Your House should not be your retirement

When I am speaking with people I am realizing that this is their plan or at the very least it is their backup plan

How much do you need at retirement? If you are single between 45 and 55 take your annual desired income and x10. If you are married x12. This is how much cash I need at retirement.

If you fall short of that you need to figure it out as soon as possible because the longer you wait the less options you have.

Here are the options at retirement:

Live less now or live less later. Either cut down your spending dramatically and invest to get enough to retire. Or live less at retirement less travel, less activity, less dining out, etc.

Reverse mortgage.

- No Legacy

- You can lose your house if you don’t follow the rules.

- Must keep the house in good condition

- You also have to live in your house so no moving out to a retirement home.

Sell your home to retire.

Most people I spoke with assumed that they will live in their home at retirement.

- They worked hard to pay for their home

- They renovated it the way they liked it 10 years ago so they want to enjoy it.

That’s why you need to think ahead. Otherwise You may be forced to sell when the market is not favorable.

The earlier you really start thinking about the more options you have available.

At retirement you can use the equity from the sale of your house to:

1. Drip method. Basically you invest the proceeds into a low risk vehicle like bonds and then take a portion of the returns as income without touching the principal.

1. There are a couple of problems with that approach

1. These low risk vehicle are also yielding 1-3% so if you invested $1M at 2% you will end up getting $20k a year. Is that enough?

2. The other problem is that these returns don’t keep up with inflation so you will have to take out some of the principal eventually.

2. Convert to annuity. I have discussed it before. Annuity are a good accumulation vehicle and horrible at converting asset to passive income. There are a lot of problems with annuity:

1. First there are many many fees

2. Initial comission is pretty high so a portion of your capital will be taken away

3. No Legacy. You are giving away all your money in exchange for a stream of income. If you die early it is gone unless you paid extra for guaranteed repayment of principal

4. If you want the payment to continue after the death of the participant then your monthly payments are reduced

5. If you want to have your payment indexed for inflation your payments will be reduced to pay for that

6. If you choose all these options you will end up with 2-3% return on your money.

If you plan ahead of retirement then you can look at:

1. Private money lending. Many real estate investors are looking for cash for their projects. As a private money lender you will act like a bank and provide the funds needed, secured by real estate at a rate of 8-10%. It takes some time to learn how to do it right, make connection with reputable real estate investor, etc.

2. Rental properties. Real estate is a time tested way to generate passive income for yourself and your legacy. You need to have the right temperment, property management, find the right market, and the right financing so it takes some time to figure it out. You also want to get in early on this investment because of the tax advantages which can help reduce your taxes when you are working for w-2.