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.

 

 

Retirement Investing

Retirement planning looks much different than it did a century ago. With lifespans and retirements lasting longer, it’s not just about planning for a financial future; we must also create a post-career strategy that takes into account emotional, intellectual and quality of life challenges during later years.

 

After all, we don’t just stop enjoying life after age 65, 75, 85 or older. As long as we’re alive, we want to enjoy the things that make us happy. When you start the retirement planning process, it’s important to think about things you’ll want at each stage of your golden years -- from the active stage, to the slowing down stage, and even the periods when you can reasonably expect to have health and/or mobility challenges.

 

Savings, investments and insurance are at the crux of retirement planning -- providing income now and for loved ones who may survive you. If you’d like help developing financial strategies for each stage of retirement, please give us a call.

 

Among the first things to consider in retirement investing’s earliest considerations is regular contributions and the power of compounded interest. Obviously, the earlier you start, the better your chance of accumulating earnings. There’s also the added advantage of getting a current income tax deduction on tax-deferred contributions to qualified retirement accounts.

 

However, by mid-career it’s also important to consider the value of tax diversification. It can be a burden to pay taxes on plan distributions once you’re retired, so it’s worth considering strategies that diversify your retirement portfolio in terms of account types and tax obligations to help avoid a huge tax bill on your retirement income.

 

It's also important to consider how much market risk you should take on during retirement. On one hand, you don’t want to lose long-accumulated earnings to a market decline. On the other hand, living 20+ years in retirement requires continued growth opportunities. It’s a good idea to work with a financial advisor to help establish a mix of retirement investments for your circumstances, taking into account your goals, risk tolerance, investment timeline and the composition of your overall portfolio, as well as including a high-yield savings account for emergencies.

 

A Roth IRA can help address tax diversification through long-term compounding and access to funds in retirement. The Roth allows you to withdraw original contributions tax-free and penalty-free at any time for any reason. Any money in a withdrawal that exceeds the amount of your original contributions is considered “earnings” and is subject to possible penalties and taxes. To withdraw earnings without paying taxes or penalties, you must follow very specific rules. Not only do you not pay taxes on qualified distributions from a Roth IRA, but that income doesn't count when calculating taxes on Social Security payments.

 

Converting to a Roth IRA may be beneficial to those approaching retirement who are concerned about the potential tax liability on their qualified assets. Individuals can use their current income to help pay the inevitable income taxes on the conversion throughout a number of years. However, they’ll enjoy freedom from income taxes on qualified Roth distributions during retirement. Again, this strategy should be considered within the context of one’s overall retirement portfolio, and we’re happy to help you assess if this would be a good fit for your unique circumstances.

 

Since the post-career period is generally longer these days, retirees also need to pay attention to the current economic environment when making financial decisions. For example, recent and expected hikes in interest rates by the Federal Reserve Bank, CDs and other fixed income vehicles offer a conservative option for retirement funds. While growth is important in the long-term, retirees may need to strike a balance between preserving the funds they have now and what they may need to earn for the future.



ray.jpg

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:  

Quantifying the Value of Retirement Accounts

6 Low Risk Investments to Build Retirement Income

The Simplest Move To Reduce Your Tax Bill

Does Switching To A Roth IRA From A Regular One Still Make Sense?

Investors Perk Up As Bank CD Rates Near 3 Percent

Neither our firm nor its agents or representatives may give tax advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.

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.