Professionals say that retirement income should be 60-80% of current income to maintain the same standard of living. If your financial picture does not correspond to this guideline, you might prepare a budget and a cash flow statement based on income and expenses during the preceding 6 to 12-months in order to identify gaps in income and find ways to cut spending.
On the expense side:
- List current expenses such as housing, food, health care, transportation costs, and other financial obligations.
- Include a contribution to savings. Experts recommend a reserve fund to cover 6 months of basic expenses.
- Itemize personal expenses for such things as clothing, travel, entertainment, and hobbies.
- Develop habits such as price shopping, menu planning, coupon dipping, and monitoring your use of credit to guard against overspending.
- Think through contingency plans in case expenses begin to outpace income or one partner becomes seriously ill.
- Remember that credit histories in your individual names can be invaluable in retirement, or in the event of widowhood or divorce. Credit can be essential to meet unexpected or emergency expenses.
Federal regulations prohibit age and gender discrimination in the granting of credit. Lenders must treat all income alike, whether from employment, retirement benefits, or other reliable sources. Still, it may be easier to get a national credit or charge card in your own name while you are employed. If you have never been employed, you can still build a credit history by becoming an "authorized user" on your spouse's account.
Consider selling your assets or converting life insurance in to cash-value life-insurance as a way to meet expenses.
- Investigate Home Equity Loans as an option if you own your home and need money. There are several kinds of home equity loan plans, including Deferred Payment Loans and Reverse Mortgages, where you borrow against home equity and receive monthly or regular cash payments.
Unlike home equity loans or lines of credit, reverse mortgages involve no monthly repayments as long as you live in your home or until a predetermined date. These plans do involve costs for application fees, closing costs, and interest, and they may affect eligibility for public benefits programs such as Medicaid. Generally, you can decide how to spend the money. Reverse mortgage plans are not all the same, so it is important to read the loan documents carefully. Check with a trained HEC counselor, other financial advisor, or an attorney before deciding whether home equity conversion is appropriate.