Michael on March 28th, 2008
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It’s Friday, so it’s time for this week’s reader-submitted Q & A. If you’d like to submit a question, click here for more information or simply email a question.

Hi. Perhaps you can help me with some specific advice? I’ve been following the standard rules for the past decade:

  1. Get out of debt. Check. Took a while, but it’s done. Whew!
  2. Feed your savings. Check. Well, a little, since I could only recently get started & don’t make too much to spare.
  3. Spend sensibly. Check. Even though I give myself a treat here & there, I’ve stayed away from buying for comfort.

So, what comes next? My circumstances are a bit unusual, so in a nutshell:

I have no dependents to inherit. I’m almost 50, in relatively good health, but starting to feel my years. No real bad habits, no smoking, drinking or gambling, but I like gadgets & a bit of travel once in a while.

Right now I live in expensive New York, but since I could manage with a smaller salary, I’m planning to relocate to a smaller/cheaper city in less than 2 years, even though that will eat up most of my savings. Life will be less stressful, less expensive, & less complicated.

What should be my next focus, before, during & after that relocation?

Many thanks.

–Rosie T.

STRAIGHTFORWARD ANSWER: Your next focus should be to create a savings cushion.

More detailed explanation:

Congratulations on being debt free and for recognizing the need to take additional steps to achieve your financial goals. Your prioritization question is an interesting one. In order to address it, I made a few assumptions, but here goes:

If you’d like to stop working one day, you need to get serious about retirement planning. Said another way, you’ve got to save. Since you’re 50 years old, your anticipated retirement date is less than 20 years away. On the other hand, you probably still have at least ten years to add to your existing nest egg.

Retirement is the ultimate point in time where you need to be living Beyond Paycheck to Paycheck; after all, there wont be any paychecks. Relying exclusively on Social Security may not provide you the lifestyle you want. It usually provides you with the basics, but little else.

Moving away from a very expensive place (like New York) to somewhere cheaper can provide you with an enhanced ability to save. But doing so often means an income sacrifice. You may very well come out ahead as a result of the move, but you will need to be even more disciplined in your spending and saving habits than you were before you left New York. This is especially true given that you expect your move to “eat up most of (the) savings.”

You also asked about what your focus should be during and after your transition. With Total Candor, I can tell you that the during and after won’t be a concern unless you nail the before.

Still, once you have the savings cushion necessary, your subsequent priorities will be to use the right type of vehicles (think IRA’s and workplace retirement plans) and investing your assets appropriately. Keep us posted!

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Anybody else have suggestions for Rosie? Whether you’re a pre-retiree or someone who recently went through a different kind of financial transition, we could benefit from what you have learned from the experience.

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