Jan
14
2025

Health Care Costs in Retirement: How to Plan Ahead

By | Budgeting & Goals, invest, Investing, Preparing for Retirement | Comments Off on Health Care Costs in Retirement: How to Plan Ahead

When planning for retirement, people often assume Medicare will cover their medical bills, but in fact many retirees will face out-of-pocket costs that, over time, could reach into the six figures.

While it’s difficult to predict for sure what your actual health care costs in retirement will be — especially in light of today’s longevity — it’s wise to work with a ballpark figure in order to create a safety net of savings that will cover you, no matter what your needs will be in the years to come.

Key Points

•   Planning for retirement should take health care costs into account, such as potential out-of-pocket costs and long-term care.

•   According to research, the average 65-year-old individual may need $165,000 in savings to cover medical expenses in retirement (and double that amount for couples).

•   Medicare covers medical costs such as preventive care, doctor visits, prescription drugs, inpatient hospital stays, short-term rehab, and hospice.

•   Medicare Advantage Plans are Medicare-approved, private insurance plans that may cover medical basics as well as other expenses, such as vision, hearing, and dental.

•   Health savings accounts (HSAs) and long-term care insurance can help pay for medical expenses not covered by Medicare.

Health Care in Retirement

The cost of health care in retirement can be overwhelming. According to the annual Fidelity Retiree Health Care Cost Estimate in 2024, a typical retired couple aged 65 could spend as much as $330,000 in after-tax savings on medical expenses during the course of their retirement.

That figure doesn’t include related health costs such as dental services, over-the-counter medications, or long-term care — which are not currently covered by original Medicare.

Long-term care expenses can be especially onerous, with the median cost of a private room in a nursing home running about $116,800 per year, according to the 2023 Genworth Cost of Care Survey. This, too, is an expense that many people may need to factor into their retirement plans, given the growing number of people living into their 80s and 90s — or longer.

This “new longevity,” as it’s sometimes called, may also lead to additional health-related costs down the line that are difficult to anticipate now, but require educated estimates nonetheless — especially for women, who live on average about five years longer than men.

Recommended: Different Types of Retirement Accounts

How Much to Budget for Health Care Costs in Retirement

To create a realistic plan for retirement, and make optimal financial decisions about investing for retirement, insurance coverage, and the timing of important government benefits — the starting point is to look at how much money will be coming in, and how much will be going out to pay for likely health issues.

Social Security Benefits

While Social Security benefits depend on an individual’s work history, as well as the age when they first file for Social Security, the key thing to know about this source of income is that it’s limited. The average monthly payout, starting in January 2024, was $1,907. And the maximum possible benefit amount is $3,822 per month, for those who retire at full retirement age in 2024, and the maximum possible benefit is $4,018 per month for those who retire at full retirement age in 2025.

Individuals can file for Social Security starting at age 62, generally speaking, but “full retirement age” is 67 for those born in 1960 and later. To get a more accurate estimate of your own benefit amount, go to SSA.gov.

Private Sources of Income

Fortunately, most retirees also have savings or a pension, which can add to their income. Nearly 80% of retirees reported having one or more sources of private income, in addition to Social Security, according to the Economic Well-Being of U.S. Households in 2022, by the Federal Reserve Board.

For example, you may have opened a retirement account like an IRA or an employer-sponsored plan, such as a 401(k), that may offer an additional source of income.

If you’re freelance or a small business owner, you may have a SEP IRA or a SIMPLE IRA — common retirement plan options for the self-employed.

The point is to have a grasp of your income sources in retirement, as well as your anticipated cash flow, so that you can cover medical costs in retirement.

Understanding Health Care Costs

As costs vary considerably depending on one’s region, age, and overall health, it can be difficult to estimate the precise amount to set aside for health care in retirement.

Start by assessing your overall health today, and speaking to your doctor(s) about any chronic conditions, genetic predispositions, and any other risk factors that could impact the care you need as you get older.

Unfortunately, there’s almost no way to predict with any accuracy the types of conditions or care you might need, or what they will cost, when preparing for retirement. But in some cases this thought exercise may help you anticipate some upcoming costs, so you can factor that into your overall estimate.

Of course, not all of your medical costs in retirement will be out of pocket; Medicare (and Medicaid, if you qualify) cover many medical expenses. But this insurance is another expense to factor in.

What Does Medicare Cost, What Does It Cover?

Medicare is a medical insurance program offered by the federal government for those 65 years and older, and those who are disabled. Medicare will pay certain health care expenses in retirement, but with restrictions. Dental, vision, and hearing care, including hearing aids, are not covered by Original Medicare, generally known as Parts A and B.

Also, as noted above: Medicare does not cover long-term care, like an assisted living or nursing home facility.

Note that you must apply for Medicare benefits within a certain window, or risk being penalized with higher premiums. Generally, the Initial Enrollment period begins three months before you turn 65, and it ends three months after the month in which you turned 65. Some exceptions apply (for example, if you have health insurance through your employer, or were affected by a natural disaster).

Be sure to check the terms that might apply to your situation to avoid a penalty.

Understanding Medicare Coverage

The following terms generally apply to those with a modified adjusted gross income (MAGI) over $103,000, or $206,000 for a married couple. If your premium is subject to an income adjustment, it could be as high as $594 per month (though according to the Centers for Medicare and Medicaid Services (CMS), the highest rate generally applies to people with incomes over $500,000, or $750,000 for a married couple).

•   Medicare Part A covers inpatient hospital stays and treatment, as well as skilled nursing care (i.e. short-term rehab), limited in-home care and hospice. As long as you or your spouse had sufficient Medicare taxes withheld through your job (generally at least 10 years), you won’t pay a monthly premium for Part A. The deductible for Part A is $1,632 in 2024 and $1,676 in 2025.

•   Medicare Part B covers outpatient care, preventive care, and visits to doctors. The monthly premium for Part B is about $174 per month, with a roughly $240 annual deductible in 2024. In 2025, the monthly premium for Part B is $185 per month, with an annual deductible of $257.

•   Medicare Part D covers prescription drugs. The monthly premium is about $55.50 in 2024 and about $57 in 2025.

Medicare Part C, or Medicare Advantage Plans, is a bit of a separate case. Medicare Advantage plans are private insurance plans that are Medicare-approved, and may cover vision, hearing, or dental needs, as well as the medical basics and prescriptions covered by Parts A, B, and D. Medicare Advantage plans are optional.

While the Advantage Plans are designed to fill in certain gaps in coverage, you want to make sure the costs are manageable, and that you’re not paying for overlapping policies.

Medicare Costs

In other words, assuming at least one hospital stay that requires you to pay the deductible, the basic cost of Medicare alone is about $4,600 per year. Again, that doesn’t include:

•   Vision care

•   Dental care

•   Hearing care or hearing aids

•   Long-term care

Most people will need some or all of those types of health care as they get older, which could add to your potential out-of-pocket expenses over time, and speaks to the need for some emergency savings.

Other Ways to Pay for Health Care

In addition to Medicare, there are other ways to pay for medical expenses during retirement, including HSA accounts and long-term care insurance.

Health Savings Account (HSA)

When choosing a health insurance plan before you retire, consider one that comes with a health savings account (HSA) that may help you save money for retirement medical expenses. These accounts generally come with high-deductible health plans (HDHPs), and provide three substantial tax benefits:

•   Contribution deductions

•   Tax-deferred growth

•   Withdrawals without taxation for qualified medical costs

The accounts take pre-tax deposits to cover health care costs that are not covered by insurance. The unspent money in an HSA rolls over from year to year. Most important, the money in an HSA account belongs to you, even when you are no longer participating in the original high-deductible plan.

What Your HSA Savings May Cover

HSA funds can be used to pay for a variety of medical expenses in retirement. For instance, prescription drugs, eyeglasses, hearing aids, and other medical supplies can generally be purchased with HSA funds.

Additionally, you can use HSA savings to cover deductibles and co-payments for medical care. Medicare premiums and long-term care insurance premiums can also be covered using HSA funds.

By utilizing catch-up payments and employer contributions, those who are already over 50 can still get the most out of these programs. A catch-up payment of $1,000 per year, in addition to the maximum contribution limit, is allowed for people 55 and older. One can use an HSA to pay for yearly physicals or other preventative exams covered by an HDHP.

A benefit of utilizing an HSA to cover medical expenses in retirement is that the money in the account can be invested, allowing it to increase in value over time. This might be helpful for people who wish to have a dedicated source of savings to cover medical bills.

It’s worth noting that funds in an HSA must be used for qualified medical expenses in order to be withdrawn tax-free. It’s a good idea to consult a tax professional or review IRS guidelines to ensure that HSA funds are being used appropriately.

Long-Term Care Insurance

Another approach to bridge the Medicare gap is to get long-term care insurance. This kind of insurance can provide a monthly benefit for long-term care, either for a few years or for the rest of one’s life.

The expenses of long-term care such as in-home care, assisted living, and nursing facility care, can be covered in part by long-term care insurance. These services are often required by people who are unable to do activities of daily living on their own, such as eating, dressing, or bathing, due to a chronic disease or disability.

That said, these policies can be complex, as well as expensive, and it may be wise to consult with a professional before purchasing coverage.

The Takeaway

Medical expenses can be a large portion of one’s retirement budget. As daunting as it may seem, calculating these expenditures ahead of time and developing an insurance and spending plan will help you save more of your retirement funds for other needs.

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FAQ

How much does the average person spend on health care in retirement?

Health care costs depend on a variety of factors, but on average a healthy person over age 65 could spend as much as $165,000 during their retirement ($330,000 per couple).

How do I prepare for health care expenses in retirement?

A few ways to prepare include making a retirement budget, saving in a retirement account, funding a health savings account while still employed, making sure to get adequate medical insurance through Medicare and/or private Advantage plans once you turn 65. You may want to consider long-term care insurance as well.

How do I save for out-of-pocket medical expenses?

Ways to save on out-of-pocket medical expenses include shopping around for the best prices on health care services, making use of preventive care services to help reduce the need for more expensive treatments in the future, and purchasing insurance to help cover unexpected medical costs. In addition, funding a health savings account (HSA) when it’s offered is a tax-advantaged way to set aside money for health care costs.

Photo credit: iStock/jacoblund

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
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Jan
13
2025

Cheap Winter Activities for Those on a Budget

By | Budgeting & Goals, Financial Topics | Comments Off on Cheap Winter Activities for Those on a Budget

If you think cold-weather activities tend to be expensive (ski trips to the Rockies or snowboarding locally), consider all the fun free things to do in winter. Whether you’re looking for a solo pastime or an outing with friends and family, there are plenty of ways to enjoy winter without spending a dime.

Here’s a look at no- or low-cost places to go and activities to try in the winter.

Key Points

•   Enjoy free outdoor activities like sledding, snow tubing, and winter nature walks to stay active without spending much.

•   Participate in community events such as winter festivals and holiday concerts for affordable entertainment.

•   Engage in indoor activities like movie marathons, DIY crafts, and cooking to save money during cold weather.

•   Opt for budget-friendly winter sports like cross-country skiing and snowshoeing instead of pricier options.

•   Explore affordable date ideas such as visiting museums, cooking together, or playing board games indoors.

Outdoor Winter Activities That Won’t Break the Bank

If you’re trying not to dip into your checking account while having some fun this winter, you’ll have plenty of options. Consider these ideas:

Sledding and Snow Tubing

Sledding is a free fun activity that the whole family can enjoy. Just bundle up with waterproof, well-insulated outerwear, and find an appropriate slope. You will need a sled, and they come in all shapes and sizes. Not seeing one stashed in your basement? A simple plastic disc or oblong sled might cost around $10 to $20 dollars, while a more fancy toboggan or wooden sled might cost hundreds of dollars.

Many ski resorts and local operations offer tubing, which involves riding down a slope on a rubber tire-shaped inflatable. If you can find a snowy hillside and bring your own ride, you could have a free activity. Otherwise, sessions are usually two hours long, and the cost can often be $25 for children. Some resorts impose a height limit of around 42″ or a minimum age typically around five. The cost for adults or teenagers range from $30 to $50. Group rates are often accommodated.

Winter Nature Walks and Photography

Of all the cheap things to do in winter, the simplicity of a winter’s walk on fresh snow is hard to beat. It’s an opportunity to see the landscape in a special, seasonal way. Photographers can take stunning photos, particularly if you can find wildlife, like birds, against the snowy backdrop. That’s a low-cost hobby that’s ideal for winter days.

For those who live in small cities or major metropolitan areas, snowy streetscapes can be equally picture-worthy.

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Indoor Budget-Friendly Winter Fun

If getting outside has been nixed by a heavy storm or bitterly cold temperatures, try some indoor activities to entertain yourself while sticking to the budget you made.

DIY Crafts

Search online for winter crafts, and you’ll likely find no end of ideas that adults and children can try. Many options include holiday ideas to brighten the home or give as gifts. For instance, you may find ideas for holiday wreaths and frosted luminaria or handmade greeting cards.

If you’re more ambitious, set up an area in the home for refurbishing an old piece of furniture. An old painted chest of drawers can look amazing if stripped to show the beautiful wood underneath. Add varnish and new hardware, and you could have a gorgeous new piece to show off. (Or you might turn flipping furniture into a side hustle.)

Another idea for cheap winter activities: Perhaps it’s a good time to get a room painted or take on a bathroom remodel.

Movie Marathons

Need more free things to do in winter? Movie marathons are great when people are happy to be in from the cold. Take your pick from series like Star Wars, Marvel, Fast and Furious, Pirates of the Caribbean, Harry Potter, James Bond, or you might stick with any favorites on Netflix. Retro movie nights (Hitchcock, anyone?) are also a fun way to spend time indoors. The hardest part of movie marathons can be simply deciding what to watch amid the plethora of options.

Movies are a way for friends and families to get off their phones and come together. Plus, popcorn is a cheap snack option.

Recommended: How to Save on Utility Bills

Free Destination Community Winter Events

Most people can find cheap places to go in the winter close to home, what with all the winter festivals, holiday concerts, art and craft shows, and New Year’s Eve celebrations happening. Or if you’re a bit more adventurous and willing to do a bit of frugal travel, check out these unique winter festivals in various parts of the United States, which are among those recommended by Vrbo:

Polar Fest, Detroit Lakes, Minnesota

This event features a Polar Plunge, a jump into the icy waters of Detroit Lake, followed by a pancake breakfast, kids’ games, and activities. Don’t worry, you don’t have to plunge to enjoy the pancakes. There’s also an ice fishing derby, a motorcycle race on ice, a 5K fun run, a professional snowmobile race, and a curling competition.

Cedarburg Winter Festival, Cedarburg, Wisconsin, February

In Cedarburg, Wisconsin, there are various cooking contests and events. Notably, there’s a sled-pulling contest for dog-owners with a willing Alaskan Malamute. You can watch a grand parade, a costumed bed-race on ice, and an ice-carving contest.

Saranac Lake Winter Carnival, Saranac Lake, New York, February

In terms of cheap places to go in the winter, Saranac Lake, New York, hosts an annual winter festival with an expert ice sculptor crafting a stunning ice castle. At night, colorful lights inside the castle create a breathtaking scene. The event also showcases a fun run, a downhill ski race, and a scavenger hunt over 10 days of festivities.

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Budget-Friendly Winter Sports and Fitness

There are plenty of ways to bundle up and get some exercise in winter, whether that means ice-skating at your local rink or learning how to snowboard. Some sports are more expensive than others. For example, if you love skiing, cross-country skiing tends to be more budget-friendly than downhill skiing. And snowshoeing or otherwise walking in the snow with the right footwear can cost way less than a lift ticket, too.

Gear is often the biggest concern and expense for sports and fitness pastimes, and winter is no exception. Here are some tips for winter sports and fitness clothing and equipment that won’t deplete your bank account.

•   Don’t buy equipment until you know you are committed to the sport; rent instead. Ski and snowboarding equipment can be easily rented at the slope.

•   Buy second-hand clothing and equipment, especially for children who can grow so quickly. Check out consignment shops, REI’s online used section, Poshmark, eBay, The Hoarding Marmot, and Geartrade.

•   If you are currently job hunting, a seasonal gig at a resort or fitness center will give you access to the facilities for a budget price.

Affordable Winter Date Ideas

Winter can be a time to cozy up on date night. Here are a few ideas to try over the winter months that won’t blow your budgeting efforts.

Take a Hike

Winter is a wonderful time to get out and hike, particularly after a fresh snowfall. Just wear the right gear and maybe round it out with a hot toddy or hot chocolate.

Play a Board Game or Start a Jigsaw Puzzle

It may be old-school, but fun hours can be spent playing a board game or doing a jigsaw puzzle. Accompany the game with a bottle of wine and some tasty appetizers.

Visit a Bookshop

Stroll the aisles together, sharing old favorites and discovering new titles. Bonus: Many bookshops serve coffee and snacks as well as host author readings. You might also shop for gifts for friends and family while there.

Visit a Museum or Planetarium

Feed your soul with beauty and challenging imagery. Most big cities have free museums or specific dates on which you can view art with no admission fee required. Are you lucky enough to have a planetarium near you? For date night, visit and contemplate the universe together. (If you are starstruck by this outing, try an app like the free StarView Lite, which puts a planetarium in your pocket. All you need to do is point it at the sky, and it’ll identify the stars, satellites, and more above your head.)

Cook a Meal Together

It sounds simple, but one of the most tried and true winter date ideas is to simply cook together. Recipes abound online, and if you skip the pricier steak or seafood options, you can save a bundle. Maybe French onion soup and some crusty bread would be good, or try a pot of chili and enjoy the leftovers together later in the week.

Get Fit Indoors

Challenge yourselves physically together. Indoor activities can be a great option when days are cold and short. Rock climbing is a great example if you have an indoor wall near you. Otherwise, yoga, strength training, or dance classes can be a fun date idea.

Recommended: Ideas for Making Money From Home

The Takeaway

Winter activities don’t have to cost a bundle. Skip the European ski trip, and instead find fun options close to home, like local ice skating, cooking together for date night, visiting a museum, or crafting side by side.
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FAQ

How can I find free winter activities in my area?

Check your local parks department website for free and cheap winter activities. Search online for local media that advertises events. Your local library will likely also have information on local activities also. Another path: Check social media for ideas. There are often accounts sharing no-charge local events.

What are some cheap winter activities for kids?

If you live in an area where snow falls, it can provide a wonderful playground once kids are bundled up. They can build snowmen, go sledding, or go ice skating. Also, many town recreation centers, museums, and art schools offer affordable activities and lessons during winter break, knowing that kids can be out of school and in need of entertainment.

How can I budget better during the winter time?

Budgeting in the wintertime is no different than budgeting at any other time of year. Set a spending budget for your expenses in all categories, and stick to it. Be frugal at the holidays with gift giving. Perhaps the whole family will be willing to abide by a spending cap to help avoid credit card debt. And just because it’s cold out doesn’t mean you need to entertain yourself with pricey movies, shows, and meals out. Cooking something new at home, streaming classic movies, and catching up on reading are all cheap ways to get through the cold season.

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Jan
13
2025

Breaking Down the Different Types of Debit Cards

By | Budgeting & Goals, Family Finances, money | Comments Off on Breaking Down the Different Types of Debit Cards

In today’s cashless society, many electronic financial transactions are done with a debit card. Most debit cards are tied directly to a checking account and withdraw money from it whenever you make a purchase.

However, there are many variations available, such as business debit cards, prepaid debit cards, and HSA debit cards. Understanding the different types of debit cards is important so you can determine which options are right for you and how to use them effectively.

Key Points

•   There are different types of debit cards, including standard, prepaid, business, HSA, EBT, and other specialized options.

•   Standard debit cards are linked to checking accounts, withdrawing funds directly upon purchase.

•   Prepaid debit cards are often available in fixed denominations and can be bought at retail locations; some options are reloadable.

•   Business debit cards linked to business bank accounts help separate personal and professional expenses.

•   Virtual debit cards offer temporary numbers for secure transactions without needing to use a physical card.

Standard Debit Cards

A standard debit card is likely the one that most people are likely familiar with. If you have a checking account with a debit card, your standard debit card will be tied directly to your checking account. When you make a purchase with your debit card, the money is withdrawn from your checking account.

If you attempt to make a purchase with your debit card but don’t have sufficient funds, your purchase may be declined. If you have overdraft protection, the purchase may go through, but you will likely be charged overdraft fees.

Prepaid Debit Cards

Another type of debit card is a prepaid debit card. These prepaid debit cards are often sold in grocery stores, convenience stores, or pharmacies. Prepaid debit cards come in various denominations and often come with a small initial fee that you pay upfront. There are two main types of prepaid debit cards:

Reloadable Prepaid Cards

The first type of prepaid debit card is a reloadable prepaid card. When you buy a reloadable prepaid card, you can usually load it with a specific amount of money at the time of purchase. As you use your reloadable debit card, you can also add additional money to it. You don’t have to worry about overdraft fees when using a reloadable prepaid card, since you are limited to only spending the amount that is available on your card.

Gift Cards

In contrast to reloadable prepaid cards, gift cards are a different debit card variety, one that often comes in a specific preloaded denomination, usually ranging from $10 or $25 to several hundred dollars. Once you purchase the gift card, you cannot add any additional funds to it. You can continue to use the gift card anywhere its network (usually Visa, Mastercard, or American Express) is accepted, but once you have used up the initial funds, the gift card has no value.

Recommended: High-Yield Savings Account Calculator

Teen and Student Debit Cards

There are also debit cards that are targeted to certain demographics and often associated with a specific type of checking account. When you apply for a debit card as part of a teen or student checking account, your debit card will be tied to your account. However, usually anyone who is authorized to make purchases on the account (such as a parent and the child) can use the card.

Business Debit Cards

Another type of specialized debit card is a business debit card, typically associated with a business checking account. Business debit cards can be useful for owners of small businesses, since it helps them keep personal and business transactions separate, as they make purchases for their company, such as buying ad space or paying for supplies.

Recommended: 23 Ways to Make Quick Cash

Virtual Debit Cards

Many banks and other financial institutions support the creation of virtual debit cards. These virtual debit cards are temporary debit card numbers that are tied to your account. So you could leave your physical debit card at home and make purchases while out and about with a virtual debit card stored in your digital wallet. You can also use a virtual debit card to buy goods and services online and in apps.

Using a virtual debit card number can help protect your account from fraud since you don’t have to use your actual account number or debit card numbers when making a transaction.

Rewards Debit Cards

While perhaps not as common as rewards credit cards, there are some debit cards that offer rewards every time you use a debit card online or in a store. While the exact details will vary depending on the bank or debit card program, you might earn cash back, points, or discounts on certain transactions.

EMV Chip Debit Cards

While debit cards traditionally transferred information by way of a magnetic strip on the back of the card, many debit cards today have an EMV chip installed in them. EMV stands for Europay, Mastercard, and Visa — the companies credited with pioneering cards that have encrypted information stored in the chip. These chip debit cards are considered to be a more secure way of transferring personal details.

Contactless Debit Cards

Another way that debit cards transfer information when making a purchase is through wireless technology known as RFID (radio frequency identification). When you tap to pay vs. inserting your card into a reader, you are accessing this contactless technology. Debit cards that support contactless payment are becoming increasingly prevalent as users look for more convenient ways to make purchases.

ATM Cards

When comparing ATM cards vs. debit cards, it’s important to understand the differences between the two. Debit cards allow you full access to your account, including conducting such transactions as making purchases, getting cash back, and withdrawing cash from an ATM.

ATM cards are more limited, only allowing you to complete financial transactions at ATMs. You might withdraw cash, say, or transfer money between bank accounts.

Specialized Debit Cards

While most debit cards are tied to a checking account, there are some specialized debit cards that work in a different way.

Health Savings Account (HSA) Debit Cards

Health savings account (HSA) debit cards are tied directly to a specific health savings account vs. a checking account. If you have a high-deductible health plan, an HSA can offer a tax-advantaged way to set aside money for qualified medical expenses. When you use a debit card that is tied to an HSA, you are responsible for ensuring that it is used correctly on appropriate expenses. Otherwise, you might face taxes and/or penalty fees.

Electronic Benefits Transfer (EBT) Cards

Electronic Benefits Transfer (EBT) cards are given to participants of Supplemental Nutrition Assistance Program (SNAP). These EBT cards allow SNAP participants to purchase food and use their benefits in a more convenient fashion. An EBT card is loaded each month with the participant’s benefit amount and can be used at most grocery stores and other food retailers.

Choosing the Right Debit Card

Understanding what debit cards are can help you choose the right debit card for your situation. Most debit cards are tied to your checking account, so choosing the right debit card comes down to choosing the right checking account. How a bank’s debit card works is one factor in whether an account suits your needs. For instance, some people may prefer a contactless debit card over other options but will also want to look into such bank account features as monthly fees (if any) and the size of the ATM network.

In addition, different debit cards can suit particular needs, such as:

•   Allowing you to save for qualified medical expenses if you have an HSA

•   Paying for business expenses

•   Giving a gift card as a present

It’s always wise to comparison-shop a bit and compare what a few different possibilities can offer you.

The Takeaway

A traditional debit card is generally tied to a checking account, and purchases made with a debit card are deducted from your account balance. However, these may operate differently (some are contactless, for example) and offer different perks, such as rewards. There are several other types of debit cards, too. These include prepaid debit cards, EBT cards, and HSA debit cards. Understanding the different types of debit cards available can help you make the right choice for your needs.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

What’s the difference between a debit card and a credit card?

The main difference between a debit card and a credit card is how funds for a purchase are financed. With a debit card, the funds are removed within a short period of time (often almost instantly) from your bank account. In contrast, purchases made with a credit card are funded as a line of credit with the credit card company. Each charge is posted to your account, and you then have until your statement date to pay for the purchases. If you don’t pay off the debt in full within the specified period, you are assessed an interest charge for the privilege of being extended this credit.

Can I use my debit card internationally?

Whether you can use your debit card internationally depends on the type of debit card you have as well as the policies of your bank or other financial institution. Many debit cards are issued by a major processing network such as Visa or Mastercard, and in most cases you can use them internationally, wherever those processing networks are accepted. If you’re not sure if you can use your debit card internationally, check with your bank before traveling.

Are prepaid debit cards safer than standard debit cards?

Prepaid debit cards come with many of the same fraud protections as standard debit cards. One thing to be aware of is that in many cases a prepaid debit card should be treated as cash. If you lose or misplace your prepaid card, you may not be able to access or recover the money that was on the card. With a lost or stolen debit card, if you cancel it quickly, you can have some protection against unauthorized usage.

Photo credit: iStock/Lordn

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.


Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Jan
13
2025

5 Online Banking Myths & Realities

By | Budgeting & Goals, Growing Wealth, money, Terminology, Tools & Calculators | Comments Off on 5 Online Banking Myths & Realities

Online banking offers a convenient way to manage your money. Plus, online banks typically offer attractive perks like competitive rates on savings and no-fee checking accounts. Still, many consumers worry that online banks aren’t as safe, dependable, or customer-friendly as the big traditional players. Are they right to be concerned?

While all types of banks have pros and cons, many fears about online banks are actually based on misinformation. Below, we debunk five common myths about online banks, and uncover some important truths about online vs. traditional banks.

Key Points

•   Like traditional banks, online banks use state-of-the-art security tools like encryption and multi-factor authentication to protect customer accounts.

•   Though online banks lack in-person customer service, you can get help from a human via phone, online chat, and email.

•   Online banks typically offer a wide network of fee-free ATMs, making it easy to access cash when you need it.

•   Deposits at online banks are protected by FDIC insurance up to $250,000 per depositor, per insured bank, for each account ownership category.

•   Online banks typically offer better rates on savings accounts, but may not offer as many products and services compared to traditional banks.

Myth: Online Banking Isn’t Safe

Security is often the largest concern about online banking, and in a world where we’re constantly hearing of data breaches, that’s a valid consideration. But online banks and traditional banks store your data digitally and both are susceptible to data breaches.

That said, both online banks and traditional brick-and-mortar banks go to great lengths to protect your personal and banking information, including the use of encryption software (which blocks your accounts to unauthorized parties) and multi-factoring authentication (which requires you to enter unique personal information in order to access your account). Many online, and some traditional, banks also offer 24/7 account monitoring, instant card freezes, and real-time alerts so you’re aware of any unusual account activity as soon as it happens.

There are also steps you can take on your own to keep your accounts safe (regardless of where you bank). These include choosing a unique user ID and password, not using public wifi when you access your accounts, and avoiding phishing attempts to get your banking information.

Myth: You Can’t Get Help From a Human

Many consumers like being able to walk into a physical location and speak to a real human when they need assistance. And that’s simply something online banks can’t offer. By nature, there are no brick-and-mortar locations; all customer service is virtual. But that doesn’t mean mobile banking doesn’t come with good customer service.

Online banks typically offer phone-based customer service, where you can easily speak with a live customer service representative when there’s an issue or you simply want someone to walk you through setting up bill pay or making an online transfer. In addition, many offer 24/7 customer service via live online chat (with a human not a bot on the other end), as well as help via email. A lack of physical locations doesn’t necessarily equate with a lack of good customer service.

Recommended: How to Deposit a Check

Get up to $300 with eligible direct deposit when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 3.80% APY on savings balances.

Up to 2-day-early paycheck.

Up to $3M of additional
FDIC insurance.


Myth: It’s Hard to Access Money From an Online Bank

It’s true you can’t visit a bank branch and withdraw money at a teller window. But online banks typically partner with wide ATM networks to offer customers a convenient and free way to withdraw cash from their accounts. Some online banks will also reimburse for out-of-network ATM charges, though you may be capped to a certain max per month.

You can also access money in an online account by transferring it to an account at a different bank or using the bank’s bill pay function. If you have an online checking account, you can use your debit card for purchases and may be able to order checks. Some online banks also offer a peer-to-peer (P2P) payment service, so you can send money to friends and family directly from your bank account.

Myth: Online Banks Aren’t Insured

Like traditional banks, online banks are typically insured by the Federal Deposit Insurance Corporation (FDIC). This means your deposits are protected up to $250,000 (per depositor, per insured bank, per account ownership category) if the bank were to go out of business. Co-owners of joint accounts are each insured up to $250,000 for the total they have in joint accounts at an insured bank.

If you opt for an online credit union instead of an online bank, your money won’t be insured by the FDIC but it will still be protected. Credit unions are covered by the National Credit Union Association (NCUA), which offers similar insurance.

Before opening an account at an online (or brick-and-mortar) bank, it’s always a good idea to make sure it’s insured. You can do this by using the FDIC’s “Bank Find” tool or the NCUA’s Credit Union Locator tool.

Myth: The Big National Banks Offer Better Rates

You might assume big banks offer the best deals due to their size and scale. But it’s more likely to be the opposite: Online banks typically beat out the major national banks when it comes to annual percentage yields (APYs) on savings accounts, with some offering 9x the national average.

How do they do it? Online-only banks generally have lower overhead costs and can pass that savings to their customers in the form of higher-than-average yields. Many of these banks also offer better rates as a way to compete with the bigger players for customers.

In addition to better rates, online banks also tend to charge fewer and lower bank fees compared to the big traditional banks. Many online accounts don’t charge monthly service fees, for example, and some don’t charge overdraft fees, either.

Understanding Digital Banking Features and Limitations

Online banks offer several advantages over traditional banks, which often include higher APYs on checking and savings accounts and lower (or no) fees. They also tend to outshine traditional banks when it comes to technical innovation, offering state-of-the art banking platforms and apps.

That said, digital banking does have its limitations. Here are some downsides to consider:

  No branches: Since they lack physical locations, online banks aren’t able to provide customers a way to interact face-to-face with a teller or other bank representative. They also can’t offer services that require a physical location, such as getting a cashier’s check or renting a safe deposit box.

  Cash can be harder to deposit: It’s not always as straightforward to deposit cash into an online bank account. You may need, for example, to deposit cash at a participating retailer for a small fee rather than at an ATM or use another option, such as depositing your cash into a traditional bank account and transferring it to your online bank account.

  Fewer financial services: Unlike large traditional banks, online banks sometimes aren’t a one-stop shop. Some only specialize in a few types of accounts. While others offer a range of products and services, including credit cards and loans, they generally don’t have as many products and services as the biggest brick-and-mortar banks provide.

Recommended: Pros and Cons of Online Banking

🛈 SoFi only offers ATM withdrawals at this time. For members looking to deposit cash into their SoFi Checking & Savings account, you can follow these instructions.

The Takeaway

Online banks work very similarly to traditional banks. They just lack physical locations to conduct in-person services. They typically offer the same kinds of checking and savings accounts that you may find at brick-and-mortar banks. And since online banks don’t need to maintain and staff physical locations, they can often offer higher interest rates on both checking and savings. While some people are concerned about the safety and security of online banks, you can feel confident that online financial institutions are just as secure as brick-and-mortar options.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Is online banking safer than traditional banking?

Online banking and traditional banking are considered equally safe. Both online and traditional banks generally use robust security measures like encryption, multi-factor authentication, and fraud monitoring to protect customer accounts. In addition, both types of banks are usually insured by the Federal Deposit Insurance Corporation (FDIC), which means your funds will be covered (up to the insured limits) even if the bank were to go out of business.

Can I do everything online that I can do in a physical bank?

You can do nearly everything online that you can do in a physical bank. This includes opening an account, making transfers, paying bills, depositing checks, and managing your account. Many banks also offer one-on-one customer service via phone or online chat. However, certain services like obtaining cashier’s checks, notary services, or large cash withdrawals generally require visiting a physical bank.

How does online banking affect my privacy?

Information that is stored digitally (by an online or traditional bank) could potentially have an impact on your privacy, as online information is susceptible to cyber attacks. However, reputable banks use strong encryption and cybersecurity practices to protect customer data. There are also steps you can take on your own to protect your accounts. These include choosing a unique user ID and password, not using public wifi when accessing your accounts, and logging out of your account after every session.

Photo credits: iStock/AleksandarNakic

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Jan
13
2025

How to Budget on a Fixed Income

By | Budgeting & Goals, money, Money & Life | Comments Off on How to Budget on a Fixed Income

Budgeting on a fixed income can involve carefully reviewing your income and expenses and managing spending to stretch your dollars.

Typically, older adults are the ones living on a fixed income, meaning they receive Social Security payments and/or a pension or rely on retirement savings. They generally receive the same amount each month, though payments may fluctuate slightly due to benefit adjustments or other changes. If you’re living on a fixed income, budgeting can help you avoid overspending and prepare for unexpected expenses. Here are smart strategies to consider.

Key Points

•   Budgeting on a fixed income can involve tracking income and expenses to better understand finances.

•   A detailed budget should include all essential and discretionary expenses, utilizing methods like the 50/30/20 rule.

•   Cost-cutting measures, such as downsizing or limiting discretionary spending, can improve financial stability.

•   Building an emergency fund can provide a cushion for unexpected expenses and enhance financial security when living on a fixed income.

•   Exploring additional income sources, like part-time work, can supplement fixed incomes effectively.

Understanding Fixed Income Budgeting

Living on a fixed income means you know exactly how much money you’re bringing in each month. While your income may be predictable, expenses can be unexpected. You might need, say, a roof repair or want to help with a grandchild’s summer camp costs one year. That’s why a budget for seniors on fixed income can be so important.

Creating a budget will give you a comprehensive understanding of the money you have coming in and going out of your checking account. You can track your spending, set aside money for emergencies, and monitor your monthly bills.

You might also identify areas where you can cut back to cover an unforeseen expense or keep up with inflation.

Assessing Your Financial Situation

Making a budget allows you to assess your financial situation. Along with tracking your income, you’ll want to make a record of all your expenses.

This component of your budget might include:

•  Housing costs (rent or mortgage)

•  Utilities

•  House, car, and health insurance

•  Medical costs

•  Transportation

•  Groceries and dining out

•  Debt payments

•  Subscriptions and services

•  Clothing

•  Travel

•  Savings

•  Gifts and charitable donations

Some of these expenses may fall into the essential category (housing, food, and health insurance, for example), while others may be considered discretionary (such as clothing and travel). If you’ve found yourself financially overextended, consider whether there are any areas where you could cut back.

You might also explore specific types of budgeting methods, such as the 50/30/20 approach to budgeting. This strategy involves allocating 50% of your after-tax income to needs, 30% to wants, and the remaining 20% to savings or additional debt payments.

To help you with this budgeting technique or another one, you could use a spreadsheet, work with an online calculator, download a budgeting app, or create your own budget planner to track your expenses.

Recommended: 50/30/20 Budget Calculator

Creating a Detailed Income Statement

An important step in this budgeting process is delving into your monthly income. Your sources of fixed income could include:

•  Social Security benefits (you may sometimes hear this referred to as OASDI, or Old-Age, Survivors, and Disability Insurance payments)

•  Supplemental Security Income

•  Pension benefits

•  Withdrawals from a 401(k) or 403(b) account

•  Withdrawals from a traditional or Roth IRA

•  Withdrawals from brokerage or other investment accounts

•  Interest and/or dividends from assets

•  Passive income from a rental property or another source

In addition, you may have some earnings from work you do, such as a seasonal or part-time job. Factor that in, too.

Take note of how your income might change, as well. A couple of points to consider:

•  Government benefits like Social Security, for example, undergo an annual cost-of-living adjustment. Also, if you are claiming Social Security benefits but are younger than full retirement age, you might also receive a lower benefit if you’re earning income above the yearly limit (in 2024, it was set at $22,320).

•  If you’re withdrawing money from investment accounts, the amount may fluctuate depending on the performance of the stock market. Although these changes are unpredictable, they’re worth tracking and recording in your budget plan so you can respond as needed.

One of the most common budgeting mistakes is not adjusting the cost of your expenses, so make sure to update your budget as you go. Rent, health insurance premiums, food costs, and more can shift, and it can be important to stay attuned to that.

Cutting Costs and Saving Money

About 40% of older Americans receive income solely from Social Security in retirement, and the average benefit is currently $1,784 per month. This amount can be challenging to live off of, especially when costs are rising due to inflation.

If you’re looking to reduce your spending, here are a few steps you can take:

•  Downsize your home: About half of seniors move into smaller homes after they retire. Downsizing could significantly decrease your housing costs and utility bills.

•  Reevaluate your transportation needs: If you’re spending a lot on car payments and insurance, consider whether you can switch to a less expensive vehicle or swap your car for public transportation.

•  Limit discretionary spending: Shopping, travel, eating out, and streaming services can add up. Review your discretionary expenses to see if you can limit your spending or cut out some costs entirely.

•  Seek out senior discounts: From groceries to movies to museums, find out if you can save with a senior discount. You may be pleasantly surprised to find that some discounts begin well before age 65.

•  Look for assistance programs: If you’re facing financial hardship, you might qualify for assistance. The government may help cover medical costs via Medicaid, for instance, while patient assistance programs can help out with prescription medications. The Supplemental Nutrition Assistance Program (SNAP) program offers assistance for groceries. This BenefitsCheckUp tool from the National Council on Aging can help you find other programs that offer assistance and benefits.

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Building an Emergency Fund

After years of saving for retirement, you might think your savings days are behind you. However, having an emergency fund can be a crucial lifeline if you run into a big surprise expense, especially when you’re living on a fixed income.

Consider setting up a high-yield savings account and automating the deposit of a portion of your income into it each month. With a high-yield bank account, your savings will be accessible when you need to withdraw them and earn a competitive interest rate when you don’t.

Planning for the Future

Although you may be living on a fixed income, it’s wise to keep an eye on how your financial needs can shift. Those who are retired or semi-retired may want to consider the following:

•  Long-term financial planning: The specific amount of income you receive could rise or fall in the years ahead. Consider how adjustments to your cost of living might impact your Social Security benefits, for example, or how much longer you plan to work if you have a part-time job.

•  Healthcare considerations: If your expenses increase due to healthcare needs or other factors, consider whether you can take larger withdrawals from your retirement account or set up another income source. Investors may look into rebalancing their portfolios to ride out a volatile stock market.

•  Estate planning basics: Estate planning may also be top of mind as you get important documents in order and consider how your assets will be handled in future years. All of this planning can become complex, so you might consider working with a financial advisor.

The Takeaway

Budgeting on a fixed income can help you stabilize your finances and achieve peace of mind. By tracking your income and expenses, you’ll have a clear understanding of the money you have coming in and going out each month. You might also identify areas where you can cut costs, as well as monitor your progress toward building an emergency fund, paying off debt, or reaching another financial goal.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

How can I save money on a fixed income?

Learning how to make a budget can help you save money when living on a fixed income. You can use your budget to identify your recurring expenses and cut any non-essentials you find. You might also consider downsizing your home, swapping out your car for a less expensive vehicle or public transportation, and seeking out senior discounts and deals.

What if my fixed income doesn’t cover all my expenses?

If your fixed income doesn’t cover all your expenses, you can try reducing your spending, increasing your income, or both. You might also explore assistance programs from the federal government, your state, or a local organization.

Are there government assistance programs for fixed income individuals?

There are government assistance programs for fixed income individuals on both the federal and state level. The Supplemental Security Income program provides payments to disabled, blind, or elderly individuals, for example, while the Low Income Home Energy Assistance Program (LIHEAP) can help low-income individuals pay for heating and cooling their homes. The SNAP program offers grocery assistance to low-income individuals.

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SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

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