The markets continue to fall and nothing the President says or does is helping. The investing news for baby boomers cannot get much worse. I don’t even want to calculate the market returns and time that will be needed to bring our retirement nest egg back to where it was a year ago.
Shall We Take More Investment Risk?
One option to consider in situations like this is to move remaining retirement funds into more risky investments. Some would call this the “double-down” strategy. I am not interested in this strategy. I am taking enough risk just by leaving money in the markets while they crash all around us. I am not putting new money in the market, however, because there are no signs that a bottom has been reached or is even in sight. I am concerned that about what will happen when the government announces plans for GM and Chrysler.
No, taking on more risk will not get us to where we need to be financially.
Maintaining a Boomer Lifestyle
At this point, we cannot be overly concerned with the “when” part of retirement. External conditions are currently dictating that. That could change but I doubt anytime soon. Instead, I am more concerned about lifestyle disruption. I’m not talking about luxuries but the more basic costs of day-to-day living.
I want to position our financial plan so that continuing deterioration of the economy doesn’t force us into drastic cuts that could further impair our outlook. Of course, unemployment would do that anyway so I am assuming in this financial plan that I could remain employed but perhaps with reduced income.
So to me the key lifestyle maintenance strategy when facing difficult times is to cut expenses in a way that does not substantially impair lifestyle.
Cutting Waste and Low Impact Expenses
So how does one cut waste and other expenses that I define as “low impact” as in cuts that don’t really hurt?
We have already reduced one source of recurring wasteful expense: we cut out a mortgage payment. The “wasteful” part is at least the mortgage interest. For some, the principal part of the payment could also be considered “wasteful” if the homeowner is deeply “underwater”, i.e., in a serious negative equity situation.
I want to go beyond being mortgage-free. These are our current spending components in which we intend to pursue reductions in a way that should not meaningfully impair our overall lifestyle:
1. Land line telephone. We each have cell phones. Most of the calls we receive on our land line are from solicitors. As I see it, the only other reasons to keep the land line are: (a) many family members and service providers have this number in their records; and (b) in an emergency, a land line can function when a cell phone cannot. Neither of these reasons are enough to persuade me to keep this expense.
Estimated Savings: $40/month
2. Cable television. Our cable TV bill is obscenely high because it still reflects conditions that existed when we had our three sons living at home. Now we have only one son at home, and that is only when he is home from college. We have three cable boxes, two with HD and DVR capabilities. We only need one, at most. We have way too many premium channels. Plus, there are lots of free TV shows available online. Definitely some cutting that can be done in this area.
Estimated Savings: $75/month
3. Car Insurance. We have used Geico to insure our vehicle for at least 20 years. We intentionally have not investigated other carriers because we had three teenage male drivers, one of whom had a sketchy history behind the wheel. Geico was very good to us through this time and we did not want to rock the boat, if you know what I mean. Our youngest son is the only one on our policy now so it may be time to explore other options. Our oldest son (the one with the dings in his driving record) just switched from Geico to Progressive, saving close to $100/month. We need to move on this – very soon.
The other part of car insurance cost savings is in our collision coverage, comprehensive coverage, and deductibles. The newest of our vehicles is ten years old. I think we can cut some coverage without adding real financial risk.
Potential Savings: $100/month
4. Life Insurance. We are paying on a term policy for my wife which we don’t really need anymore. We also have cash value policies on the three sons. I am saving those policies for retirement income. I think I can cause those premiums to be paid from policy dividends instead of from our cash flow.
Estimated Savings: $75/month
Summary of Lifestyle Preservation Savings
If we successfully implement all of these savings, we have an additional $290/month to either invest (if income is maintained) or to preserve other lifestyle items if our income decreases.
If we are fortunate enough to invest that $290/month, I would put the money into an inflation-protected, secure investment such as I-Bonds. Recently, these have been returning 5% for us. If I can maintain that return over five years, that’s another $19,804 in our retirement nest egg. I would probably make this money part of our retirement emergency fund.
To estimate your own long term savings, you can use this savings calculator.
(By the way, a great place to find a wide variety of financial calculators is Dinkytown.net)
Other Cost Cutting Tips
The AARP recently published a checklist of different ways for boomers and seniors to cut monthly expenses. Some of them would probably cramp your lifestyle a bit but they are all worth considering.
What ideas do you have for cutting expenses without really cutting your lifestyle?
Photo credit: R Marinello