Financial advisers strongly recommend that before you consider retirement you should be debt free. After all, if you couldn’t pay your debts with a higher income, how will you be able to do so with a reduced retirement income? But sometimes things don’t work out as planned, perhaps you are forced to retire earlier than planned due to downsizing or health issues, so it’s a good idea to have a backup plan in place.
Reduce Your Expenses
The first step in living on a reduced income is to reduce your expenses to match your new income level. In How to Retire the Cheapskate Way author Jeff Yeager gives examples of how a variety of people financed their retirement through creative methods such as downsizing their home, eating out less, driving “used” cars, shopping at “thrift” stores, etc. Another way to drastically reduce your living expenses that has become more popular over the last 20 years is to move to a lower cost country. At first this may seem crazy but many people have turned a frugal retirement into a lifetime vacation in such exotic places as Mexico, Belize, Ecuador, Thailand, Philippines and even Vietnam. See: The International Living Guide to Retiring Overseas on a Budget: How to Live Well on $25,000 a Year.
Consolidate Your Debt
You probably aren’t ready for retirement if you have a car loan with an interest rate of nine percent, three credit cards with outstanding balances and interest rates ranging from eight to sixteen percent. Plus by retirement time you might also have medical bills demanding monthly payments. But if health issues forced your hand, you might consider a consolidation loan. This can be a good option to lump a few bills into one monthly payment. Of course, this isn’t a cure all, since you still have to pay back the loan. You don’t need a debt company to help you to do this. Simply search for a lower interest rates than the combined rates you are currently paying. Your local bank or Credit Union should be able to help you. By lowering the interest rate and spreading out the term of the payments you can reduce your monthly expenses to a more manageable level. Just be sure you do not start running up credit card debt again by always paying the full amount each month. If you can’t afford to pay it off you shouldn’t charge it in the first place.
Reverse Mortgage
A reverse mortgage offers homeowners of retired age, (usually over 62) the opportunity to convert home equity into tax-free cash while being allowed to stay in your home. A Reverse Mortgage is aptly named because the payment stream is reversed. Rather than making monthly payments to a lender, the bank will make monthly payments to you. You can use this money to pay down debts, reduce financial burdens, or simply supplement your income. You can get a reverse mortgage from a bank or credit union that does home loans. The major disadvantage of a reverse mortgage is that when you die the lender gets your home so you can’t pass it on to your heirs. But in many cases this may not be so bad, since often the children already have their own homes and don’t really want the hassle of selling yours. And if it allows you to live out the remainder of your days in comfort it may be worth it.
Growing Your Income
These days retirement doesn’t always mean you immediately stop earning an income. If you have a passive income such as owning rental property or a small business, you can still make money. And with the growing outsourcing trend you might be able to work from home or even make your home or car work for you. If you have a spare bedroom you could rent it out through AirBnB or you could pick up some extra bucks driving for Uber.
Many retirees also use retirement as an opportunity to turn a hobby into a small business. Whether it is building bird houses, buying and selling collectibles or doing genealogy research for others… with a little thought you might be able to make some money doing what you enjoy. After all isn’t that what retirement is supposed to be all about?
