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    Tips for Comfortably Retiring on a Tight Income

Baby Boomers can still retire, even on a tight income, by taking steps to stretch their dollars! 

Tips, ideas and advice for making Baby Boomer retirement income go further!

 

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Articles for Baby Boomers

Case Study - 50-Plus Baby Boomers Face Difficult Retirement Decisions

No matter how much we plan for retirement, no one can foresee the future. How many anticipated the Great Recession and its lingering after affects, for example? Regardless of the assets we currently enjoy, there is no guarantee that our financial situation will remain static during retirement. All we can do is to mitigate known risks and leave room for flexibility. Let’s illustrate this with an actual example of a Boomer couple coming up on retirement.


Based on an Actual Case Study - Bill and Jane Smith near Retirement


Bill and Jane Smith (not their real names) are Baby Boomers, both 63 years old and looking forward to retirement together. Jane is already a retired college professor who receives a pension and has heart problems. Bill works as a cashier at a nationwide book store chain, mostly to have medical insurance. Both are now eligible for social security benefits, but plan to wait until age sixty-six in order to receive larger payouts.


Recently, Bill’s company has been cutting back as a consequence of electronic books overtaking printed books in sales. Branches are being closed, and the company may be sold. Bill’s hours have consequently been cut, but he is fighting to work the minimum number of hours necessary to retain medical insurance. If he is laid off or his company goes away, Bill hopes that he can land another job to receive medical insurance until he and Jane are eligible for Medicare at age 65.


Asset-wise, Bill and Jane own the condo where they reside in California. It currently has $50,000 in equity, but that figure is diminishing as the real estate market continues its downward plunge. Bill’s 89-year old mother is not expected to live much longer, and upon her death he will receive half ownership in her home. Bill and his brother plan to sell the house and split the profits, with each expected to receive about $150,000. Bill and Jane also have $150,000 in savings invested in mutual funds. So, altogether, they expect to have a $300,000 nest egg for retirement, plus $40,000 to $50,000 in home equity when they retire in two years.


Advice for the Smiths


• If Bill is laid off from his current job, his chances of finding another position that provides medical insurance coverage are slim – no one wants to hire a 63-year-old person in today’s job market. Hence, the Smiths will have to either pay Cobra or other expensive health insurance premiums for the next two years until they qualify for Medicare. They will also have to survive on their savings and Jane’s pension. Taking social security benefits earlier than planned may become a necessity. The Smiths are advised to set aside reserve funds for this possibility.


• Given the volatility of today’s economy, the Smiths’ are also urged to immediately review their investments for diversification and safety. As many older Boomers know, even supposedly low-risk mutual fund investments can disappear overnight! Moving some savings to gold or precious metals may be indicated.


• The anticipated $150,000 inheritance from the sale of Bill’s mother’s house could be used to pay off the remaining mortgage on their condominium. However, this is probably not be the wisest choice, as their condominium project has only eighteen units and its value is closely tied to the amount of reserve funds held by the home owners association, which unfortunately is much less than desired. Thus, a large assessment could be forthcoming just to maintain the complex. And if other homeowners cannot afford the assessment or stop paying monthly dues, the market value of everyone’s condo will drop. Also, given the difficulty of selling a condominium in California today, it may be better to preserve liquidity by investing their inheritance in diversified mutual funds, CDs and bonds rather than tying it up in real estate.


• With Jane’s heart condition, they need to consider how they would address the possibility of medical bills that exceed Medicare coverage or a need for long-term nursing care. Either of these situations could quickly gobble up their savings. Since the cost of long-term care insurance is typically prohibitive, consultation with a financial advisor is suggested to determine how to best protect their financial assets should they one day have to resort to Medicaid coverage for Jane’s long-term care.


• Bill and Jane should also research home-based businesses and launch one before their planned retirement date. This can provide a means to both handle possible increased insurance premiums and then later supplement their retirement income after they qualify for Medicare.

 

Summary


What all this illustrates is that even older Boomers with some savings and financial assets still face the risk of seeing their retirement plans disrupted by events outside their control. Whether due to job loss, health problems, accidents, or forces of nature (earthquake, flood, tornado, etc.), our lives can change overnight. The best retirement planning advice, therefore, is to develop realistic plans based on anticipated assets while maintaining the flexibility to respond to unforeseen or evolving circumstances.


About The Author


Al Kernek is a Internet marketing consultant, author and Baby Boomer. Learn more about resources available to Baby Boomers seeking to retire on a limited income at www.BabyBoomerLifeboat.com and discuss Boomer issues at our blog, Baby Boomer Muse.

 

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