Need to Cut Expenses While on Social Security? Here’s the First Thing to Get Rid Of
Retirement brings new financial challenges, particularly when Social Security makes up all or most of your income. To ensure a good quality of life later on, it’s vital to cut spending now.
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What’s the best place to start? Housing. By eliminating or reducing mortgage payments and other home-owning costs retirees can fund a better lifestyle as they age.
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Housing costs represent the biggest expense for retirees. They amount to roughly 25% of spending for Americans 65 years and older, according to Rand.org. For the 40% of older homeowners who still have a mortgage, that percentage is usually far higher, according to a report from the Joint Center for Housing Studies of Harvard University.
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In 2021, older mortgage-holders had median monthly housing costs of $1,470 compared to homeowners without mortgages, who payed a median of $520, and renters, whose median monthly housing costs are $940, according to the 2021 American Community Survey.
This is why it makes sense for retirees and soon-to-be retirees to downsize their homes, or even consider relocating to less-expensive regions. By minimizing or eliminating mortgage payments, those on a fixed income can save for expenses that are likely to increase as they age: namely, healthcare costs. Fidelity estimates that annual average healthcare spending nearly doubles for individuals between 55 and 75 and that a retired couple over 65 will spend $300,000 on healthcare throughout retirement.
Not only does owning a cheaper house reduce mortgage payments, but it also means spending less on maintenance. Home repairs are retirees’ single most common unexpected expense, according to the Society of Actuaries, though this financial surprise can be mitigated by having less house to upkeep.
Downsizing to a cheaper home can also translate into more retirement savings. According to research by Vanguard, those aged between 60 and 69 have the highest potential to unlock home equity through relocation, which can be used to inject more money in a retirement nest egg — a useful source of cash for those on a limited income.
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A smart relocation can also mean mitigating other major expenses that can eat up social security earnings. For example, moving somewhere with good access to public transport can eliminate the need to own a car–another major expense for retirees. The American Automobile Association puts the yearly estimate of owning a car at over $12,000 — a prohibitive expense for the half of Americans relying primarily on social security.
“Driving can become more challenging with age,” noted Anna Annecca, Senior Care Expert and Clinical Operations Leader with Assured Allies, adding that retirees should look to live in towns that provide easy access to reliable transportation. “Choose locations that are well-connected to major transportation lines,” she said.
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This article originally appeared on GOBankingRates.com: Need to Cut Expenses While on Social Security? Here’s the First Thing to Get Rid Of
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