Another Way To Fund Retirement?

[marko]

So here's an interesting twist on funding one's retirement. It may have been covered here before but I can't recall.

DWs sister is a lovable, ditzy, high-energy, very impulsive 76 year old who's stumbled through life selling real estate. Think of someone who's never fully outgrown their hippie college sophomore days.

No direct heirs. Zero--I mean ze.ro.-- savings and zero retirement income outside of a meager SS.

She's just come out from under the thumb of the IRS and decided that she doesn't want to work anymore. Her only asset is her fully paid condo.

Last week she announced that she's sold the condo for $500k, plans to rent instead of own for "whatever time I have left" and is moving to Florida.

The family, along with myself, was horrified until I gave it some thought: She's not in the best of health and making it beyond eight or ten more years is unlikely; her spending level is quite low...living on $50k a year is very doable. For her, this is sort of a whacky reverse mortgage.

Taxes? Inflation? Logistics? Where? How? As always, those are just negligible and annoying details in her disorganized life and there's always the chance that, as has happened before, she may show up at one of our doors some day looking for a bed. It's not the craziest thing she's ever done but 90% of the time she lands on her feet.

I just found it to be an interesting off ramp. Not looking for advice, just adding here for consideration.

 

[rembrandt]

I would not consider it to be an "off ramp". Just a situation that she stumbled into that happened to work out for her.

 

[street]

Interesting!
I would bet there are a lot of people like her and just live for the moment. I sure hope she does well and an make it work and her plan is a success.

I just could not do that or be that carefree of person.

 

[frayne]

In some ways she may be further ahead of the curve than most.

 

[Closet_Gamer]

If she can stick the landing and kick it right when the checking account hits zero, more power to her.

But, wow, not an approach I would endorse!

 

[Lorenzo]

I've met people who claimed to have sold "everything" and were traveling the world on the proceeds, so maybe this is that same sort of mindset on a smaller scale rather than one who sold a house in California and in an older person rather than one in mid-life.

 

[FIREd]

She seems resigned to make the best of her situation. At least she is taking action, which is commendable.

I have a close relative who is house rich and cash poor. She's been living on the edge for the past 10 years - making it only thanks to family handouts. But the well has dried up. Yet she still refuses to give up her home. She is single and lives in a very large condo located in an expensive metro area and the HOA fees are killing her.

 

[disneysteve]

She's going to sell her home, use the proceeds to pay rent and cover living expenses in addition to her SS. As long as the math works, I don't see a problem. Owning a home is expensive. When my mom sold her home 18 years ago and moved to an apartment, her monthly expenses dropped considerably. It is way cheaper for her to rent than to own, plus there is far less she needs to worry about or tend to which has been a blessing as she has gotten older. She's now 94 and still in that apartment. There's no way she could still have been living in her house at this point had she stayed there longer. She got out while she was still able to do so easily rather than being forced to move when she simply couldn't manage it anymore.

 

[jazz4cash]

I think her situation is pretty typical. With a 500k paid off home she’s ahead of many others. Median net worth for 76 yo is~$350k

The average net worth by age in America

Have you ever wondered how you stack up against other people financially? Here's the average net worth by age.

www.empower.com

 

[imjustawarrior]

Sounds like she is doing great. $500k + SS at age 76. That is way better than most. If you don't believe that, go visit some Medicaid nursing homes.

She is doing what she wants. Different strokes for different folks.

 

[disneysteve]

The one place this plan could crash and burn is if she doesn’t take care of the house proceeds. If she blows that money then she’ll be broke. As long as she puts it somewhere safe and secure and doesn’t dip into it for nonsense, sounds like she’ll be just fine.

 

[jazz4cash]

The one place this plan could crash and burn is if she doesn’t take care of the house proceeds. If she blows that money then she’ll be broke. As long as she puts it somewhere safe and secure and doesn’t dip into it for nonsense, sounds like she’ll be just fine.

Yeah, that could be a concern for someone with an impulsive personality. A SPIA for 76 yo female pays ~$4k/mo, a 9.75 % distribution rate.

 

[RetiredHappy]

Yeah, that could be a concern for someone with an impulsive personality. A SPIA for 76 yo female pays ~$4k/mo, a 9.75 % distribution rate.

Yes, my thoughts too. She really needs to buy a SPIA so that she doesn't blow through the $500K on bad investments.

 

[38Chevy454]

I agree that putting the money into a monthly stipend, leaving a small amount for emergency use, is wise. Since it seems she doesn't have a lot of financial knowledge.

 

[marko]

The one place this plan could crash and burn is if she doesn’t take care of the house proceeds. If she blows that money then she’ll be broke. As long as she puts it somewhere safe and secure and doesn’t dip into it for nonsense, sounds like she’ll be just fine.

Her brother (my BIL) is a retired director of a large national bank. He tends to keep an eye on her and intends to help her manage the cash.

 

[Sojourner]

Her brother (my BIL) is a retired director of a large national bank. He tends to keep an eye on her and intends to help her manage the cash.

That's good, hope it works out. I can imagine that many folks like her—with zero retirement savings, little-to-no financial knowledge, impulsive, etc.—might be very tempted to "blow (some of) that dough" upon receipt of that lovely pile of cash when the house sale closes. Hopefully her brother can reign in her temptation to Spend, Spend, Spend! when she becomes "rich" overnight.

 

[Koolau]

Her brother (my BIL) is a retired director of a large national bank. He tends to keep an eye on her and intends to help her manage the cash.

What makes me think she just might be alright is that you didn't mention any credit card debt! That is a truly bright spot!

 

[marko]

I've met people who claimed to have sold "everything" and were traveling the world on the proceeds, so maybe this is that same sort of mindset on a smaller scale rather than one who sold a house in California and in an older person rather than one in mid-life.

You're right. Sort of the same thing.

The thing is, as you reach a certain age, (75-ish?) the numbers change in your favor. You're looking at 10 or 15 years instead of 30 or 40 that you have to worry about. Having hit 72, I'm starting to look at things/life/spending differently myself. My numbers have definitely changed since I REd 20 years ago.

 

[SecondCor521]

I know OP didn't ask for advice; this is just musings for others who might read the thread.

Life expectancy for old people is a lot longer than I intuitively think it is. Social Security estimates that the OPs SIL has a bit over 13 years life expectancy. That means 50% of women her age will still be here at age 89.

Rent will be a big part of her expenses. Rent goes up pretty much every year. So 10 years from now her rent could easily be double what it is today.

End of life medical expenses, unless SIL is particularly lucky or well-insured, could get pricy.

Doesn't sound like SIL is going to invest the money, so any growth is probably limited to a few percent per year.

Based on those things, I think it's pretty unlikely to work out as SIL hopes. However, she does have a personality and family support structure to where there will be some solution that will work even if this one doesn't.

 

[aja8888]

You're right. Sort of the same thing.

The thing is, as you reach a certain age, (75-ish?) the numbers change in your favor. You're looking at 10 or 15 years instead of 30 or 40 that you have to worry about. Having hit 72, I'm starting to look at things/life/spending differently myself. My numbers have definitely changed since I REd 20 years ago.

I'm turning 81 in 10 days. I'm not thinking about numbers at all.

 

[pb4uski]

The key missing information is how much is her SS and how much would her rent be.

I ran maximum safe ending in FIRECalc using the following parameters:

• 20 year time horizon (to 96 in case she lives longer than expected)
• $500,000 starting portfolio (assumes that the gain on sale of her principal residence would be less than the $250,000 exemption and therefore not taxed).
• 20/80 AA

The result is that she could spend $24,004 in inflation adjusted spending from her portfolio
starting in 2024; since SS is inflation adjusted, add whatever she gets in SS to that.

Depending on how much she has in SS she would probably still pay taxes for a while, but only a couple grand a year and less so if she had a higher stock allocation perhaps even zero due to 0% rate on qualified dividends.

It's actually better than my friend who lives on SS and rent on one apartment (he lives in the other)... he's actually banking part of his SS.

 

[marko]

The key missing information is how much is her SS and how much would her rent be.

I ran maximum safe ending in FIRECalc using the following parameters:

• 20 year time horizon (to 96 in case she lives longer than expected)
• $500,000 starting portfolio (assumes that the gain on sale of her principal residence would be less than the $250,000 exemption and therefore not taxed).
• 20/80 AA

The result is that she could spend $24,004 in inflation adjusted spending from her portfolio
starting in 2024; since SS is inflation adjusted, add whatever she gets in SS to that.

Depending on how much she has in SS she would probably still pay taxes for a while, but only a couple grand a year and less so if she had a higher stock allocation perhaps even zero due to 0% rate on qualified dividends.

It's actually better than my friend who lives on SS and rent on one apartment (he lives in the other)... he's actually banking part of his SS.

Trust me, the thought process and calculation here is incredibly simple: $500k/10 yrs. That's it.

Seen this movie too many times. How this will play out is something like this: she'll love it and it will work for about 3 or 4 years. Then she'll get antsy again, move back to Mass, get some public or affordable housing, invite herself to dinner every night with her old friends and family and rely upon the family and state to fill in the gaps.

Longevity is not in the genes, as both parents died in their early 40s and these kids had been living on their wits since their early teens. She claims that she only has four years, which would surprise me, but I'd be even more surprised if she made it to ten years.

 

[disneysteve]

Longevity is not in the genes, as both parents died in their early 40s

Medical advances have greatly altered the longevity stats. Maybe a parent died of heart disease decades before we had stents and clot busters and pacemakers and even transplants. Or they died of cancer before we had chemotherapy and gamma knife and proton beam radiation. A lot of things that killed people at a young age a generation or two ago are just run of the mill issues today that don't necessarily shorten one's lifespan.

 

[Koolau]

Trust me, the thought process and calculation here is incredibly simple: $500k/10 yrs. That's it.

Seen this movie too many times. How this will play out is something like this: she'll love it and it will work for about 3 or 4 years. Then she'll get antsy again, move back to Mass, get some public or affordable housing, invite herself to dinner every night with her old friends and family and rely upon the family and state to fill in the gaps.

Longevity is not in the genes, as both parents died in their early 40s and these kids have been living on their wits since their early teens. She claims that she only has four years, which would surprise me, but I'd be even more surprised if she made it to ten years.

I bet you're right on this. Except, just for spite, she'll live another 20 years, mooching the whole time!

 

[marko]

I bet you're right on this. Except, just for spite, she'll live another 20 years, mooching the whole time!

The thing is, she's so damn lovable nobody will mind!