Retirement Planning

Providing Income for Your Retirement Years

As the leading edge of the baby boomer generation starts inching ever closer to retirement, the reality of their financial situation is beginning to sink in.

Many are still in debt and have nothing but social security to look forward to. The way things are going, it looks like there will be no retirement for them – they will have to keep working, even if it means being a greeter at Wal-Mart.

This is the time to do some serious financial planning.

If you are in this situation, but you have a few options.

If you own a home with equity in it, you can:

• 1. Sell your house and rent;
• 2. Get a reverse mortgage;
• 3. Take in tenants;
• 4. Move to a cheaper part of the country;
• 5. Move to another less expensive country;

Otherwise:

• 6. Continue Working.

Sell Your Home and Rent

Your children should all be pretty grown up by the time you qualify for Social Security – this doesn’t mean they still don’t live with you. In that case, it might be time to shove them out of the nest.

[For those of you who had children late and still have teenagers in the house or in college, see below.]

If you have a chunk of equity in your house, sell it, pay off your debt, invest the proceeds and rent an apartment. Except on the coasts, there are nice new rental units available around the country at reasonable prices. You might also find a house whose rent you can afford.

Depending on how much you clear, you might be able to live a comfortable life, afford new clothes, health care and an occasional vacation.

Reverse Mortgages

In this case, the lender gives you cash based on the equity of your house. You don’t have to repay the loan – that happens when you either decide to sell the house or you and your spouse passes away.

Your outstanding debts will first be repaid. The balance will come to you to use as you see fit.

The loan is repaid when you sell or die: if any money is left, you or your heirs get the balance.

These loans carry high fees, but are very popular with people who need money and don’t want to move. Rising housing costs have created extra equity to borrow against.

Read, Reverse Mortgages for more information.

Take in Tenants

If your house is big enough and you live in a desirable area, this may be a way to supplement your income.

There are lots of variables, including the going rate for full apartments where you live.

A room or suite of rooms is obviously worth more in an attractive section of a big city than it would be in a rural farm community.

If you do plan to do this, talk to an accountant first to see if you get any tax breaks for actively managing a rental property.

Move to a Cheaper Part of the County

If you live in a high cost area like New York City or most of California, you can relocate to cheaper parts of the country.

The southwest and Florida are booming because of lower taxes and subsequently a lower cost of living. The areas around Fort Worth and San Antonio, Texas are also known for their reasonable living costs.

Many people are reluctant to move away from their lifelong neighborhood. They are afraid of the unknown. But if it means the difference between working at minimum wage or enjoying your retirement years, this is an option to consider.

Money Magazine routinely runs articles about the best places to live in the US. They take into account housing prices, taxes, climate, availability of medical care, the crime rate and more. You might actually find a better place than you current locale.

Move to a Less Expensive Country

This is obviously not for everyone. It takes a certain sense of adventure and requires a large dose of acceptance and patience. You also have to be willing to part with your extended family – which becomes quite hard for some people.

Places like Mexico, Costa Rica and Honduras have become a magnet for ex-patriot retirees. These countries offer tax benefits to attract foreign retirees.

The cost of living is lower – but don’t believe the articles that say you can live on $800 a month, including rent with a maid and gardener to take care of your property.

I am most familiar with Mexico where I now own a home and Honduras, where I once owned property.

I live part time in the west-central highlands of Mexico, outside of Guadalajara. This is the home to a large community of American and Canadian retirees.

It is the land of eternal spring, with pleasant temperatures just about year round. Housing is much less expensive than in most of the US, but one of the reasons is that they are neither heated nor air conditioned.

Property taxes are low, but municipal services are sketchy at best and the Mexican government offers few benefits.

Health care is fine and affordable – people come from the states just for plastic surgery or dental work, but there are no malpractice lawsuits.

It is easy to make friends. The weather is great and if you can find the patience the adapt the slower Mexican pace of life, it’s a great place for your retirement.

It is hard to get financing for a house, although that is now becoming available in spots. Rentals are quite cheap and houses can cost as little as $75,000 and run into the millions.

You have Sam’s, Walmart and Costco in addition to other supermarket chains, fancy malls, good restaurants and inexpensive entertainment.

You can get satellite TV, high speed internet connections, fairly good electric and phone service and the US is not that far away.

Not counting housing costs, you can live very comfortably for about $18,000 US a year.

Time Magazine has included this area as one of the ten best retirement communities in the world.

If this interests you, read Don't Check Your Brains at the Border before doing anything else.

Continue Working

If you don’t have a home with equity, if you have more debt than equity or if you still have young children to support, you will have to continue working. Depending on your job and your company’s retirement policy, you present employer might keep you on. You chances are better if you have a needed skill.

If necessary, offer to work part-time, or as a consultant. This saves your employer money on benefits and might clinch the deal.

Or you might be forced to look for new employment. Right now, the labor market is tight and it might not be too difficult for a healthy boomer to get a job. Whether that will be the case five to seven years from now is anyone’s guess.

If you see that you will need to keep working, this might be the time to start up a business. You can develop it now in your free time and hopefully, when forced to retire, you will have a going concern on your hands. See Employ Yourself for some ideas.

Otherwise, plan for the worst. Assume the job market will not be good. Consider your present skills and see what you can do about improving them. See if your employer will pay for training. Otherwise see what training is available through your community college or job bank. You will need to have something to offer a potential employer if you hope to get a job when you’re over 60.

One good thing is that if you continue to work, your social security benefits will continue to grow. But there are mandatory withdrawal rules for conventional IRA’s that must be followed.

For more information on why working in your retirement years might be good for you financially as well as physically, Working in Retirement.

The oldest boomers have about 5 years until they reach 65. If they haven’t started working on a retirement plan yet, there no time like the present to start.

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