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Are You Ready to Retire
By Chris Cooper
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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 - that 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 own your house you have a few options.
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;
6. Continue Working.
Sell 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 at reasonable prices. You might even 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, healthcare 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. You can use the balance will as you see
fit.
When you sell or die, the loan is then repaid and 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.
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 Country
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.
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, with a maid and gardener thrown in.
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.
Taxes are low. 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 to
live.
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.
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.
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 in your part time and
hopefully, when forced to retire, you will have a going concern on your hands.
Otherwise, plan for the worst. Assume the job market will not be good. Consider
your present skills and determine what you can do about improving them.
See if your employer will pay for training. Otherwise check out what training is
available through your community college or job bank.
You will need to have something to offer 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 considered.
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 now
to start.
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