Sunday, February 19, 2012

This one's for YOU (Part 2)

I know two retirees, both single women, who retired and then spent their entire retirement lump sums. Neither of them spent the money on anything that could generate a penny in income. One has since gone back to work, but is very fond of beautiful (expensive) clothes and drives only leased cars. Last I saw, she was driving a Lexus. The other had a similar story. Not quite as much conspicuous consumption, but she was worried about continuing to maintain her home and her own long term care needs.  Both I think, felt that it was too late to address their situations. They're both wrong.

Here's what I say: there is no such thing as 'too late'! It may be 'later than is ideal', but it's never 'too late'. If you're reading these posts regularly, you understand that that's what I'm trying to communicate. I don't share our chaos lightly. I do so in the desperate hope that someone, somewhere, is taking notes and trying to turn their family's ship before it runs aground.

So, with that preamble, here are the remaining three ideas from "This one's for YOU". As promised, this installment contains my thoughts on: generating lifetime income; paying off the mortgage and covering emergent medical expenses.

  1. Figure out how you're going to generate income for the rest of your life; income that is not related to or dependent on your pension. This income, ideally, will not require you to lift a finger. For some, it may come from investment property or investments. For others, it may come from a small business, 'a side hustle' as we like to say in Trinidad. What will it be for you? Creating a stream of passive income could be the very best thing you ever do. Perhaps in the beginning, this stream of income will require that you work very hard or require that you burn the candle at both ends. Recognize though that if done well, the exhaustion will have been worth it. There's nothing like checking your bank balance to see dividends paid in, or rents deposited to bring a smile to your face. Maybe it'll all make you rich, maybe it'll just allow you to stay afloat, either one will do.
  2. I've always thought that the best thing you could do for yourself was to ensure that your mortgage was paid in full at the time of your retirement. If you have a tentative plan to retire at 57.5 make sure that your mortgage is coterminous with your employment. That is to say, ensure that your mortgage bill will be paid in full at or before your last pay check. Not easy, but doable.....unless you're retiring tomorrow.
  3. And last but not least, if you have a family like mine, where it's one for all and all for one, you may want to consider creating a family account where everyone pitches in and saves money for emergent health care expenses. My family created one such (I wonder whose brilliant idea that was?) in 1998, which has paid for more than one emergency room visit with enough left over to help me pay for some bricks and mortar when I was building in 2009. Figure out who the signatories should be, the rules for withdrawal and repayment if any and get started. It's never too soon to start and it's certainly never too late.

    Why this is all necessary

    It may help to bear in mind that government retirement incomes are (in Trinidad and probably the rest of the Caribbean as well) on average only 67% of your last three years' wages. I don't imagine that the US is much different. Whatever that number might be, it represents an immediate pay cut of 33%. In one month, you would go from full pay to two-thirds pay. That alone should give you pause. Do you have a plan to close that one-third gap, or will you start immediately drawing down from savings? That gap will only widen as inflation takes its toll on your pennies, so you need a plan. You must either close the gap or live perpetually in a state of being just a little short.

    At the end of the day, this isn't about getting rich, though if you start early enough it's possible to get quite comfortable. I spoke with someone from the AARP headquarters here in DC and in our conversation he mentioned that the average retiree begins retirement (are you sitting down?) short $250,000 in savings. What I'm talking about, is filling that hole and trying to anticipate the other holes that may yet open up. Most folk have no idea what they might need to retire secure and comfortable. I know I don't. I'm guessing what I need is *a lot* and my current shortfall is *significant*, so I've got work to do. My work is in creating (done) and implementing (in progress) the plan to fill the hole.

    I say to you again, money (gratuity and other savings) is finite and always runs out, no matter your good intentions. Passive income, on the other hand, never runs out. You can rely on it being there. Take the time, while you're relatively young and you have time for mistakes and set backs, to create an income stream that will last. It's worth it to make the effort. Believe me. I know. It's taken me two years, and I'm 5 years later than I should have been, but I know that it can be done. As my situation attests, it's even possible to build something while juggling paying for care, but that's not a path that I recommend AT ALL. This is why I write, I'd like to save you this heartache. 

    So go out and do something: write a book; sell Avon, Mary Kay, Amway. Do something! Build a room and rent it out; buy a house and rent that out; bake cookies; sell jub jub and coconut drops, mauby and pickles (just don't buy a stupid time share!). I don't much care what you do, just that you do.  

    Lest any be confused, this is not about greed, it's about survival. Would that my family had understood that a decade ago.

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