Starting Over After Losing It All

[ferco]

This is a hypothetical question but possibly applicable to someone(s) out there. Say you're 55 y/o, in 100% equities, and found out the value of the portfolio has gone to nothing. You still have a "job" paying 50k per year, with a mortgage (single/no kids) but you want to still traditionally retire at 65.Your current monthly expenses are 3k. What would be your game plan (adding in of course the cost of psych counseling) over the next 10 years? What would you invest in? How much risk would you now take?

[Dennis]

IMO? You only making $50k yr, have a mort, your 55 yrs old and you want to be able to Financially Retire by age 65 ( 10 yrs? )

Assuming you will need at least $50k yr Income to Retire? And You don't have anything but SS say at $25k yr? Leaves you having to make at least $25k yr Net or about $30 k yr Gross B4 taxes..

using 7% as a guide? Your going to need about $430,000 saved up by then ( Min)
Probably more like 750 k using the 4% WD guide..

I would guess, to use what extra $ you have and start Socializing with the Upper Class Women of Widowers or Divorcees.. and Hope they don't want a Pre Nup..or buy lotto Tickets..

A Buddy of mine did that and met a Gal On a Cruise a few yrs ago and has worked out fine for him.. Lucky devil..

LOL

[militaryman]

I would work it from both ends.

As important as "what to invest in" is "how can I lower the amount of $$ I live on"

You are in a tough spot but my parents live (paid off mortgage) on about 24k a year and they have enjoyed 10 yrs retirement at this income.

I would work hard to make sure at 65 --

1. No Mortgage
2. The house I owned was in an area with low Property Taxes
3. The house I owned was designed for or small enough to enable low low utility bills
4. Close to grocery and entertainment venues to cut down or eliminate transportation costs.
5. I'd have a car that was decent, reliable but only required liability insurance coverage.

[Bikerdude]

I seriously doubt you could pull it off within 10 years. I would use all or a combination of the following as a substitute.

1.) Invest 75/25 or Target Retirement fund.

2.) Find ways to reduce expenses.

3.) Plan on working part time to supplement your SS. (SS not taxable so 25K per yr. = $2,083/mo leaving $917/mo. from work.)

4.) Stay healthy so you can work and reduce medical expenses.

5.) Pray it all works out.

[LOL!]

Yep, I'd invest in a new spouse or two. And perhaps a couple of backups just in case.

[OAG]

From what you say you could not draw traditional SS (FRA) until age 67 (as it stands now; who knows in 10 years). BTW there is a study in another thread (authored in part by President Obama's incoming OMB director) that states MEDICARE should be pushed to age 67 or 70 (over time). Additionally, President (about 12 days away now) Obama is making comments on SS. And at 11 AM today he is making a "major" economic adress - may want to temper the forgoing assumptions a bit to the more conseravitive mode. Frankly, I have doubts, about the ability of someone to make retirement in the timeframe and at the amounts indicated by OP without some major outside help and/or a bucket of good luck.

[W2R]

Quote:

Originally Posted by ferco This is a hypothetical question but possibly applicable to someone(s) out there. Say you're 55 y/o, in 100% equities, and found out the value of the portfolio has gone to nothing. You still have a "job" paying 50k per year, with a mortgage (single/no kids) but you want to still traditionally retire at 65.Your current monthly expenses are 3k. What would be your game plan (adding in of course the cost of psych counseling) over the next 10 years? What would you invest in? How much risk would you now take?

Your present salary is $50K, and your expenses are $36K; after taxes, that is probably about 100% of your take-home pay.

So no - - I don't think you can do it using these constraints. I think I know whereof I speak, since I was in a similar situation 10 years before retirement but with much lower expenses, and the economy is such a trainwreck right now that I think you are facing a tougher situation.

Now, if you LOWERED your expenses and at the same time perhaps even took a second job or managed to wangle some pay increases or a promotion in your present job, you would have a fighting chance. In my opinion you would need to put the maximum plus over-50 catch-up into your retirement accounts ($22K + $6K?), and then of your take-home pay after that is done, put aside at least 1/3 towards your future - - paying off your house over and above the usual mortgage payments, or investing, or whatever you decide is most advantageous for you.

Even then, it would not be easy and would be touch and go. I think you can do it but you have to drop the attitude of having rigid expenses like that, you have to attack the challenge with everything you've got in the way of self-education and logical thinking, and you can't make mistakes. If you can retire, you would need to retire in a place with very low cost of living and on a minimal budget. Good luck!

[Moemg]

I'd find ways to cut my expenses to the bare bones . I'd take in a roommate maybe two . I'd get a part time job and I'd sock away as much money as I could . I'd also realize that instead of fully retiring maybe I could go part time . I'd probably take a decent amount of risk say 70 stock 30 bond and search out really low cost of living areas .

[kyounge1956]

Quote:

Originally Posted by Moemg I'd (snip) search out really low cost of living areas .

I don't know specifics about expat living but one of the things I've heard is that the cost of living is much lower in some other parts of the world than anywhere in the U.S. If I personally were in this situation I would check out my ancestral stomping grounds of Barbados, and other places in the English-speaking Caribbean.

[ziggy29]

Hate to be the bearer of bad news, but with any realistic investment strategy, without a pretty solid pension coming to you I don't see this as being feasible.

If you're willing to supplement that with part-time work once you're eligible for Medicare, then investing until it hurts in a reasonable allocation (say 60/40 or 70/30 given your need to take a fair bit of risk) might help.

Or find a spouse with a nice nest egg and/or a pension.

[Running_Man]

This individual is in trouble. I would immediately create a 10 year plan based on conservative risk profile (investing no more in stocks than 100 less my age). Any money over Social Security makes a huge difference, yes one could take the risk this individual did previously and risk going to zero again, but you have to take the chance of living only on Social Security as 20-25 % of senior citizens do and see that is a bad gamble.

I would also probably eliminate the home repair and maintenance risk and sell the house and move into a smaller and cheaper apartment, probably closer to work to save as much as possible over the 10 years.

If enough was cut to save 15,000 per year and earn 3 percent over inflation per year - and investing in pretax assets might make this doable in a small apartment. And taking a 4 percent withdrawl rate will give about an additional 600 per month in today's income to assist in Social Security at age 65. Which combined should be near or slightly over 2K per month.

[honobob]

I'd buy a rental property every three years in one of the many areas throughout the country that will probably appreciate in the double digits every year like it has for at least the last 18 years. He needs an income stream that will continue to grow even after his retirement date.

[ziggy29]

Quote:

Originally Posted by honobob I'd buy a rental property every three years in one of the many areas throughout the country that will probably appreciate in the double digits every year like it has for at least the last 18 years. He needs an income stream that will continue to grow even after his retirement date.

Well, see, there's this little glitch here. Someone in this situation can NOT afford to eat negative cash flow, even if they were able to get a loan for rental property.

And the only way to avoid negative cash flow when you buy rental property (in most cases) is to put a lot of money down -- money this person doesn't have.

[kyounge1956]

Quote:

Originally Posted by ziggy29 Quote: Originally Posted by honobob I'd buy a rental property every three years in one of the many areas throughout the country that will probably appreciate in the double digits every year like it has for at least the last 18 years. He needs an income stream that will continue to grow even after his retirement date. Well, see, there's this little glitch here. Someone in this situation can NOT afford to eat negative cash flow, even if they were able to get a loan for rental property. And the only way to avoid negative cash flow when you buy rental property (in most cases) is to put a lot of money down -- money this person doesn't have.

But honobob's suggestion makes me wonder if "Mr Lost-it-all" could rent out the house he lives in now, and move to a small apartment or a mobile home as described by rec7. Depending on the existing mortgage, maybe that would give him a foot in the door of rental property investing.

[honobob]

Quote:

Originally Posted by kyounge1956 But honobob's suggestion makes me wonder if "Mr Lost-it-all" could rent out the house he lives in now, and move to a small apartment or a mobile home as described by rec7. Depending on the existing mortgage, maybe that would give him a foot in the door of rental property investing.

Getting there! Better to rent current home and buy as principal residence new home with FHA/VA, owner financing and live in and rent out rooms until able to afford another property to move into and do the same. By the time you're at the 3rd or 4th home you should be able to live in one all by yourself.

Saving $20K a year with 6-8% returns will never match leveraging your money in real estate with other people paying your mortgages.

[crazy connie]

One thing that pops into my mind is to get the home paid off and look at a reverse mortgage to augment SS along with saving every extra cent. Also, potential exists to take in a roomie to share expense and increase potential investment. Another option is to join the Peace Corp for a few years and see the world while everything is in storage and investments try to buy time for some growth.

[jazz4cash]

Quote:

Originally Posted by crazy connie One thing that pops into my mind is to get the home paid off and look at a reverse mortgage to augment SS along with saving every extra cent.

I agree with Connie. A reverse mortgage is a good "plan B" in my opinion. I've been doing some research for a family member which has resolved some conflicts I had about them. A 65 yr old with 250k in equity could reverse mortgage into a 140k lump sum or lifetime income of $7-800/ per month.

[OAG]

Quote:

Originally Posted by jazz4cash I agree with Connie. A reverse mortgage is a good "plan B" in my opinion. I've been doing some research for a family member which has resolved some conflicts I had about them. A 65 yr old with 250k in equity could reverse mortgage into a 140k lump sum or lifetime income of $7-800/ per month.

One major drawback to the RM is that you had better like where you RM or you will take another financial bath when your move (unless it is to the "hereafter")!

[jazz4cash]

Quote:

Originally Posted by OAG One major drawback to the RM is that you had better like where you RM or you will take another financial bath when your move (unless it is to the "hereafter")!

Explain, please......before it's too late to help my brother! Are you referring to the closing costs for the RM? I sortof think the RM might provide some protection against falling RE values. I do agree the RM is mostly for folks that want to stay in thier homes.

[OAG]

Quote:

Originally Posted by jazz4cash Explain, please......before it's too late to help my brother! Are you referring to the closing costs for the RM? I sortof think the RM might provide some protection against falling RE values. I do agree the RM is mostly for folks that want to stay in thier homes.

From my investigation of RM's it is mostly the up front costs which can be up to about $20K coupled with the fact you do not get a great percentage of equity in the form of cash - maybe like about 60%. So as an example I would use a home, fully paid off, with an appraised market value of $200K. So you would get, maybe $115K Cash out. Then additionally the interest on the money, which you do not pay currently, but it is added (actually subtracted from the final balance) to the "balance" when the home is sold. With that kind of monetary encumbrance on the future sale of the property I doubt there will be much cash left in the end. That coupled with the fact that if a RM holder must move permanently to a Nursing Home or other care facility that would be, the way I read this stuff, an occasion to force the sale of the property. IMO it seems much better, financially, for other family members to purchase the home from the owner or for it to be set up as a life estate. Be careful here and let me point out clearly I AM NOT an EXPERT on the subject - you would need to get legal counsel to be sure it can work. In any even the RM MAY work for some but one needs to search out the alternatives.