Planning For Retirement? 5 Financial Tips For The Boomer Generation

by Jacques Sprenger on March 11, 2009

You may be a “young” retiree, say around 55 years old, wondering what’s about to happen under present and future market conditions, to say nothing of the tremendous recession we are currently experiencing. I’ve got a few questions myself, about our present economic situation, and have checked with some financial experts who recommend the things we should and should not do during this time. Should I tinker with my precious nest egg? Should I worry about my 401k? Where are some of the best places to put my money now that the stock market has tanked?

planning for retirement, financial tips, boomer generation

Planning For Retirement? Some Financial Tips For The Boomer Generation

Having reflected on some of these matters myself, I thought to share a few personal finance tips that I’ve come across, with those who are approaching retirement age.

1. Think about retiring later.

Linda Stern of Newsweek recommends first of all that retirees should have at least “5 years of living expenses in safe, liquid spots, like online bank accounts, high yield savings accounts, money-market funds and CDs.” If you decide to retire early, you cannot draw on Social Security yet; you have to wait until you are at least 62 — the earliest age allowed — in order to receive social security benefits at lower amounts.

If you decide to retire early, it may serve you and your spouse well if you both make the decision for your partner to defer social security as late as possible. If a man begins claiming social security when he’s older, the amount he will receive will increase considerably. For example, if he wants to retire at age 62, he’ll end up receiving (let’s say) $750 a month as compared to the same worker at age 70, who’ll receive $1,320.

2. Avoid early withdrawal of funds from your tax-deferred investments.

I want to emphasize this advice given by the financial experts: “Do not withdraw your funds early from your tax-deferred investments as you will incur a very stiff tax rate penalty.” Selling stock when the market is way down (like now, folks) is only going to benefit whoever buys them at a very cheap price. It’s a lose/win situation, and you are not the second option.

If you are still in the go-go part of your life (as a retiree who is full of energy, who wants to see the world and dance the night away), buy stock from solid companies without risking more than 25% of your available liquid capital. This way, you can still enjoy some growth in your investment portfolio while controlling your risk with a smaller exposure to stocks.

3. Consider moving to a retirement-friendly location.

Are you shoveling snow every winter and suffering from exorbitant heating costs? Unless you are unable to part with your bowling buddies or your local culture, how about considering a move to the south where it’s warmer? You’ll save a bundle on energy costs!

You may even consider the possibility of setting shop (a metaphor of course) in Costa Rica or another country where the cost of living is low. Your dollars will go much further in a Latin American country like Costa Rica, than in the U.S., according to this site. The site adds that in this locale, a single person can live on $1,000 a month and a couple can enjoy a high standard of living on $2,000 a month. Another bonus is that this small country, sometimes called the Switzerland of Latin America, enjoys peace and a low crime rate.

Take a look at Travelocity promotions and Expedia deals and travel discounts if you’re looking for any cheap travel deals to places you’d like to check out and visit.

4. Check out TIPS to hedge against inflation.

If you’re worried about the prospect of having to watch prices go up over time, then recommends certain investments for young retirees to help hedge against inflation. The suggestion? Try U.S. Treasury inflation-indexed securities: either TIPS or Series I savings bonds. These financial vehicles will protect your retirement nest egg against the effects of inflation. But beware of owning TIPS in taxable accounts, as there are some unfavorable tax ramifications that you can be subject to in this case. Here are some details about this:

TIPS are treated as other Treasuries in a taxable account with one unpleasant feature: all inflation adjustments to principal are treated as current interest. Taxes are due every year. There are no deferrals. Financial planning experts favor keeping TIPS inside of an IRA because taxes are due immediately. In addition, there are no tax-related reasons for keeping them outside of an IRA. They do not produce tax favored income. They produce regular taxable income.

For more recommendations to conquer inflation, check this post about the inflation protected certificate of deposit.

5. Purchase long-term care insurance.

Finally, what do most retirees and future retirees fear the most? The answer is meeting with a catastrophic illness or accident. That’s the reason most boomers should seriously consider purchasing a long-term care insurance policy (check out InsureMe for long term care quotes). With all seriousness, I can say that I would rather die quickly than linger for years in a hospital bed due to a terminal disease; the costs, both financial and emotional to your relatives, are much less traumatizing than vegetating for years in intensive care.

But, if anything of the sort should happen, at least the long term insurance will cover most of the expenses. My mother almost lost her house when my father was diagnosed with cancer at the young age of 55; she invested all her savings trying to cope with mounting medical expenses for 2 years.

Beef Up Your Financial Education: Keep Learning!

If you’re looking for more information on retirement financial planning, you can get some educational material through sites like CNN Money and US News. These sites have a ton of articles that cover the topic of retirement finances.

My parting thoughts: I urge you to do your homework before making a decision on anything that will affect your nest egg. It may also serve you well to consult with a retirement planner if you feel that you’ve got gaps in your financial education that you’d like to fill in (and which you’re unable to cover through your own research and personal readings). An investment advisor is an excellent tool in these trying times; good financial advisors establish a reputation and will go to great lengths to protect it.

If you enjoyed this post, you can get free regular updates through our RSS Feed, or you can have our latest posts delivered to your email inbox by supplying your address here. Your address will only be used for this purpose, and you can unsubscribe anytime.

{ 4 comments… read them below or add one }

1 Meaghan March 11, 2009 at 4:36 pm

Good tips…thanks for the post! Your first tip is probably the most obvious, but also the most helpful one. Putting off retirement as long as possible will make your financial obligations easier to handle. Plus, working will keep you active and more alive!

2 Jacques Sprenger March 13, 2009 at 10:07 am

Meaghan, I love this idea that keeping active, i.e. continue working, will help you feel more alive. As a teacher who could have retired, I appreciate the daily contact with youngsters; they make me feel younger. Of course, many would be retirees have had to postpone their withdrawal from work because the recession wiped out their funds. For them, it may not be so rosy.

3 Kaye - SandwichINK March 25, 2009 at 8:54 pm

Great article. I appreciated the info. Personally, I love working and hope I can do it til I go home to be with the Lord. Keeps us young! 🙂 The job may change (though I hope not. I love caregiving and I love writing :)), but the constant learning is so good for our morale and our brains.

4 Glenn S. Ferguson July 28, 2010 at 6:29 pm

Jacques, I really understand first hand what you are talking about in point 5. I just loss my mom who was sick for 18 years and bed ridden for most of that time. Although we provided her with all the love and care possible she was not at all happy about her situation and I am sure would have rather not been here for all that time. After that experience I agree with you that I would rather die quickly and not linger.

And I support having long term care insurance as it does help with the financial obligation that could accompanies a major illness

Leave a Comment