5 Smart and Sensible Money Tips for Baby Boomers

5 Smart and Sensible Money Tips for Baby Boomers

After the highly publicized collapse of Enron in 2001, many of their employees lost more than half of their retirement assets when the company declared bankruptcy and then to make matters worse, they also lost their jobs. I remember watching an Enron employee showing the morning news anchor his 401(k) statement with a balance of over $600,000 at the beginning of the quarter and an ending balance of about $37,000 after the collapse. It was shocking to watch.

You would think after witnessing that even though it has almost been ten years, people would remember and follow the basic financial rule of thumb — do not put more than a maximum of 15% of assets in one investment. That is not the case today. There are still investors completely ignoring the guideline and holding anywhere up to 60% in company stock, most commonly in industries thriving in this economy such as consumer staples and oil companies.

History repeats itself and that puts people at risk. Investors whose retirement is right around the corner, the “Baby Boomers”, can’t take the chance; they can’t afford the “it won’t happen to me” line of thinking. Baby Boomers have the unique challenge of trying to retire at a time when they are staring straight at an incredibly uncertain economy – over 9% unemployment, 10 stagnant years of market growth, and an unprecedented drop in real estate values. This generation more than any other cannot afford to ignore reality.

Guidance to steer them through tough times is not far away. They only have to look to their parents who lived through the toughest of times — the Great Depression. Not everyone was scarred by the depression of course, but it did affect just about everyone. Many of us have heard stories of people saving everyday items such as bags, egg cartons, and butter containers to reuse. They were very thrifty – even frugal.

A friend of mine told me the story of her grandmother who served up vegetables that she had boiled in a pot on the stove and later when no one was looking, went back and drank the green tinted water they were boiled in. As a child, my friend interpreted this behavior as strange and eccentric only to read years later that all of the nutrients from the vegetables had been boiled out and were actually in the water! Now everyone steams their vegetables or puts them in a juicer to make their own modern green juice cocktail. In this grandmother’s case, she might have been doing her little ritual in order to not waste anything, but of course we have to admit today that she was right on target.

Maybe she was right about some other things, too. There are many lessons to learn from these Depression Era survivors. Here are some smart and sensible money tips from the Depression Era for the Baby Boomers:

Don’t waste money – ever!

During the Depression many people in this country didn’t have enough to eat and had to really stretch their dollar bills. Compare that to today when we have cable TV, satellite radio, and an internet connection at home and on our smart phones. Think about what expenses truly are needs and what are true wants – adjust your spending accordingly. Bargain hunt for all of your purchases, small and large. Consider going high tech and check for coupons online at sites such as Coupon Suzy to save a few dollars a week. Don’t pay more than your share of taxes to the IRS. Keep your receipts and take the maximum deductions such as charitable giving and unreimbursed employee business expenses on your income tax return to save a few thousand dollars at tax time.

Be resourceful.

During the depression, the grandfather of one of our planners took advantage of free tuition and attended the University of Nevada, Reno where he lived and got his undergraduate degree. We may not be able to find completely free tuition today but take time to find what resources you do have available. Encourage your college student to apply forscholarships, grants and loans in order to save anywhere from a few hundred dollars to thousands of dollars. Maximize your loyalty and points programs in consumer spending to generate gift cards or cash back for purchases you are making anyway. Take a long hard look at your company benefits starting with the obvious ones like the match on your 401(k), and take a step further to look for things like legal services such as a will maker, Employee Assistance Programs for counseling and tuition reimbursement programs for advanced professional degrees that can save you thousands of dollars each year.

Plan for the worst.

You can still hope for the best but you will be prepared. Build your emergency fund in a liquid account. As of May, 2010, the average APR on a credit card with a balance hit 14.48%. Paying interest obviously has a big drain on your finances, so don’t go into debt. If you are in debt, develop a plan to get out before you retire.

Invest in what others need.

Depression era investors figured that everyone needed to turn on their light bulbs and gas up the stove so they invested in utility stocks and bonds. They focused on dividends for income or to reinvest. They were on to something because studies show that dividends make up a significant portion of the gains in the S&P 500 historically. Wharton professor Jeremy Siegel states in his book, Stocks for the Long Run, from 1871 to 2003, reinvested dividends accounted for 97 percent of the real return of stocks. Look for income producing investments in industries such as consumer staples, energy, and technology in the US and internationally because people all over the world have similar needs.

Dividends Really Do Matter – Forbes.com.

Take responsibility for yourself and instill a sense of responsibility in others.

Depression era families knew they had to make it on their own and stick together and they did both. Everyone made a contribution – everyone worked to contribute to the household. Take a look at how you help others in need, evaluate how you help others. Consider setting up a personal family policy, if necessary. Determine ahead of time how you plan to help members of your family in a way that brings mutual respect and doesn’t cause a drain on your retirement planning. For example, you may pay half of your child’s college tuition and encourage them to take out loans and/or work for the difference. You may help your adult child for a set period of time such as three months if they are out of work.

A few months ago, someone asked me if I thought the “Great Recession” would have the same impact on people as the Great Depression. I don’t think it will have the same impact but that it will have one –a greater appreciation of the money that flows through our fingers every day. People who took money management and investing for granted in the past might take the opportunity to learn new skills that will stick. Even the Baby Boomers who are on the cusp of retirement or already retired can still make money decisions and changes that will have a positive impact on their retirement income and financial future. All they have to do is listen to their parents.