Monday, March 10, 2008

Can Boomers Afford to Live in the US?

Having a global economic meltdown limits opportunity at any time but being a boomer puts into question whether rejoining the job market or doing another startup will be an option in a meaningful timeframe. Downsizing our family expenses is our tactic while waiting for the answer.

We started downsizing our expenses in California, based on our Silicon Valley startup post acquisition feeling of job insecurity. We sold our house, gave away and sold 3/4 of our belongings, and moved to a small apartment in Silicon Valley. That move resulted in a number of our expenses going away: house insurance, property taxes, lawn maintenance, house cleaning and upkeep, and lowered our gasoline costs. Although our rent in Silicon Valley was higher (for a cramped and noisy apartment) than our mortgage in Santa Cruz county, we got clear of our impending ARM reset.

We moved to Hilo, Hawaii this past November after determining we could further downsize our expenses while recreating ourselves. Our downsizing results in Hilo so far are: rent lowered by 55% (for a far superior living situation in Hilo), our cable & internet services being lowered by 49%, our life insurance being lowered by 59%, and our COBRA being replaced by a family medical insurance plan 58% lower in cost. We find fish and produce is fresher and less expensive in Hilo than California (which is not necessarily the case elsewhere in Hawaii or even elsewhere on the Big Island). Although restaurants are more affordable in Hilo, we don’t eat out much since we now have time to cook.

Our downsizing has halved our yearly run rate to $60,000 (after taxes). This level of downsizing took us two years and a sizable investment in moving and stress to accomplish. We are confident we can downsize more by lowering our housing costs and using solar power, but we also expect a rapid rise in prices to reflect the increase in oil, perhaps ultimately reaching double digit inflation. We aren’t sure we will be able to downsize enough to be sustainable in this rapidly declining US economy and we aren’t sure we will be able to generate additional income.

We, like many boomers have no pension coming and our social security may go to nil by the time we are 65 since the government calculates the payment based on the last 15 years of salary which in our case could be all zeros. So we are left to create our yearly run rate completely from our investments and any future income. A $75,000 pre-tax income, would require $1.5 million in cash to generate, assuming 5% interest .

Watching the current US economic market collapse, lack of secure investment opportunities and employment rapidly evaporating we wonder if there will be greater opportunities for us and our resources in other economies.

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