Some useful strategies to ensure you can afford to live long and well
- Simplify your life by focusing on the lifestyle you need
Before you decide how to preserve or grow your accumulated wealth, think about your expenses. In better times, many of us have indulged ourselves without the need to worry much about the cost. But in these times, good planning starts by examining how your money is being spent. You may decide you don’t need the car and garage expenses because you live in a city with good public transport. It may be that the boat and wharf you rarely visit should be discarded. It may be a long time since you scrutinized your habits and their cost, but it can be a salutary exercise when you want to simplify your life, re-directing the savings to more productive use. I urge you, however, to be cautious in deciding what is important to retain and what can be discarded. Your regular visit to the hairdresser, or the dinner at your favourite restaurant may be too important to eliminate. Anything which contributes to maintaining your self-esteem, your pride in appearance and your morale may still be well worth the cost.
- Don't panic, don’t lock in losses.
It can be daunting to keep money in a market that has seen so much trouble, but you do yourself no favours by selling when the market is down. If you absolutely need funds, take a measure of which investments are most likely to recover and which will remain low before deciding which of them to sell. If you can’t tell by yourself, get some advice. A lot of knowledgeable people are going through exactly the same exercise at the moment and what they are deciding can be of use in making your own choices. Have another look at your asset allocation and diversification to make sure it reflects the appropriate level of risk tolerance. Re-examine your long-term investment goal and adjust it for the new realities, then stick with it.
Consider also that low prices may be a chance to acquire some high grade investments at a low cost – the slump means bargains as well as busts. This can be a unique opportunity to acquire equity in firms which are solid and will lead the next recovery. Get some advice and shop well.
- Cut costs and reduce savings withdrawals
It’s time to look at your regular expenses and the withdrawals you are making to meet them. These are different times so there are some activities you may want to reduce in order to favour others. Some of those subscriptions may not be very useful, whereas dining out may be essential to your good mood. You may have to tighten your belt for awhile, but better to do it when you have choices to make. Look also to reduce your investment costs, especially fund management fees. The market has changed for fund managers as well. Give some serious thought to your life expectancy- living as near to 100 as possible has to be financed. You want to live well as well as longer. Some of us get used to a rule of thumb, such as deciding to withdraw 4 percent per year. You will have made such decisions in better times, so look at the situation again, get some advice, and adjust your plan.
- Make sure your health care is insured
One expense you can’t afford to cut is health insurance for treatment and long-term care. Your situation will depend on health care provisions in your country of residence, but everyone needs to make sure their coverage is solid. Unless you are so low or so high on the income scale, long-term-care insurance is one of the best expenditures you can make if you are trying to reduce the risk of running out of money. Without this coverage you can run out of a huge chunk of money very quickly. It’s a simple fact that even those of us who are in good shape physically and mentally will need more health care as we advance in age. The cost of care will become an increasing component of your expenses, and therefore of your Plan. How much you will need over how long a period is of course the flaw in this plan, because you can’t really know. It’s precisely to cover those things you can’t plan precisely that they invented insurance. Before any other expense, make sure you are covered and that your insurance costs are accounted for in the Plan.
- Consider other ways of adding to your capital
Given the tough economic environment, some Baby Boomers should look at the options to still have some revenue from part-time work. There are a lot of social as well as economic benefits to remaining engaged in the world of paid work. Some forms of volunteer and community work offer a small revenue along with the satisfaction of making a contribution to those around you. Most communities have services that match up volunteers with organizations looking for support. Check your local “community service” internet sites to explore what is available. Some forms of work can simply focus on the use of you existing skills. If you had a career as a computer engineer you may find that in the current market there is a demand for someone with your skills, not as a full-time employee but as a paid consultant. Start by considering the professional and intellectual abilities you have to offer, and look at the market where they can be of use. Working from a home office a few days a week can be interesting, and profitable at the same time.
- Avoid borrowing from retirement accounts, delay benefits
If you are approaching pensionable age it’s often best to avoid taking withdrawals from retirement accounts that will trigger penalty fees. In this unsettled economy, you may want to store up retirement payments for the future. The difference between taking retirement payments at 65 rather than at 62 can be considerable.
- Examine the alternatives – maybe real estate is a good bet
The old saw about real estate being a solid investment because they aren’t making any more of it is especially valid in a prolonged economic downturn. There are likely to be more and better properties available as other, younger investors bail out. Depending on which part of the world you live in, there may be opportunities for good investments in real estate. This includes building into your cash flow the “passive” income from rental properties. You know by now that you need to be careful in dealing with real estate promoters and sales people. Armed with that precaution, you can benefit by consulting people who know your market – some of them may be your friends and acquaintances – and taking your time to find exactly the right property for your money, with a potential that fits in your financial plan.
