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.