Not so coincidentally, making do with less is becoming downright trendy, part of the "new frugality" championed in a number of recent books, including The New Good Life: Living Better Than Ever in an Age of Less by John Robbins, the Baskin-Robbins ice cream heir turned natural-lifestyle guru. "Most people will admit that of the 15 things they 'must' have, there are 10 they can live without," observes Bonnie Hughes, a financial planner with offices in Reston, Va., and Miami. Robbins, who lost much of his wealth to investment scam artist Bernie Madoff, urges boomers to make a game out of saving money. "This game isn't about denying your pleasures. It's about plugging the money leaks that you may have been only dimly aware of, but which have been draining you," he explained by E-mail. Marc Schindler, a financial planner in Bellaire, Texas, tells of one creative client who lives as a "home tender" to cut his expenses. He occupies a house that's listed for sale at $400,000, providing furnishings to impress potential buyers, and pays just $800 in rent, a fraction of what a mortgage would be. He might have to move at any time, says Schindler, but "it's a great option for a single, divorced guy."
Downsizing. Hamilton-Smith and her husband downsized a year and a half ago, selling their three-story townhouse, auctioning much of its contents, and buying a one-bedroom condo. They still allow themselves the occasional meal out, but she chooses an appetizer instead of an entrée, and they skip the bottle of wine. They've stopped using credit cards. "Sunday movie and brunch out seems pretty luxurious," Hamilton-Smith says, "considering the alternative of being broke and destitute in old age."
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It goes without saying that employees should be contributing the maximum amount to a 401(k) plan or an individual retirement account. For those 50 and older, that can include an additional $5,500 a year in "catch up" contributions to a 401(k) and an extra $1,000 to IRAs. Already there? Some advisers are now counseling clients to also consider funding a tax-advantaged health savings account, as Stone and Echnoz do. You must be enrolled in a high-deductible health insurance plan to qualify, but a family with this option can contribute $6,150 per year, plus an extra $1,000 in catch-up contributions per person for those over 55. The contributions are tax-deductible, and any funds not used grow tax-deferred, as a sort of stealth IRA. If you withdraw the funds before age 65 for non-medical purposes, you'll pay a hefty penalty. But after that, you can withdraw the funds penalty-free for any purpose—although you'll pay regular income tax if you use the money for non-medical costs. "We consider it a savings account," says Stone.
What if, like many baby boomers, you're just now also trying to put kids through college? Those plans may bear revising, too. "You're not really being selfish," says Eric McClain, a financial planner in Birmingham, Ala., who urges clients with competing interests to fund their retirement needs first. "You're preventing your children from having to take care of you later in life." Seattle computer analyst Trent Hainer, 50, had already talked to his children about the need to work during college and perhaps attend community college for the first two years when his longtime employer this past spring outsourced his job (and him) to a company that offers less generous retirement benefits. "You just don't know what's going to happen," he says.
So, for example, you might consider paying off your mortgage instead of funding a 529 college savings plan, says Owen Malcolm, an investment adviser in suburban Atlanta. He also suggests diverting 401(k) savings above the level of the employer match toward paying down the home loan, even if it's at a low interest rate, so as to get out of debt. "Where else can you find a risk-free 5 percent rate of return?" he says.