December 17, 2013

What about transportation?

For most people transportation is their biggest expense after housing.  This doesn’t necessarily change in retirement or semi-retirement, but you probably do have more options.  This article talks about some of those options.

Lots of Options, Especially in Retirement

There are plenty of transportation options and lots of opinions on what makes sense.  I’m going to concentrate on four.  As is the case before retirement what makes sense for you depends on factors such as your finances, how much you drive, how far you drive, and how precious is your time.  Here are my four options:

  • No car at all
  • New car, replace less often
  • New car, keep it forever.
  • $5000 Used Car, keep as long as possible

No car at all

First of all your financial situation or health may dictate no car.  That isn’t all bad because it certainly makes life less complicated.  You just have to make adjustments to make the car free lifestyle fit into your other plans.

Where you choose to live makes a big difference.  Can you use public transportation?  Can you walk or bike to the store, parks, and friends’ houses?  Can you offer to help a friend with expenses in return for a weekly shared grocery store run and maybe an occasional doctor’s visit?  Cars are expensive and helping that friend may solve a problem for them too!

No car doesn’t have to cramp your travel plans either.  Look into bus tour trips and one stop vacations where you can go to a destination and then take guided tours from that location.  For example some of the national parks have tours where you stay at a lodge and then take tours and use the parks mini bus system to get around.

New car, replace less often

This scenario is similar to what many people do before retirement.  The average American replaces their car every 5 years or so (this is slowly increasing after the great recession.)  As a retired person maybe you can stretch that to 7 to 10 years.  What makes that possible is that many people drive less in retirement and have more time to deal with repairs, whether they have them done by a mechanic or do the work themselves.

New car, keep it forever

This is the natural extension of the above option.  It works well if you don’t drive too many miles, are meticulous about maintenance, and are willing to spend some money and time occasionally on repairs.  Many new cars are lasting for 150,000 to 200,000 miles these days.  If you drive 7500 to 10,000 miles a year that means you could potentially buy a new car at 65 and drive it until you are 85.

Buy a relatively cheap used car and keep as long as possible, then replace

Statistically, this may be the least expensive option beyond no car at all.  It makes sense if you mostly take short trips and don’t mind an occasional break down.  (This isn’t quite as scary these days with cell phones and motor clubs.)  It really helps if you are able to do some of the repairs yourself.

Make a decision and include in your budget

This is a big topic and this article just scratches the surface of possible options and what you need to consider.  More to come on this topic, but I hope it helps you keep thinking outside the box as usual.

Until next time…

Filed Under: General, Money Stuff, Transportation Leave a Comment
November 30, 2013

Making Your Nest Egg Work For You

In this article I want to explore the nest egg and ways to keep it healthy and useful.

I should probably start by saying what this and other articles like it are not.  They are not financial advice.  I am not a financial adviser and nothing I say should be taken to be financial advice.  I’ll leave financial advice to others.  What I do want to do is offer some alternatives that I think make sense, and as always to get us thinking “outside the box.”

Very few people probably think their nest egg is ever big enough.  The idea might be to set some simple goals of how you want your nest egg to work for you and how you will keep it healthy.  Hopefully by doing so you can achieve some relative peace of mind.

What if Your Nest Egg Isn’t in the Millions?

Ideally by the time we reach retirement our nest egg is very large.  For most of our life that’s what the financial industry has told us is the goal.  But what happens if your nest egg isn’t that large?  In either case I think you approach your nest egg in the same way, although the emphasis may certainly be in different categories.  Let’s first look at some categories and then look a little further into how to keep your nest egg healthy.

Dividing Up Your Nest Egg

There are many possible ways to divide your nest egg.  How you do depends on your personal situation.  Here are three possible categories:

  • Income Fund
  • Emergency Fund
  • Adventure Fund / Little Adventure Fund

Income Fund

A large portion of your nest egg might be set aside for income.  This is money that is set aside for investment and for you to live off of.  You might earn interest, stock dividends or other income from these funds and use those earnings for your day to day living expenses.

Emergency Fund

This might be money you set aside for things like large car or house repairs, unexpected health expenses, or if you end up unemployed and you lose a portion of your income that comes from your job.  Traditionally advisers have said your emergency fund should be anywhere from 3 to 12 months of living expenses.  I think in retirement those expenses are tempered somewhat if less of your income depends on a job.  On the other hand unexpected health expenses might be more common than in our younger years, and this could increase what you want in an emergency fund.

Adventure Fund / Little Adventure Fund

This is your “fun” money, and I think it is very important that everyone have this fund, even if it has to be very modest.  This money might be used for travel or hobby expenses.  I think it might be useful to split this further to include a Little Adventure Fund so that you set aside some funds for those little fun activities like a night out while you are still planning for that big road trip.

An Example

Let’s look at a simple example of how the divisions might work.  Let’s say someone has a nest egg of $150,000 and a monthly budget of $2500.  Maybe they set aside $120,000 in their Income Fund.  This gives them $400/month income (using the 4% rule commonly thrown around by financial advisers.).  An Emergency fund of 6 months, or $15,000 is set aside for emergencies.  This leaves $15,000 for the Adventure Fund of which $1000 is used for “little” adventures.

So how is the nest egg kept healthy?  Well, first the Income Fund is never touched, and ideally is built up to both increase its earning potential and allow for inflation.  Next some money is set aside in the monthly budget to replenish first the emergency fund (if necessary,) and then the Adventure Fund as it is used.

Hopefully the ideas in this article will help you think about your nest egg and how to keep it working for you while you keep it healthy.

Until next time…

Filed Under: Money Stuff Leave a Comment
November 13, 2013

Can House Sharing Work for You?

House Sharing the Retirement Way

Note:  This article is another part of an ongoing series of alternative housing arrangements.

While everyone’s definition of retirement may differ one thing is certain – Retirement should be a time in life where you do things in new and fresh ways.  This is sort of like college and young adult life where you went from the easy security of your family’s home to something new.  For many this meant sharing a house or apartment.  It made sense then financially, and provided a supportive yet easy come and go arrangement.

Give House Sharing a Chance! 

For similar reasons house or apartment sharing might make sense for retired couples and singles.  This won’t work for everyone, and I’m sure some of you are rolling your eyes and saying “no way!”  But give it a chance and at least look at some of the pros and cons.  Make sure you are not dismissing it simply because you have become too set in your ways!

Financially, it May Make Sense

The financial reasons are obvious.  With a limited retirement income you are looking for ways to bring the housing part of your expenses down to a more manageable level.  A house or large apartment may be a better alternative to a small apartment or other options.  You can manage the burden of a mortgage (maybe), taxes and maintenance with little left over for other things or you can share those expenses and use the saved funds for travel, hobbies, or whatever else.  The situation is similar when renting.  Two or more couples or singles can share a house a larger apartment for a fraction of the total rent.

Ideally a shared arrangement can provide a better supportive environment for everybody involved.  There are simply more bodies to share the work.  This can be as simple as watering the plants when someone is away to sharing cooking and maintenance activities.  As people get older it can even help with handling illness and provide a more secure environment.

Sharing can help you get up and go when you want.  Someone is usually there to watch the house, and the extra dollars you save can be used for all those activities you envisioned in retirement.  This might include travel, hobbies, volunteer work, eating out occasionally at a fancy restaurant, etc…

Let’s consider a simple example.  John and Mary Smith own a 4 bedroom McMansion in the suburbs.  It has a couple bathrooms, and living and family room, and a rec room in the basement.  It is too much house for two people and more urgently it saddles the Smith’s with a $2000 mortgage payment.  Bob and Jane Jones love to travel and camp, but need a home base.  George and Evelyn Public have roots in the Smith’s area but like to travel to Florida for three months a year.

Here we have a perfect sharing arrangement.  Each couple could pay $667 a month.  The house is big enough that when they want privacy one couple can go to the living room, one to the family room and one to the rec room.  That really isn’t much of a problem anyway however because the Jones are hardly ever home, and even the Public’s are away three months a year.  Obviously this is a simplified example but there are lots of possibilities out there.

It is important in a sharing arrangement to discuss and write down all the arrangements and responsibilities for each party in advance.  Don’t forget the details like “Is smoking allowed?”, “Is drinking allowed?” or are there any quiet times.  It also might be good to spell out in advance a procedure for misunderstandings.

I’ll explore more on this topic in a future article.

Filed Under: Housing, Money Stuff, Uncategorized Leave a Comment