Although 40K per year may not seem like enough money to retire on, many retirees live on even less. According to a recent survey, the median annual household income among retirees is just 32K per year. So if you budget wisely, you can definitely make a retirement income of 40K work. Here are our tips on how to retire well on a budget to help you plan out your new post-work lifestyle.
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Move to a Low Cost of Living Area
Money goes much further in low cost of living areas. If you live in an expensive city, relocating will reduce your monthly bills so you have more money left over for things that bring you joy like hobbies and travel.
You may not want to move if you’re surrounded by family where you live now. But if your kids don’t live close by and you’re open to relocating, it could be a great option that helps your nest egg stretch further.
As for where to move, US News & World Report put together a list of places where retirees can thrive on just 40K per year. Many small southern cities like Columbia, South Carolina and Jackson, Mississippi made the cut. So you’ll not only be able to enjoy cheap rent, but also mild, pleasant weather all year long.
Pay Off Your Home
If you don’t want to move, another option to lower your expenses is to pay off your home before you retire. Although you’ll still have to cover property taxes, insurance, and maintenance, getting rid of your mortgage will make it much easier to live on a fixed income.
Interest rates are very low right now, so you may be able to refinance into a shorter term mortgage without increasing your monthly payment much. If that’s not an option, you can pay off your mortgage nearly 10 years faster by making an extra payment every quarter.
If you don’t have any extra cash to throw at your mortgage, consider renting out your basement or one of your spare rooms on Airbnb. It could help you generate the extra income you need to pay off your home early and retire more comfortably.
Discover Low Cost Hobbies and Activities
One of our best tips for how to retire well is to find low cost activities you enjoy. If you’re planning to retire on 40K, you probably won’t have enough disposable income for expensive hobbies like trying new restaurants every week. But since you’ll have more time to spare, you may discover you prefer cooking your own meals at home rather than going out.
Finding inexpensive hobbies you enjoy now will prevent you from feeling deprived or bored in retirement as you try to live well on a fixed income.
Look Into Long-Term Care Insurance
Long-term care is one of the biggest expenses you’ll face in retirement. Studies have shown that someone turning 65 today has a 70% chance of needing long-term care in their lifetime. Considering the average cost of a shared room in a nursing home is $255 per day, long-term care can deplete your nest egg quickly.
However, there are long-term care insurance policies that can help you cover these costs without burning through your savings. Policies are usually available up to age 79, so it’s not too late to get coverage even if you’re nearing retirement. Working with a licensed insurance agent can help you find the best policy for your needs and budget.
Although retiring on a fixed income of 40K per year can seem difficult, with some advance planning and careful budgeting, you’ll be able to live well.
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Vicky Monroe is a freelance personal finance and lifestyle writer. When she’s not busy writing about her favorite money saving hacks or tinkering with her budget spreadsheets, she likes to travel, garden, and cook healthy vegetarian meals.
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