For retired folks on fixed incomes, setting and sticking to a budget has never been more critical. Even though their income is limited, their expenses are not. Health costs, for example, can be wildly unpredictable for folks over 65. Gasoline prices keep bouncing up and down. And with inflation still off to the races, food costs are higher than ever.
If the past is any predictor of the future, there’s lots of budgeting work to be done. Some 24 percent of Americans age 58 and older failed to stick to their budgets in 2022, according to a December survey of 1,000 Americans by Credit Karma, the consumer financial platform. Just as concerning, 26 percent of those surveyed didn’t save any money over the past year. And perhaps most worrisome of all, 17 percent racked up unexpected credit card debt, mostly due to unpredictable health expenses.
AARP Membership — $12 for your first year when you sign up for Automatic Renewal
Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP The Magazine.
What to do? First and foremost, set and strictly keep to a budget in 2023, say three experts interviewed by AARP who regularly consult with older folks on how to manage annual budgets. “It may sound obvious, but everything else is based on that,” says Courtney Alev, consumer financial advocate at Credit Karma. “Setting a budget can help you avoid a lot of financial mistakes and bad habits.”
Here are the 15 best budget-setting tips for 2023:
It’s impossible to set a budget without knowing precisely how much money you’ll have coming in, says Trent Graham, program performance and quality assurance specialist at Greenpath Financial Wellness, a nonprofit organization that provides free budget consultations to those in need of assistance. To do this, you trace and project all sources of where your cash will come from over the next year. This includes Social Security payments, pension payments, any work income and income from investments.
This is harder than it sounds. The best way to do it is to go through your bank statements and categorize your expenses like housing, utilities, groceries, health care, and discretionary spending such as eating out and travel, Graham says.
The National Council on Aging has created a special online budget checkup tool for older adults called the AgeWellPlanner. It’s specifically designed for folks 65 and up who don’t know how to create an annual budget, says Genevieve Waterman, director for economic and financial security at the National Council on Aging. AARP’s Money Map is also a great budgeting tool; no membership is required.
Regardless of your financial situation, it’s smart for older folks to educate themselves about any benefits for which they might qualify, Waterman says. The best way to do this, she says, is through the council’s free online tool, BenefitsCheckUp. Americans leave more than $16 billion in government benefits for which they qualify on the table every year, she says. For example, she says, the tool can help link you with local programs that can financially assist older folks who are struggling to pay real estate taxes.
Since most retired folks are on fixed incomes, it’s critical to figure out your spending limit, Alev says. She recommends that after you have figured out all of your essential costs, you add up to 20 percent for things that include unexpected costs, savings and paying down existing debt. She generally recommends a budget that includes 50 percent toward essentials, 30 percent for “wants” and 20 percent for unexpected costs.
Americans’ credit card debt is the highest it’s been in 30 years, Alev says. It’s extremely expensive — with variable rates from 16 percent to 27 percent on various cards, she says. The biggest financial trap that older Americans typically get into is using their credit cards as supplemental income, Graham says. “If you use your credit card, make certain you have the funds available to pay it off at the end of the month,” he says.
To avoid missing any bill payments and harming your credit, put all of your recurring bills on autopay, Alev says. This includes all utility bills, as well as bills for auto, home and life insurance. Virtually every bank has a customer service line that can walk you through how to set up autopay, she says. Set up the autopay for at least five days prior to the bill’s due date, she suggests.
With so many financial scams targeting older Americans in particular, it’s wise to place a hold (or freeze) on your credit with each of the three major credit bureaus; Equifax, Experian and TransUnion. This will not affect your credit score, but it will stop any scammers from opening credit cards in your name, Alev says.
Unexpected health care costs are where most older Americans fail in setting up annual budgets, Graham says. So it’s critical to have ample emergency funds put away specifically for health care costs, he says.
Check your bank statement for absolute clarity on what subscription services you are paying for monthly and then determine which ones you are actually using and which ones you can drop, Alev says. This includes everything from streaming services to gym memberships to newspapers and magazines. In the end, says Alev, ask yourself this question: “Which ones are improving my life?” Only keep those that do.
The National Council on Aging encourages older consumers to review their insurance providers annually. Many offer senior discounts as well as “paperless” discounts, Waterman says. The industry is extremely competitive, and it’s always worth phoning other insurance companies for quotes, she says.
In the recent Credit Karma survey, 41 percent confirmed that they regularly waste food purchased from the grocery store and 37 percent said they were either eating out or having food delivered more than they wanted to, Alev says. “A couple of extra food deliveries per month can almost double your food budget,” she says. “If you have groceries in the fridge, it’s best to use them before you order in more food.”
Most retired folks will receive an 8.7 percent cost-of-living increase in 2023. Instead of spending that, put it aside each month in your savings, Graham suggests. That way you’ll have emergency funds readily available.
Older folks pass up potentially hundreds of dollars in savings every year by failing to take advantage of special discount programs that many retailers have set up specifically for them. Many grocery chains offer these discounts, Waterman says. For example, on Thursdays, through its Club 60 program, Harris Teeter offers VIC card members age 60 and up discounts of 5 percent.
When creating a budget for 2023, the single best thing to do first is to review your old budget and figure out anything and everything that you can instantly trim, Waterman says. “We get caught up in what is actually necessary vs. what is a want,” she says. Some of those wants can easily be nixed, she says.
JOIN FOR JUST $16 A YEAR