Wednesday, September 21, 2011

Fixed Income Retirement- Building a Cushion (or, how to get some savings)

Right now, frugal retirement finances are the topic of many a retirement blog. The discussion rages on about  how little or how much one "needs" for retirement.  I would suggest that the primary problem for those of us who live on fixed incomes is not necessarily the monthly amount in terms of monthly living expenses(although that can be a grave concern for some). Rather, the issue is all those pesky emergencies and irregular expenses that are not necessarily part of the budget.  For some folks, the solution for certain expenses will simply be to divide the annual amount into a monthly expenditure and make it part of the budget.  For those of us living closer to the bone, we need other back up alternatives. 

Either way, one needs savings in retirement.  One can debate what that amount should be in a perfect world. Most of us are not perfect. So how do those of us already retired (or soon to enter the retirement zone), prepare ourselves for those expenses?  Many of these expenses are of the type that simply get ignored until some windfall comes, and I aim to avoid falling into that rut. I don't want to be the gal who ignores car maintenance or repairs until the car falls apart or I have an accident.  Since I'm retiring in place, I don't want to ignore home repairs or easy upgrades. Better to take care of those things regularly and often.

Obviously the primary goal is always to cut expenses first. Start with the little things and move up (more on those later)

My monthly income barely covers my living expenses at the moment. However, by fine tuning (primarily by fully emancipating my under employed college student), I am able to get to a place where all my needs and many of my wants will be covered monthly.  Still uncovered however, are a small plethora of expenses not figured into that budget.  Irregular and unforeseen costs that could kill the budget (emergency car repairs, excessive home repair costs like my recent air conditioner fiasco, extra medical costs, and other such items). I need a savings/emergency account. I'm not at all sure it needs to be fifty thousand dollars, but it does need to be "enough".

In looking at how to accrue that money, I've considered many options as viable. Some of these are traditional "saving methods", other are outside the box.
  • I could put money aside from monthly expenses.  While my goal between now and 1 January is to give myself some cushion (I'll say bye bye to cable after the Superbowl), I prefer to look at that as cash on hand, kept in the house for the moment.  However, it may make more sense to designate this specifically as savings (low as current savings interests are).
  • I can put money received as gifts into that fund.  I still get occasional cash gifts for birthdays and Christmas and instead of spending them will put them away.  While these gifts are not huge, as the saying goes, every little bit adds up.
  • I can work part time and consider my job my "savings fund job". If it were a job, I would then stop when that savings was at the level I thought it should be.  In my case, I started an income stream for this specific purpose, and put those fees towards savings.
  • I could fit the annual cost of a home warranty into my budget.  While many financial gurus think this is a no no, for retirees it may be a smart move. This is especially true if you have an older house and or cannot do the labor yourself.  However, at $400 annually and an average fee of $60 for a service call, it would not pay for itself if all I needed was a new dishwasher in the next year.
  • I could, at some point, look at a reverse mortgage.  I'm a new homeowner, still building equity, so at this point it's something I would not consider at fifty something moving into sixty. However, considering the changes made in reverse mortgages, it's not something I would rule out in say, fifteen years or so-if I were to retire in place.
  • I could look at all  insurances and fees, and put whatever savings I found toward savings.  In my case, except for elimination of cable (too bad you cannot watch football on hulu), I've done that search. However, it's something I attempt to do every year as you never know what can be cut.
  • I could, if had things of value that would not be missed, sell something.   My husband and I would probably have sold a second car if we had two for example.
  • I could downsize (assuming my house could be sold), move into a smaller home and pocket the cash. Again, this is something that is not workable for me now (having chosen to stay in this home), but it is something that works for many. It's one of those things I leave on the back burner to consider at some point.
I'm sure there are many methods I've ignored. Obviously, my savings will probably never reach fifty thousand-at least not anytime soon.  My small financial cushion will not be a guarantee. Then again, as history has shown us, half a million in retirement savings is not necessarily a guarantee.  I've been positioned and/or positioned myself in such a way that I believe that I can managed for now with even less than the aforementioned fifty thousand (having good health insurance with a $4000 catastrophic limit, having both social security and a small pension, knowing how to live and travel frugally........)

The important thing is to manage on what you have, never give up, and find creative ways to take care of both wants and needs.

3 comments:

  1. Interesting post. Once I retire I have considered part-time work to add to my defined benefits pension until I reach age 60 and the Canada Pension Plan kicks in. Or some sort of home enterprise. I am in the process of downsizing - I've bought a smaller home in PEI and will sell my condo in a couple of years. My timing was a "bit" off (3 years) but it was such a good deal.

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  2. Downsizing is always good. I just find that for now I need to be with a decent sized house and yard. I've never been to PEI although I have heard it's beautifyl

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  3. An additional ideas to consider are getting a housemate and banking the rental income. I think too many people rule this out rather than searching for a compatible person to share housing with. I have a neighbor who has had graduate school/medical school students as roommates for years and that has helped greatly with finances and occasional chores (e.g. walking his dog when recovering from surgery).

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