In 2008 when the financial crisis hit, many who were at or near retirement were hit especially hard. In many cases, they found retirement IRAs had been cut in half or more and the homes they were in were suddenly devalued on the market. Beginning to take retirement funds at half their previous value would have been like selling low, very low. Also, selling a house suddenly devalued by 35-50 percent or more might not have garnered the necessary funds to meet closing costs, which would have included what remained owed on the house, but would likely not been covered by the reduced sale price. In some cases, owners were suddenly under water in that they still owed far more than the value of the house on the open market.
For most of the American middle class, net worth is largely associated with the combination of retirement savings plus the market value of their homes. Savings separate from retirement savings had been declining and were largely absent from middle class portfolios in 2008. Second homes for most would likely have been in similar shape to the main home of most. Thus, these cuumulative losses left many people who were at or near retirement with the prospect of delaying retirement at least through the time needed for the nation to recover and, indeed, for individual portfolios to recover.
Now, five years later, IRAs have largely recovered. Depending on the range of IRA investments they may have done better than just recover and retirement may thus look promising. Depending on where you live in the country though, the value of your home may still be an issue. If the value had been cut in half in 2008 and you were underwater, you may be less so now as you have been presumably paying down some of what you owed over the last five years. Also, since the price of homes has risen by perhaps 20 percent over the past five years, you may be able to sell with less significant out-of-pocket expenses. Even if you were under water in 2008, it may no be under water or down by much as of 2014. You may be able to retire comfortably now since your retirement IRA looks a lot better than it did in 2008, but if you are still under water in your home, you may have to delay selling the home and moving to a warmer climate. What you may need to do is to continue to pay down the home and wait for selling prices to come back a little more. You’ll need to come out a sale with enough money to have a down payment on the new retirement home. You can’t use retirement funds for a down payment on the new retirement home, because you need to live. In short, you may be in good enough shape to make a move, but you may still have to wait a while.
Most people retiring over the next several years after having rebuilt much of what they lost in 2008 are going to be looking at down-sizing and adjusting their lifestyles somewhat as they enter the early phases of their delayed retirment. Most retirees will do this no matter whether they feel pressed by a sudden change of venue at the outset of retirement or not. But in the case of those hit by the 2008 crisis who are only retiring now, they may feel a critical need to both gain supplementary income and to cut expenses in order to finally get out from under their current homes and establish themselves in something smaller in a warmer climate. They will want to do this without moving back into a grinding multiple year debt that will be hard to face at the beginning of an already delayed retirement. If they can’s see a way to do this, then retirment may continue to be delayed.
On the cost reduction side, those now comtenplating retirement may need to plan a new lifestyle. Indeed, most retirees will need to find ways to cut expenses naturally. There are many small ways to cut expenses that don’t look like much as you consider them, but they will add up. First, you don’t need a Starbucks coffee every day on your way to work. Maybe you’ll stop in now and then when you’re out to buy a paper or meet a friend for coffee. Also, you don’t need to eat out twice a week any more. You can cut that to once or eventually to maybe twice a month. Together just these changes could save you $3,000 or more per year.
You can walk or bike instead of going out in your car for every trip, especially the short ones. Cutting a few thousand miles off the use of the car every year will save you a lot. Also, you and your partner may find it possible to get by with one car rather than two. Walking and biking are good for you anyway.
Visit the library & read the latest edition of the periodicals instead of buying them or read what you can on the internet. Get rid of magazine and newspaper subscriptions unless you enjoy them. You need a smart phone, a tablet and a computer. You also need home wi-fi but not necessarily cable, unless it’s part of a bundled pakage that you find attractive for whatever reason. Smart television seems more critical to me. You’ll have a few options there like Netflicks, for example, and you’ll pay for them but not as much as for cable. Also, if you have a smart phone and a good data plan, you won’t need a house phone.
When you buy food at the grocery store, watch for sales especially of the two for one variety or $1-2 off when you buy two. Emphasize items that don’t spoil or, if they can be frozen, put them in the freezer right away. Forget about cupons as a general rule as they tend to emphasize items that are not worth buying. You can also grow some of your own food as well as herbs & spices that are otherwise expensive. You can do this in pots or in small back yeard plots. It all helps. Try some crops that are easy for you to cultivate and that don’t take a lot of time and effort.
Take the time to visit second hand stores & look for buys on the internet. You can also sell items on the internet or in garage sales that you don’t want or no longer need. Anything you can’t sell give away or give it to the Salvation Army. They will generally take anything which has even a little value and can sell it to those with a need for the item. You may never be able to fathom why they have such a need but that’s no longer your problem.
You can also supplement your retirement income by earning some supplementary funds using one of your many talents. You may be just trading a skill with someone else who will do something for you that you might have otherwise had to pay for. Trading skills with no money changing hands seems easier as otherwise something that may after a while excessively complicate your taxes. This is a more complicated but interesting way to supplement your retirement income and it’s worth talking about in more detail in tomorrow’s post.
For now you should be able to see that in retirment it is easily possible to cut thousands from your expenses and thereby appreciate net savings that can be put to work catching up with any obligation you had at the time of retirement.