Top 3 Challenges of a Fixed Income for Retirees

Top 3 Challenges of a Fixed Income for Retirees

In retirement, your only real challenge should be choosing between what umbrella drink you want or what trip to take next. (Pina colada and Bermuda being the obvious answers.) But in between all the relaxing and vacationing, you will need to keep an eye on your bank accounts and investments and keep your cash flow on track since you’ll be living on a fixed income.

With a fixed income comes a few tricky things that can throw you for a loop. To help keep you headed in the right direction (toward Bermuda and its pink sand beaches), here are the top three challenges of a fixed income that retirees face and what you can do to overcome them.

Mental Switch

You’ve been saving, saving, saving for so long. It can be a real mind twister to get your head wrapped around the idea of only being a spender in retirement. This is likely double the case if you retired right before or during the pandemic or are waiting to retire because of the pandemic.

Between the huge but shortly-lived stock market drop in March 2020 and the eventual recovery and record highs, inflation (more on that below) and fears of a recession, supply chain issues, travel interruption, and economic packages signed by two presidents on opposite political sides, it’s been a ride for sure.

Try to relax and remember that this is what you planned, sacrificed, and saved for. It’s best to stay the course, resist making any rash decisions, and stay in contact with your financial advisor. Your advisor will be able to give you a personalized, accurate update on your accounts and suggest any moves you may want to consider. Don’t listen to all of the talking heads or the headlines. Have confidence that you can, in fact, spend the money you’ve put aside and be (more than) OK.


Like the somewhat eccentric neighbor who drives you crazy by not following the unwritten laws of the neighborhood (don’t water your front lawn in your skivvies, don’t leave giant piles of miscellaneous/trashy items in plain site from the road, don’t let your grass grow too tall or leave rows of grass clippings, etc.), inflation is an annoying, mostly uncontrollable force that you can only really give a nasty side-eye.

In November 2021, inflation measured 6.8% year-over-year, which is the highest since 1982. This means prices are up and your cash just isn’t going as far as it used to. The good news is that the Social Security Administration announced a 5.9% cost of living adjustment (COLA) for benefits starting in 2022 – the biggest COLA in 40 years. That will help take out a little bit of the sting of inflation if you are already retired.

If you’re on the cusp of retirement, the increased retirement plan contribution limits for 2022 announced by the IRS, also spurred by inflation, can help you. Investors with a 401(k), 403(b), or other work-sponsored plans can contribute up to $20,500 plus the $6,500 maximum catch-up contribution for those older than 50 for a total of $27,000. Definitely take advantage of that and max out your contributions.

Interest Rates

In today’s financial climate, and partially because of the pandemic and all of the efforts to stimulate the economy, interest rates have stayed pretty close to zero. This means that traditionally safe investments for fixed incomes like CDs (certificates of deposit) and bonds aren’t what they used to be. In the past, you could just live off the interest these bonds generated. That is not an option for you right now.

Plus, people today are living longer. You may need to support yourself just on your retirement savings and investments for nearly 30 years, as medical advances have pushed the average life expectancy for Americans past age 80 and into the 90s for at least one spouse. That can be equally great and scary news. Thirty years is a long time. Just think of how many pina coladas you could sip in that time!

To make sure you can live it up for as long as you live, you and your advisor should talk about the best portfolio mix for you, especially adding any equities that don’t also add unnecessary risk. Insurance solutions like annuities that come with a guaranteed aspect may be an option. Although Uncommon Cents does not sell annuities at this time, insurance products can fit well with certain plans and situations. If you haven’t already, schedule an appointment with your advisor to figure out the best go-to investments as you approach or continue retirement.

Need help? We’re here for you. Get in touch with our Uncommon Cents advisors today to make sure you don’t get tripped up by one of these common challenges of living on a fixed income.


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More About the Author: Sheena Hanson

Sheena is a highly regarded financial expert known for her clear explanations and practical advice on complex financial matters. She earned her CERTIFIED FINANCIAL PLANNER™️ designation in 2010 and holds a Bachelor of Science degree in Finance from the University of Wisconsin LaCrosse.