From May 2021 to May 2022, the Consumer Price Index for All Urban Consumers increased 8.6 percent, the largest 12-month increase since the period ending December 1981. If you are a senior living on a fixed income in 2022, this is pretty scary news!
While social security once was able to support a comfortable lifestyle for retired workers, 2022 has brought a new beast upon our elderly- inflation. Yes, there have always been inflation risk factors, however, the market volatility of our essential goods have created a scenario in which seniors on a fixed income are scared for their livelihood.
While there are many categories and types of fixed income, at the end of the day, the results are the same. Any person living on a fixed income is limited to an allocated amount set by the federal government.
The problem here is that prices are drastically increasing, and fixed income rates are remaining static. Folks living on a fixed income have little to no opportunities to raise money for themselves due to ageism. So how do they make that money spread?
How can a senior citizen manage or raise capital in a world with few options? That’s what we’re about to show you. Below are a couple of tips from financial advisors and financial institutions who understand the money market in ways we don’t learn in school. You have options!
Get Extra Cash
First and foremost, most brokerage services and anyone working for a financial institution will advise you to consider a Reverse Mortgage.
A reverse mortgage allows you to essentially sell your home back to the bank while you still live in it. Instead of paying a mortgage, the bank takes the principal value of your home compared to the current market price. They subtract the remaining loan debt securities and give you money in exchange for ownership of your home. You will no longer OWN your home, but you can be paid to live in it.
Most people do not realize whether or not they will qualify for a reverse mortgage; it’s important to know if you’ll qualify for one, or if you only qualify for one particular type of loan. A financial planner can help you determine whether you prefer a fixed rate or a lump sum.
Let’s be honest here. Money pays the bills. It keeps power flowing through your house, it puts gas in your car and food on your table. Without these, life is harder, and “happiness” is replaced by anxiety, worry, and stress.
When you decide on a reverse mortgage plan, that extra money will help take care of those necessities. Whether you have supplemental income or not, that extra cash from your payout will at least give you a less stressful lifestyle.
A reverse mortgage can be a sound financial option for many seniors, but there are certain steps you should take before receiving a reverse mortgage to ensure that you’re getting the right one for the future. These financial decisions are best determined with the help of an advisor who can help you get the best-fixed amount for your needs.
Spend Less on the Little Things
Another way to ensure that your fixed-income portfolio stays steady and manageable is to cut back on your spending and avoid big purchases.
While spending less and avoiding big purchases go hand in hand, it’s important to note that although you may start to have extra cash flows due to your new reverse mortgage, it is unwise to spend it all in one place!
Your goal is to fight inflation and use the extra money to secure a comfortable lifestyle for yourself that will last through the years! Don’t get us wrong- you should ABSOLUTELY treat yourself, but limit the extravagant spending to experiences vs “things.”
Strategically Choose Your Living Situation
As interest rates rise, your fixed-income security can begin to dwindle while you remain in your home. If you have opted out of the option to take out a reverse mortgage, and are open to relocating, one way to spread your fixed-income monies is to downsize your home.
Gone are the days when a three-bedroom house was a necessity for the all-American family. With the emerging markets of houses increasing, you could easily sell your home for more than your original loan. If you are an empty nester, consider exchanging your large two-story home for a smaller townhouse. This will allow you to save on house expenses and pocket some extra cash along the way!
Convert Savings Into Income
One benefit to being on a fixed income is that you can invest in fixed-income investments-this includes government bonds as well as corporate bonds.
Bond investors within the stock market carry potential tax benefits for fixed-income investments. When considering fixed income investing, it’s important to understand the fixed income securities as well as the interest rate risk.
For example, principal and interest payments are prey to inflation as well as interest rate risk. These risks mean that when interest rates rise, your interest income potential could fall.
However, with great risk, comes great reward! Fixed income markets often come with less risk than traditional bond funds. Because of fixed income assets, your money market funds are distributed as a steady stream of income.
If you should choose to opt for this option of supplemental income, we do recommend consulting with a “fixed income investing specialist” before making any sort of fixed income investment.
Take Advantage of Discounts for Seniors and Retirees
Possibly one of the greatest advantages of age is that you get discounts and special treatment at most places! All you have to do is ASK!
Many restaurants, events, and retail stores offer discounts to seniors. A senior discount is usually about 10% of your total bill, which may not seem like a lot in some cases, but it all adds up!
Especially with the extreme price volatility of everyday objects increasing at a rapid rate, not asking for the option of coupon payments or a senior discount could be considered irresponsible money handling.
Many seniors on a fixed income feel uncomfortable asking for a discount- believe me. NO ONE is judging you! In fact, you’ve earned it!
Conclusion
While you could and should work with an investment manager to create a diversified portfolio, investing involves risk. Fixed-income investors must understand asset allocation and their investment objectives.
A safer route to get you started is to apply for a reverse mortgage. You get to stay living in your home, and you get an allowance of money to supplement your fixed income.
By working with an experienced broker, seniors can learn about their options for managing a fixed income. No matter what financial situation you face, you have options. As we said from the start, a reverse mortgage can help with those extra costs without a lot of risks. The best way to move forward is to speak with a Reverse Mortgage specialist. For more information on your options, give us a call!
