Budgeting Tips for Baby Boomers

With the U.S. economy in a free fall, you - like many people of all ages and income levels - might be struggling to save and budget your money wisely. The ability to budget is exceptionally important if you are a baby boomer, since you are either a new retiree or nearing retirement age. Even if you have been carefully saving and following a budget, you are likely looking at 401K accounts that are worth a lot less than they were two years ago, and with only a few years left until retirement, you don't have a lot of time to make up the losses.

So, what can you do to stretch your savings? Luckily, not being tied to a job allows you the freedom to change location, and having extra time on your hands means you can devote a little extra attention to your budget and cost-cutting strategies.

Baby Boomer Budget Tip No. 1: Control Your Cost of Living

Housing is usually the single biggest expense in anyone's budget. Downsizing to a smaller abode or moving to a cheaper part of the world can make a big difference. However, if you find that your area has been hit hard by the housing crisis, it may behoove you to wait until home prices have recovered somewhat.

Baby Boomer Budget Tip No. 2: Part-Time Employment

If you retire, though you're still able to work, and find that retirement isn't all it's cracked up to be, keep working. Look for part-time or volunteer work to flesh out your schedule. This is also a great way for you to stretch a tight budget, especially if it comes with the added bonus of health insurance (see below).

Baby Boomer Budget Tip No. 3: Health Care Costs

Finding room in your budget for health insurance can be a huge problem if you have retired early, since you are without work-related insurance but too young to be covered by Medicare. Procuring insurance through a part-time job and focusing on a healthy lifestyle and preventative care can help you keep health care costs from busting your tight budget.

Baby Boomer Budget Tip No. 4: Retirement Savings

If you are a baby boomer and have not yet retired you must focus on working retirement savings into your budget. Considering the instability in the Social Security system, it is foolhardy at best for you to depend on government assistance in retirement. Luckily, you and other baby boomers have savings vehicles like 401Ks and IRAs at your disposal, and you're allowed to contribute more than younger workers. Although you may be concerned about creating a budget for your children's college, retirement savings need to come first. Kids can get loans for school, but no one will give you a loan for your retirement.

Baby Boomer Budget Tip No. 5: Long-Term Care Insurance

You may not want to think about spending your final days in a nursing home, but the fact remains that many people do require round-the-clock care later in life. Although long-term care insurance is not cheap, incorporating it into your budget may be worthwhile, particularly if you have not amassed a large nest egg for retirement. As a baby boomer, the time for you to budget for long-term care insurance is now - most policies need to be purchased while you are still middle-aged.

Baby Boomer Budget Tip No. 6: Have a Concrete Financial Plan

If you are like many people, you might be saving and budgeting for retirement somewhat aimlessly, simply saving as much as possible and hoping it will be enough. Although "enough" will be a different number for everyone, figuring out how to budget what you have or save enough to have as much as you want is relatively simple. The usual rule of thumb is that a withdrawal rate of 4 percent is sustainable, meaning that you can withdraw up to 4 percent of your nest egg each year and (probably) never run out of money. Therefore, if you have a $1 million nest egg, you could safely withdraw $40,000 per year. Basing your budget on this safe withdrawal rate makes it easy to see what type of lifestyle you can afford on your income. If you are still saving for retirement, assuming a future 4-percent withdrawal rate will allow you to easily estimate how much to save to have the amount of retirement income you desire.

Sources:
content.nejm.org/cgi/content/full/358/7/661
www.irs.gov/pub/irs-pdf/p590.pdf
www.aarp.org/money/financial_planning/sessionfive/longterm_care_insurance.html
www.retireearlyhomepage.com/safewith.html