? Decided to take two vacations a year now that you’ve retired instead of the usual one? Travel, lodging, food and entertainment costs can quickly add up.
Life insurance and long-term care insurance.
New vehicles. It’s likely you’ll outlast your car and need a replacement.
Home and auto repairs. Things break. Expect the unexpected.
Gifts and charity.
Adult children/grandchildren. Sometimes these loved ones run into financial problems. You may want to help them out. Don’t let their financial trouble get you into trouble.

Helping a Loved One Create a Budget

Perhaps you’re reading this, but you’re not the one needing to create a budget; perhaps it’s a senior loved one. As we get older, certain activities become more difficult. If you’ve noticed a parent or sibling having trouble keeping track of their money, it might be a good idea for you to help them put together a budget. The Institute on Aging suggests these tips when assisting a senior create a budget:

Do set a budget. It is important for everyone — especially seniors on fixed incomes — to create and follow a budget.
A budget for big and small. List items separately so your loved one can see where their money goes and if there is any money left over for fun items or gifts.
The budget for the present and the future. As we age, medical emergencies can become more frequent, complicated and expensive. Your loved one’s budget should be prepared to cover growing medical expenses. You may even suggest investing in additional protection like long-term care insurance.
Don’t let your senior loved one fall for scams. Education is essential.
Don’t forget to include your senior family member in the budgeting process. Even if your loved one has trouble seeing numbers or understanding every aspect of the budgeting process, if they feel involved, they will be more likely to follow the budget. It’s their money and life, so if they are mentally capable, they should have a large amount of input in the process … even if you don’t agree with all of their decisions.
Don’t make things too complicated. Provide the information in a format they understand, not what you think looks best.

A budget is important for everyone, but especially for those who are living on a fixed income because of retirement. While the process may seem scary at first, the long-term benefits will make the process worthwhile.

This article is intended as general advice and should not be viewed as legal or financial advice. For your individual situation, please consult an elder law attorney.

About the author: Janice Estey is the Director of Social Services for Independent Living at Advent Christian Village. She earned a Master’s degree in Gerontology in 2008 and has worked for over 10 years in a variety of settings providing services and care for seniors. At ACV, she oversees a team of hard-working service coordinators who provide one-on-one support to independently living ACV members.