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Baby Boomers: Be Your Own CFO !!

It's been a difficult several years and companies have had to take on the unenviable task of cutting expenses to maximize bottom line profits. Earnings have required this as top line growth has been disappointing in the worst financial downturn since the Great Depression. And in this stormy environment, individuals as well are faced with the urgent task of trimming expenses instead of merely focusing on increasing asset values.

US $100 banknote and a compass
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US $100 banknote and a compass

The truth is it's wise to combine a strategy that seeks to grow assets through a prudent investment plan as well as reduce capital outlays. But the challenge for many boomers is to identify the areas that are most likely to yield significant cost savings. Knowing the part of your budget that may be most beneficial to examine can be helpful. Here's a list to help you on that path.

Taxes

As the old saying goes, the only thing sure in life is death and taxes. That may be true but there's no reason to pay more tax than necessary. The tax code is designed to outline the guidelines and rules you must follow as you pay your fair share.

But there is no need to pay more than your fair share by overlooking deductions or tax saving strategies as you invest your portfolio. Some surveys suggest that over 50% of taxpayers neglect to take advantage of opportunities to reduce their tax burden. This is simply letting money flow out of your hands that is needed by you in today's difficult environment;
don't let that happen!

Already in 2010 there are tax changes that may help you reduce your overall tax burden. Recent changes in Roth IRA rules may make it advantageous to convert IRA accounts to minimize long-term taxation. Your situation will dictate whether or not this makes sense for you but it is something to examine. Tax credits are available for the purchase of certain types of real estate, automobiles, and even appliances. Despite the troubles with state governments, some tax-free yields look very attractive relative to taxable accounts. And of course, you need to be prepared for the possibility of higher tax rates in the future. You need a plan in place to adjust as needed.

Working with a qualified professional may help you in reducing your tax burden. But regardless of what path you choose, don't simply file your tax return without looking for every possible opportunity to pay only your fair share.

Health Care costs

With health-care costs skyrocketing and the United States health care system in a state of flux, one may be tempted to simply be resigned to high health care costs. But there are steps you can take to reduce these expenses.

Examine your medical care costs to see if deductibles can be adjusted upward. True, your out-of-pocket costs may be higher in this scenario but if your health does not take a turn for the worse the extra premiums stay in your pocket. Look at section 125 plans that many employers offer as a way to reduce the cost of health care out-of-pocket expenses. Many salary reduction plans actually allow you to pay for deductibles, uncovered expenses, and even childcare costs on a pretax basis. That means these programs allow you to pay for these costs at a huge discount.

Generic drugs are more popular than ever but still underutilized by the population on the whole. While not all generic drugs have exactly the same effectiveness as their more well-known counterparts, it is an alternative that should be examined. Your doctor can tell you what the
alternatives are in terms of efficacy. But you can be assured that the cost difference of generic prescriptions is substantial relative to name brand drugs.

And on the subject of medical care, do not underestimate the power of a second opinion. It's important to be an active participant in your health care. Making reasoned judgments about the course of your medical treatment can not only be productive for your health but also your pocketbook.

Real estate considerations

Everyone wants to live in their dream house. In a dream location that they always hoped would be where they would finally retire. But with 401(k) balances collapsing and investment accounts under pressure, this dream that is under attack. It's a hard pill to swallow recognizing that what you had hoped would be your location for retirement might need to change. But frankly, for some, it will need to change.

Cost-of-living factors are an important consideration when retiring and this includes real estate prices as well as the cost-of-living in a community. You must balance your real estate location with your overall standard of living; in some cases, a desired standard of living might win out.

For many boomers the choice will come down to an expensive monthly mortgage payment and a limited standard of living versus a more reasonable monthly payment and a more generous standard of living. No one can make this choice but you as to which is more important. But understand that the choice is available to you and that alone can bring some comfort.

Hard choices

The financial calamities of the last 10 years have been monumentally destructive for most boomers. Optimistic rate of return assumptions have vanished into thin air and the reality of portfolio balances cannot be denied. It can be discouraging because, after all,
many hopes need to be adjusted.

But after facing this reality, it's time to attack the problem head-on and do the best one can do to have a comfortable and peaceful retirement. It's hard and requires difficult choices. But for those who take on the challenge there is a comfort knowing that a new road map is in place even despite the last 10 difficult years. Take charge as best you can, make a plan, and charge forward towards your revised goals. Don't give up. Don't ever give up.

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Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top investment 100 advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly atmichaely@ycmnet.com

Watch "Tom Brokaw Reports: Boomer$!", Thursday, March 4 at 9pm ET on CNBC. The program will also air Saturday, March 6 at 7pm ET; Sunday, March 7th at 9pm ET; and Monday, March 8th at 8pm ET.