5 Steps to a More Affordable Retirement

As your retirement approaches, you’ll likely face hurdles of how to afford your lifestyle — or something close to it — on a limited, reduced income.

But living frugally in retirement doesn’t have to mean reducing your quality of life. Instead, it should be about focusing on the things that are really important to you and ensuring you have a good grip on your finances to pay for them.

(MORE: Prepare Your Finances to Live to 100)

To avoid spending more than you’re taking in during retirement, consider these five tips:

1. Find an affordable city to live in. If you’re not set on retiring in your current home, look into relocating to a place that boasts low housing costs. Not only will that save you money, the new area will provide an invitation to try out new things and experiences, including local arts and culture, restaurants, stores and leisure activities.

There are a variety of websites and online calculators to help you research areas to live. For example, Forbes, Money, U.S. News and AARP have lists describing great retirement locales. Money also has a calculator to compare living costs in cities.

(MORE: How to Choose Your Best Place to Retire)

Moving to a state that doesn’t tax personal income can also be a huge savings in retirement. Seven states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. (New Hampshire and Tennessee have no state income tax, but they do tax interest and dividends.)

If you plan to move, consider downsizing into a condo or loft to save on rent or a mortgage.

2. Plan a retirement budget before you stop working full-time. Set reasonable spending targets to ensure you’ll be living happily, but not extravagantly. That way, you’ll be able to build up savings to pay for future vital costs such as health care. Once you make your retirement budget, stick to it.

3. Plan now for possible future long-term care costs. Health expenses in retirement can be huge, but they’re often left out of retirement planning altogether. A Fidelity study recently found that the average 65-year-old couple will need an estimated $220,000 for health care costs in retirement.

(MORE: 5 Ways to Avoid High Retirement Health Costs)

But that estimate doesn’t even include long-term care, a sizable expense shouldered by 7 of 10 Americans over age 65. Many people think their health insurance or Medicare will pay for long-term care and are shocked to learn that generally isn’t the case.

Long-term care insurance policies can help hedge your risk. If you're able to afford the monthly premiums, buying a policy in your 50s or early 60s might be a smart investment to tamp down potential retirement costs.

4. Avoid credit cards as much as possible. Their steep interest charges — these days, often around 16 percent — represent a punishing expense that you'll want to avoid or at least reduce.

So consider cancelling any cards you can; keep one card for things like rental cars.

5. Work part-time. Taking on a semi-retirement job will add a bit of extra income to your nest egg and stop you from digging into savings.

Working in retirement can also keep you mentally strong (as a recent study found) and more agile. So snagging a part-time job might pay dividends by helping you prevent cognitive decline and reduce the chances of a large hospital bill.

Barbara Davis frequently writes on such topics as health care and retirement for sites including 50plusfinance, Stuffseniorsneed and Next Avenue. She also takes great pride in the work she does for Compare Long Term Care.