Budget Downsizing

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When companies face a rough period, they often look to either increase revenues or trim expenses, including reducing overhead costs.

You can do the same thing for your personal budget, where reducing expenses can give you the opportunity to increase your savings rate. Though this sometimes can seem easier said than done.

Costs have a way of appearing fixed. But that may be because you haven’t considered changing your lifestyle. It may be worth considering the way you live and whether you’re making the most of your budget. We are happy to help you conduct an objective assessment of your budget -- and your retirement income strategies.

While some expenses may appear fixed, like utility bills, that may be only because of the house you live in. If you moved to a smaller house, with less square footage to heat and cool, your utility bills would likely decrease. There’s a good chance other costs would decrease as well, such as mortgage payments, homeowner’s insurance, property taxes, home maintenance and even lawn care, if your lot is smaller.

The National Council on Aging has an online calculator that can help you assess whether relocating/downsizing, and all of its related costs, could be a good move for you.

Note, too, that downsizing doesn’t necessarily mean selling your home and moving to a smaller one. You can downsize your lifestyle while staying right where you are. For example, owning a smaller and more gas-efficient car. Getting rid of a hot tub or other luxuries that are not just expensive to maintain but also may increase your home insurance premiums. Anything that breaks often and is expensive to repair may be worth eliminating or replacing.

You can sell things you don’t need or use anymore. You can learn to be content with what you have -- cure that need to buy every new cell phone or gadget that hits the market. Share your tools, books, clothes and other household items with neighbors and friends so that you all support each other in this approach to downsizing expenses.

Buying and owning less not only gives you fewer things to insure, repair and maintain, but it also can provide a liberating feeling, free from material possessions. Live in the moment, for yourself and others, your income not beholden to pay for a lot of stuff.

While you’re practicing a downsized frame of mind, consider other things that you might be better without. For instance, negative or toxic friends who make you feel out-of-sorts or angry after you’ve spent time with them.

If you are in retirement or developing a retirement income strategy, consider adopting the downsizing mindset when you think about the lifestyle you want to lead -- and can afford. If you want to get out and do more -- such as theatre, fine dining, vacations -- consider trading the family home for a condominium that doesn’t require as much upkeep. If you want to move out of the suburbs and get a place in the city, consider that you may not need a car anymore.

Another way to approach downsizing is with a Swedish philosophy: “death cleaning” or döstädning. Described in a book by Margareta Magnusson, “The Gentle Art of Swedish Death Cleaning,” it essentially means cleaning out your belongings so your kids don’t have to once you pass away. It’s a kindness. First, you can give them some of your things that you don’t use and which they may greatly appreciate. Second, it’s an opportunity to share stories with loved ones about treasured objects, or even your life, as you clean. Finally, what greater gift to leave your grieving family than not making them take on this large task at a difficult time. Magnusson notes that this process can take place at any point in our lives.

 


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Raymond C. Lantz, Jr. is the president and founder of USA Wealth Group, Inc. Ray has many years of experience advising clients in retirement and sophisticated tax planning strategies, multi-family and commercial real estate projects, and legacy planning. Ray is a graduate of Clark University, holds a law degree from Boston College, and a master of laws in taxation from Boston University. You can hear him every Sunday on Money Wise with Ray Lantz on WBSM 1420AM or on the Radio Pup app.


Interested in reading more?  Here are some articles that may be of interest to you:

Figure Out How Moving Changes Your Finances

7 Reasons To Own Less

13 signs your friendship with someone is toxic

The Best Places To Retire Without A Car

‘Death Cleaning’ Is the New Marie Kondo. Should You Try It?

 

Financial calculators are designed as informational tools to help you estimate answers to common financial questions. They are not intended to predict future results. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation.

We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

 

 

Pension vs. 401(k)

Given a choice, which would you choose: a guaranteed fixed income for the rest of your life, or a lump sum that you could invest? As it turns out, lots of people prefer a sure thing.

 

This is what a recent survey showed about public sector employees posed with the option to select a defined benefit pension plan or a 401(k)-type defined contribution individual account. In fact, even when the defined contribution plan was the default option and workers had to proactively choose the defined benefit pension plan, they made the effort. In the eight states studied that offered a choice between the two options, all had employees choosing pensions at rates of 75 percent or higher in 2015.

 

If there’s one thing this survey can tell us, it’s that people are paying attention. Most people don’t have unrealistic expectations about stock market outperformance, “getting rich” and retiring early. Many people remember what the recession was like and want to be better prepared should it happen again – particularly during retirement.

 

A MetLife survey recently revealed that 21 percent of retirement plan participants who opted to receive their pension or 401(k) assets as a lump sum depleted that money, on average, in less than six years. Among those given only the option of a 401(k), who took a lump sum, their money ran out in an average of four years.

 

Employer-sponsored pensions aren’t that common anymore, but you don’t necessarily need one. It’s possible to reposition a portion of the assets from a retirement plan and create your own guaranteed income stream with an annuity; the guarantee is backed by the financial strength of the issuing insurance company. We can help you determine if an annuity is right for you. Please contact us to schedule a consultation.

 

Even employees who have a pension plan may not get the retirement income promised because many pensions are now underfunded. This is particularly true of private, multi-employer pension funds. These are funds typically created by labor unions and cover industries where people often work for multiple employers in a year, such as trucking or construction.

 

Many of these funds have had difficulty recovering losses since the recession because the employees also work in declining industries such as manufacturing. When pension plans don’t have enough money to pay out the income they’ve promised, sometimes they go bankrupt or pay reduced amounts. To give you an idea of how many private multi-employer pension plans are currently underfunded, according to one report, it would take $76 billion to shore up the ones on the brink of insolvency.

 

Single-employer pension plans appear to be in better shape. Their maximum pension guarantee from the government’s Pension Benefit Guaranty Corporation, should their plan fail, is $65,045 a year versus a multi-employer plan guarantee of $12,870 a year for union plan workers with 30 years of service.

 

Though many employees may still prefer a pension over a self-directed 401(k) investment plan, today’s pensions are not as generous as they were in the past. Many involve higher retirement and benefit-vesting ages, longer work periods to qualify, lower payout percentages and smaller inflation adjustments once payouts begin.



Ray Lantz

Raymond C. Lantz, Jr. is the president and founder of USA Wealth Group, Inc. Ray has many years of experience advising clients in retirement and sophisticated tax planning strategies, multi-family and commercial real estate projects, and legacy planning. Ray is a graduate of Clark University, holds a law degree from Boston College, and a master of laws in taxation from Boston University. You can hear him every Sunday on Money Wise with Ray Lantz on WBSM 1420AM or on the Radio Pup app. 


Interested in reading more?  Here are some articles that may be of interest to you:  

Public Employees Choose Pensions

The Retirement Choice Causing Some To Run Out Of Money

What happens when your pension fund runs out of money

Some Union Retirees Could See Pension Benefits Cut 90%, PBGC Chief Warns

Pension cuts getting steeper for state and local governments

 

Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by company. Annuities are not a deposit of nor are they insured by any bank, the FDIC, NCUA, or by any federal government agency. Annuities are designed for retirement or other long-term needs.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

 

                                                         

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