Safety Nets or Backup Plans During ER

[52andout]

We always thought downsizing was an option until we started looking around. They are building lots of patio homes in our area and marketing them specifically for retirees. The price tag is almost what I could get for my well maintained much larger 13 year old home. Add to that realtor fees, moving fees and I won't come out ahead. We would have to leave this area, but this is where our life is. I have lived all over the country and except for a few places I could never afford housing and we would be too far from family (like San Francisco) we like it here. Also, neighborhood is very important to us, safety and close to amenities,medical care and entertainment are what it is all about for us.
Add to that scenario all the baby boomers that will be retiring looking to downsize.

It seems that some here have planned already by buying that second home, but I would do more checking if that was part of my plan.

[dumpster56]

Quote:

Originally Posted by RunningBum #1 has been to build up a buffer so I can take less than 4% of my savings, much less when SSA and a small pension kick in. #2 would be to cut expenses. Right now I'm paying about $3K for a ski/golf membership, that's a big cut back I could make, along with cutting or reducing my satellite TV plan, for example. #3 is to downsize the house. It's at a resort and real estate can move slowly here, so I'll have to watch for needing to do this and not wait until I really need the money. My house is at least 1/3 of my total worth so it gives me a considerable buffer to buy or rent a smaller place and still replenish the nest egg. I really don't think I'll need to resort to #2 or #3, unless we have another 10-15 days in the stock market like the next two, which is going to wipe out #1! #4 would be to go get another job. Last resort for me. $5 would be to go live with other family,though they're probably looking for the reverse from me before that happens!

$5, I would NEVER live with family, NEVER!

[Maurice]

This is an interesting topic.

I'm in a fortunate position, in that I have already saved well beyond the minimum I would need for an enjoyable ER. That gives me lots of cushion in itself. Even though I plan on living pretty comfortably, even luxuriously in retirement, I could easily scale down on expenses without sacrificing much comfort or enjoyment.

One thing I have given some thought to is building my own inflation protected annuity of sorts. I have maxed out investments in i-bonds every year for a while. I've considered continuing that and also buying tips to essentially create an inflation-protected bond ladder that guarantees me a certain income every year from my predicted retirement age (45) to, say, 80. (actually I could only do it up to age 75 since the longest dated inflation protected bond available is 30 years, but you get the picture).

I could see putting enough in these to guarantee, say, 60k (in 2007 dollars) every year. I'd still have a sizable chunk of change in a traditional portfolio.


I've started modeling this recently, so that if I decide its a go I can have it figured out in time for the January TIPS auctions.

[cute fuzzy bunny]

My backup plans:

Dump the debt so my income needs are small.

Porfolio structured to produce more than enough dividends and interest to pay the bills.

Wife has a part time job that pays health care and gives us enough cash flow to fund Roths, a 401k and have some current income.

Something bad happens, I can get a part time job doing almost anything and that'd bring in enough cash to pay the utilities and food bills. Wife can add a shift or two per month to increase cash flow as well. If my wife stopped working, we could eat into a little bit of principal every year to pay for that.

We can tap our HELOC for shorter term emergency type money, we can sell the house and rent or reverse mortgage it in our old age if we need more cash flow.

I'm not particularly fearful of down RE markets, but then I know how to not be an idiot when I sell my house. I sold last month after 7 weeks on the market and made a tidy profit. There are buyers and there are buyers willing to pay for a nice house. You just have to create the situation where they want to buy yours. Its also pretty darn unlikely that I'd be forced to coincidentally sell in a down market, have no options to defer that sale for a year or two until a recovery occurred, and have no other options for income.

You know, part of all of this is not creating problems in the first place. I see a lot of people retiring a bit too early and/or create complex financial contraptions to try and get some sort of angle. The KISS principle isnt a bad idea. There are two ends to this sort of thing...one is not leaving a place for disasters to get a hand grip on you, the other is having plans for unavoidable potential disasters.

My "sell the house and rent" or "reverse mortgage" plans arent primary, secondary or tertiary. The odds of ever needing to do that are so slim its almost implausible. But its an option, and a workable one that lets me not worry about a few unlikely events.

The other thing that I think bears consideration is the relative market conditions. If the economy takes a huge dive, the market drops, and everyone is having problems...people with savvy financial skills and some assets will be far better off than people with no jobs, no money, and huge bills.

You dont need to outrun the bear. You just need to outrun the other guy.

[Meadbh]

#1:
I have begun building a portfolio of rental properties, working with a broker. The properties are managed professionally and buyer power allows investors to access a very competitive mortgage rate. Net rental income is taxable but mortgage interest is tax deductible. The result is a slightly positive cash flow and appreciating equity on a small downpayment. And somebody else fixes the plumbing. When the mortgage is paid off, the property will generate rental income. As property value appreciates, I could also choose to remortgage and realize a chunk of equity. Could come in handy for large expenses in RE.

#2:
Use my marketable skills to do some consulting (part time of course).

#3:
Asset allocation includes significant international equity and a little private equity.

#4:
I plan to move after RE. Depending on market conditions, I may rent, at least for a time.