Money tips for cash-strapped retirees

Laura T. Coffey • Profile • E-mail

Imagine retiring after working hard – really hard – all your life. Your house is paid off in full. So are your vehicles. You’ve always been careful to shun credit-card debt, so you’ve got none of that. Sounds like you’d be sitting pretty at that point, huh? 

Maybe not.

More and more retirees are struggling to make ends meet in their golden years, in large part because they’re being walloped by the effects of inflation. Several readers in this situation e-mailed me in response to my recent “10 Tips” column about how middle-class families across the country are being squeezed financially. The retirees who wrote in shared tales of an exceedingly stressful middle-class crunch that’s peculiarly their own.

Consider this scenario sent in by a woman in Texas:

“We are retirees in our 70s who have done everything you suggested except to get rid of our second car (a '99 Chevy pickup). We paid cash for our last two cars in '98 and '99 in anticipation of our retirements. Our home is paid for. No credit-card debt. However, our pension and Social Security is not keeping up with the cost of Medicare and (our) AARP (Medicare) Supplement ($500 total for the two of us monthly). Groceries have doubled in the last five years on many staple items. Five years ago we averaged $45 weekly on food and cleaning supplies, (and) we now are spending about $150 weekly, and that doesn’t include eating out. When we do eat out, we usually split an entree.

“Gasoline, electricity and natural gas have all gone out of sight. The cable bill has risen from an original cost of $12 monthly to $78 (which includes Internet service now). We are doing OK now, but if my husband dies my pension will be cut in half. Unless I rent out rooms to single friends, i.e. become a ‘Golden Girl,’ I don’t see how I can make it on income from our savings which are in CDs that are only yielding 5.10 APR (annual percentage rate). We have a little in mutual funds that are gradually rising back to where they were 10 years ago, but income from that is also pretty small. Do you have any suggestions?”

After speaking with financial planners and doing some research, I do have some suggestions to share. I hope these tips are at least a little bit helpful for this reader in Texas and other retirees who are under pressure financially.

1. Diversify your investments. Certificates of deposit, or CDs, are safe — and no doubt that’s why the couple in Texas decided to sock away much of their savings in CDs. While it’s generally true that people’s investment portfolios should exhibit less risk as they age, it’s also true that people are living longer lives — and, consequently, spending more years in retirement — than ever before. For that reason, people’s savings and investments typically have to serve their needs for a long, long time. Thomas Balcom, a certified financial planner with Foldes Financial Management in Miami, Fla., works with many retired clients and advises them to spread their investments over numerous asset classes, no matter how old they are. “We put a lot of different things in the mix,” Balcom said. “We use stocks, bonds, REITs (real estate investment trusts), commodities and some hedging investments. You definitely have a degree of risk there, but generally speaking … this prevents (your nest egg) from being eroded by inflation.” Other inflation-busting investments to consider include I bonds, which are U.S. savings bonds that pay a fixed interest rate plus a rate that changes based on inflation, and treasury inflation-protected securities, or TIPS, which also pay a fixed interest rate and have their principal adjusted based on changes in the Consumer Price Index. For more information on I bonds and TIPS, visit this U.S. Treasury Department Web site.

2. Get help managing your money if you need it. Yes, you can do research and allocate your money into different asset classes all on your own — but the reality is that most people aren’t very good at doing this. “They often get scared of the market and end up selling low and buying high,” Balcom noted. Bearing that in mind, it might actually save you money to hire a reputable financial professional. Whether you use a financial planner, a money manager or a stockbroker, find out how the person will be paid. Avoid working with anyone who will be paid commissions for selling you certain financial products — products that you may not need or that may not be appropriate for you at this stage of your life. You can hire a fee-only financial planner who won’t get paid such commissions through the National Association of Personal Financial Advisors, the Financial Planning Association or the Garrett Planning Network.

Next week's 10 Tips topic Holiday tipping Have you ever gotten the sense that you really should be tipping someone at the end of the calendar year, but felt unsure about exactly how to proceed? Then next week’s column should be of help to you. Do you have advice to share about tipping regular service providers? If so,   please share it here.

3. Beware of the dangers of plastic. The couple in Texas may not have any credit-card debt, but unfortunately more and more seniors do. Some get tripped up by credit cards because they don’t fully understand that money borrowed in this way absolutely must be paid off in full and on time each month. Otherwise, high interest rates and fees can leave borrowers wallowing in debt. In other instances, though, retirees turn to credit cards in desperation because of crippling medical expenses and other costs that can’t be covered by their fixed incomes. If this has happened to you — or if you’re tempted to rely on credit cards to get out of a bind — keep reading. There may be other viable sources of income to tap. Also, consider these words of wisdom from Jan Dahlin Geiger, a certified financial planner in Atlanta: “Put a credit card in your car’s glove box for true emergencies and perhaps put a backup credit card someplace very inconvenient, such as your safe deposit box. Then (survive) on a cash-only basis. … You will be amazed at how much harder it is to buy two new pairs of shoes for cash than it is to charge them. Many people will end up putting one pair back. Don’t believe me? Try it yourself for 30 days. Most people … are genuinely astonished at the difference it makes in their spending.”

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