First Person: We're Ready to Live on Half Our Pay in Retirement

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My husband and I are living on half our income right now, which means we will be comfortable doing the same in retirement. According to a new report from the Economic Policy Institute cited by CNBC, the average senior citizen is living on 57 percent of full pay. In most cases, older Americans are therefore living close to the poverty line. The median income of a household headed by someone who is 65 or older is $35,107 a year, which is 57 percent of the median income of people who in the 45 to 64 age bracket.

In my opinion, people who are 45 to 64 are at their career peak in terms of salary. I know plenty of people in the 18 to 30 age bracket who don't make $35,000 a year. My husband and I are in our early 40s. We are comfortable living on half our income. Here's what we do with the other half of our income as we countdown the next 30 years until retirement.

Paying off our home

When we retire, we don't want to have a mortgage. Instead of spending all of our money every month, we pretend as though we make half as much. Part of our extra money goes toward paying down our mortgage. At this point, we owe $99,000 on our mortgage. By paying an extra $500 each month, we should have it paid off in another 7 years. When we are retired, we will still have to pay property taxes, home owner's insurance as well as home owner association fees.

Retiring without plastic

I know a lot of senior citizens who use their credit cards everywhere including the dentist, doctor, golf course and grocery store. Throughout the years, our older relatives have been able to qualify for more credit. On the downside, they now have to pay hundreds of dollars in interest payments alone. Although they are correct in thinking they won't be worrying about their debt from the grave, they might live longer than expected. By staying out of credit card debt, we can more easily afford to live on a lower income in retirement. We use our extra money to pay off our credit cards each month.

Replicating the pension fund

My husband and I will not have pension funds when we retire. However, we each have 401(k) plans and Roth IRA accounts. We won't have to depend on Social Security alone. I know too many seniors who retired at age 62 thinking they could survive on reduced Social Security benefits. They were paranoid that the Social Security system would go bankrupt and they would be left with nothing if they waited. A portion of our extra money goes into retirement savings accounts.

In addition to living below our means, I also plan to work until I'm 70, I can receive the maximum benefits. According to the CNBC article, women are at higher risk for being economically vulnerable in retirement. Since most women live longer, they need more money to carry them through retirement.

Another way I prepare for my retirement is by becoming educated about investing. I manage all of my own retirement accounts including a Roth IRA, 401(k) and Rollover IRA account. It's pretty simple to use a discount brokerage firm's online trading system. I get most of my ideas about investments by reading the daily finance news on the Internet so I can avoid a bag lady future.

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More from this contributor:

Aspiring to be Comfortable, But Not Rich

Will Gen-X Live Near Poverty in Retirement?

Tapping Our Retirement to Pay for College

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