Rebuilding Your Financial Plan After Recession

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The last recession has caused a reset to the spending and saving habits of most people. It has been a wakeup call not only for the folks nearing retirement but also the those still in their accumulation years.

If you're already in your retirement years you probably are already in balance with your income. Out of necessity your living expenses are in sync with your social security and pension fund benefits. Thankfully, Social Security benefits will rise 3.6 percent in 2012 and also many inflation linked pensions will rise also. Between 2007 and 2011 median household income for people 65 and up increased by 5.5 percent per year, while income for every other age group declined. In 2010, 9 percent of people 65 plus years old live in poverty compared to 13.5 percent for those 18 - 64.

Those with the most financial problems is the 50-plus group. Their investments took a big hit but are slowly recovering. Many lost their jobs and used up their savings just to make it through. An AARP survey found that 25 percent of the 50-plus adults used up their savings between 2007 and 2010. This group is the hardest hit because they have no retirement savings. Some are working hard to recover but sadly many never will.

What can you do?

Debt and high expenses are the curse the 50-plus group has to overcome. Many families still have children in college which diverts money away from retirement. The costs of a larger home, than would be necessary in retirement, only adds to the problem. So creating a plan is critical.

Housing is one of your most expensive costs. Having a plan to reduce costs should be at the top of your list. Downsizing is the quickest way to do this. Many real estate professionals say by the end of 2012 the bulk of the housing markets will be stabilized and start to see improved prices. Prepare for the rise in home prices by planning to sell in 2 - 3 years. Start today to prepare your home by painting and remodeling. Though you can't predict where we will be in 3 years, you still have to stay in budget, keep saving and investing at the same time.

Saving for retirement is still important and really the only way to get a decent return on your money. In a world of less than 1 percent savings instruments at your bank, an 8 percent return is possible with equities and bonds. A diversified portfolio and patience will take you to where you need to be. With stocks and their dividends providing a return of 5.3 percent a year for the past 15 years, it's important to not ignore equities.

Time of transition.

Most people were effected by the recession. But there were many who weren't. Why. They were prepared. They had a plan and a way of life where they are only slightly felt the effects of recession. We need to take a lesson from them. They lived with spending less than they made and saving the rest. They stayed away from debt and were ready for the storm. They were prepared.