Log off your computer. Turn in your badge. Cut the cake. You are retiring and it’s time to celebrate all the hard work you have accomplished over the years.
Right before you walk out the door, make sure you check to see how much you’ve got stashed away in retirement funds. If it’s just $100,000, are you sure you can comfortably retire on that amount?
“Retiring on $100,000 is quite a challenge, especially considering the average length of retirement and cost of living,” said Jeff Rose, CFP and founder of Good Financial Cents. “According to data from the Bureau of Labor Statistics, the average yearly expenses for those age 65 and older hover around $50,000.”
Moving from your work life to your post-work life can be a transitional phase with ups and downs, but you certainly do not want to run out of money during retirement and figure out a new way to support yourself.
“With a nest egg of $100,000, that would only cover two years of expenses without considering any additional income sources like Social Security,” Ross explained. “So, while it’s not impossible, it would likely require a very frugal lifestyle and additional income streams to be comfortable.”
If there’s only $100,000 saved up in your accounts so far and you are still in the workforce, you might want to consider a few options for stretching that amount as long as possible, particularly if your income is not incredibly high to begin with.
GOBankingRates answers the question of whether you can comfortably live on $100,000 in your retirement, as well as some tips for increasing savings before retirement.
When someone says “I’m retiring on a small budget” that still means they need to actually have a budget in place and stick to it.
“Retirees can keep it simple,” said Tanya Peterson, consumer finance expert and vice president of brand with Achieve. “An app, free online software, a spreadsheet or pencil and paper will do the trick.”
Peterson advises retirees to use their budgets to see where their money goes, then make the tough call on what really is a necessary expense and what can be dropped from normal purchasing habits.
“It might seem trite to ask yourself if you can skip the pricey latte for your own home brew,” she said. “But this is just the type of mindset that will stretch savings.
“The starting point should be your goals. Whether they are trips you want to take, a college education for a grandchild or other, write all the goals down, and then build your budget with them in mind. You’ll see, in black and white, just what you have and where you want to go.”
Getting out of the red and into the black is crucial for stretching your $100,000 retirement. The first and most important target to set your sights on: Credit card debt.
“It’s one of the best investments you’ll make,” Peterson said. “You’ll not only stop paying high-interest rates but have that much more money available for living expenses. If you can pay your debt off yourself (avalanche or snowball method), bite the bullet, make the commitment and use the budget as a tool to help you do so.”
Peterson points to the fact that paying off a credit card balance with a 20% annual interest rate is equivalent to earning a 20% return on an investment, which is a lot better than any savings fund.
“If you can’t do it on your own,” she said, “look into getting help in the form of a personal loan, credit counseling or debt resolution (settlement) if you’re having a hard time with even minimum payments and have endured some type of financial hardship.”
As a working person, you might be living in a costly area; however, when you become a retiree, you might want to consider moving to a more affordable location.
“That does not necessarily mean selling a home in a major coastal city and moving to a small town in a rural state,” Peterson said. “Many seniors are able to generate a substantial profit on selling their home and moving to a nearby suburb or simply to a smaller place.”
In order to stretch $100,000 through retirement, Ross said it’s never a bad idea to evaluate downsizing to reduce housing costs, often the largest expense category for retirees.
“Exploring places with lower costs of living, perhaps even outside of the U.S., can also make your money go further,” Ross added. “Countries like Portugal and Mexico are popular among retirees for their affordability and quality of life.”
Should retirement be in your sights over the next couple of years, but you don’t have a high income to begin with, there are still ways to prepare to live off $100,000.
“To build retirement savings on a tight budget, start by consistently saving small amounts, ensuring every bit is directed into a dedicated retirement account,” Ross advised. “Explore local programs that assist with financial aid or subsidies for low-income individuals. Keep a keen eye on daily spending, identifying and adjusting to free up any possible extra cash.”
Plan Retirement Benefits
It’s also important to be taking advantage of employer retirement plans.
“Set it up so that the full amount you can save comes directly out of your paycheck. Plus, take full advantage of any match your employer offers,” Peterson said. “If you’re self-employed, talk with an accountant about an Individual 401(k) plan or SEP. You may not have employer matching funds, but you can automate the savings and get applicable tax breaks.”
Find New Sources of Income
Lastly, Ross says it is not a bad idea to find new ways to generate some additional income to keep adding to the nest egg for retirement.
“Consider simple side hustles, like freelancing or selling unused items, to gently boost your income and savings without overwhelming your schedule,” Ross said. “Every small effort counts towards a more secure retirement.”
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