"Get Your Finances Ready for Retirement"-Retiree Budget Re-Do
Monday, December 08, 2008SUZANNE PRATT: This year's stock market losses are forcing many retirees to re-do their budgets. To make ends meet, many will be forced to make major spending cuts. So as we continue our series "Get Your Finances Ready for Retirement," Joe Collum looks at what retirees can do to reduce expenses.
JOSEPH COLLUM, NIGHTLY BUSINESS REPORT CORRESPONDENT: New York is America's most expensive city and that makes living there a challenge for Carol Vasile. She retired two years ago from a Wall Street investment bank and then the reality of New York's high costs kicked in.
CAROL VASILE, RETIREE: I'm on a budget right now and I never, never was on a, I didn't know budget. Somebody had to show me how to budget. I didn't have to. When I worked, made a good salary, saved, spent. Now I'm on a budget and it hurts.
COLLUM: One of the indulgences Vasile allows herself is a dance class at a lower east side community center but like retirees all over the country, she is trying hard to make ends meet.
VASILE: I've cut back quite a bit, stopped traveling. The airlines are unbelievable. They charge for anything. I don't take cabs, car service. I take public transportation. I don't eat out as much.
COLLUM: With assets going down and prices going up, many retirees are looking to cut their expenses. One way they're doing that is by coming to places like this farmers' market in New York City where the price of fresh fruit and produce is far less than in supermarkets. Even so, the higher costs of everything from gasoline to groceries can make living in New York and many big cities difficult for retirees on fixed incomes. So what can they do about it? Fred Brock, author of "Retire on Less Than You Think" and a former "New York Times" business writer says the best cost-saving move is often to move away to a less populated, less expensive area. Brock found that out for himself four years ago when he moved from Montclair, New Jersey to Manhattan, Kansas.
FRED BROCK, AUTHOR, "RETIRE ON LESS THAN YOU THINK": We were able to sell our house in Montclair for enough money to come out here and buy an even bigger and nicer house free and clear so we had no mortgage payment.
COLLUM: Brock also recommends that retired couples consider owning only one automobile and cutting back on all items with high maintenance costs.
BROCK: You don't need two cars. You don't need a big house. I have some people say to me well I want a big house so when my grandkids come twice a year to visit I have a place for them. Look, that's what hotels are for. You don't need to support a big house for somebody that's going to visit twice a year. So you can downsize on the house. You can downsize on the car.
COLLUM: And just as it's possible to save money by comparison shopping when it comes to basic items, retirees can use that same method to cut investment costs. Certified financial planner Ellen Siegel says buying mutual funds with low fees is a good way to do that without sacrificing performance.
ELLEN SIEGEL, CFP, ELLEN R. SIEGEL & ASSOCIATES: There is no scientific proof that low expense funds in a diversified portfolio do better or worse than actively managed funds, but if you're a do it yourself person, then that's a good way to do that and will keep your expense ratios low.
COLLUM: And many advisors say reducing debt is perhaps the best investment retirees can make in terms of cutting expenses. Paying off credit cards or owning a home free-and-clear can save hundreds or even thousands of dollars in annual payments, making your money last longer. Think of it this way: every dollar you don't have to spend in retirement is the equivalent of bringing in an extra dollar in retirement income. Joe Collum, NIGHTLY BUSINESS REPORT, New York City.
