For senior retirees, careful budgeting is of paramount importance because most are on a fixed income.

Unfortunately, millions of seniors can’t quite make the numbers work. A report last May from the Employee Benefit Research Institute revealed 41% of older households spent more than their income over the course of the year. The same research revealed median spending for single and retired individuals exceeded median income by $3,000.

This troubling data means more than four in 10 retirees are in serious danger of financial disaster.

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Too much spending is an especially big problem for retirees

Spending that exceeds income can be a big problem no matter how old you are, but it’s an especially serious issue for seniors because most retirees have a finite amount of money coming in. There’s usually no way to increase it unless they draw down investment accounts too quickly and risk running out of money or find a job, which is impossible for many older people – especially those facing health issues or who have been out of the workforce for a long time.

If you can’t or won’t take more out of savings and you spend more than you have, you’ll probably end up in debt. You’ll have to use a portion of your future funds to pay back your creditors with interest. That reduces the cash available for expenditures, thus making it harder to live on what you have coming in.

If you face shortfalls again because you spend too much on debt payments, this will lead to borrowing more and making your financial situation even worse.

How you can cut costs as a senior

If you’ve outspent your income, or you’re at risk of doing so, you need to act quickly to cut costs.

For many seniors, overspending happens because of health care. Making sure you sign up for the right Medicare plan during open enrollment can help you keep costs down. If you need a lot of care, it can make sense to pay higher premiums up front for a more comprehensive Medigap or Medicare Advantage policy that reduces expenditures during the year.

Overspending may occur because you’re trying to remain in an area with a high cost of living or in a home you can’t really afford without a steady paycheck. Relocating to a cheaper place or simply downsizing to a smaller house could make a huge difference.

You should take a close look at your budget to see whether you devote too much to discretionary expenses such as entertainment or travel. If you have a costly vehicle, selling it and getting a cheaper car (or eliminating a vehicle altogether) could make a big impact.

If you still fall short, you may want to look into whether you can qualify for any government help such as Medicaid to defray health care expenditures or Supplemental Security Income to provide extra cash if you have very little money coming in.

You can avoid becoming one of the older households facing a financial shortfall

The best way to avoid a financial shortfall as a retiree is to save up a significant retirement nest egg. if you have lots of money in savings, your investments should combine with your Social Security benefits to produce enough to live comfortably.

Unfortunately, if you’re retired and find yourself overspending, it may be impossible to increase your savings to avoid financial disaster. In these circumstances, it’s best to make big lifestyle changes quickly to cut costs. The longer you wait to downsize, the more quickly your funds will dwindle and the more financial trouble you’ll face when you can least afford it.

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