We do love it when someone refers a family member or friend to us. Sometimes the question is, “How can we introduce them to you?” Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.
Here are this week’s items:
Portfolio Update: Murs and I have recorded our portfolio update for May 6, 2024
In this Episode of the Secure Your Retirement Podcast, Radon, Murs, and Nick discuss downsizing in retirement. Scenarios such as lifestyle preferences and financial needs are what make downsizing a consideration for retirees.
Listen in to learn how we use practical scenarios to help clients…
Nick Hymanson, CFP® from our office, joined us this week on our latest podcast, where we talked about something many people overlook in their retirement planning: downsizing.Nick often meets with clients to review their retirement focused financial plan, making sure…
Nick Hymanson, CFP® from our office, joined us this week on our latest podcast, where we talked about something many people overlook in their retirement planning: downsizing.
Nick often meets with clients to review their retirement focused financial plan, making sure everything is up to date and the clients are happy. Sometimes, there are needed adjustments that are identified, and Nick works with clients to address these as well.
And one of these adjustments relates to downsizing in retirement.
We’ve noticed a common conversation recently where some folks are interested in discussing:
Downsizing into a smaller home
Downsizing into a home that’s easier for them to get around in
Let’s dive deeper into this topic and look at a few scenarios.
Scenario 1: You’ve Been in Your House for 30 or 40 Years
Let’s say that you have been in your home for 30 or 40 years. Maybe you raised kids in your home, and it was set up for the lifestyle you had 20 – 30 years ago. Unfortunately, the house isn’t set up for where you may be now, or in 10 years.
Often, retirees are in a much larger house than they need for the lifestyle they have now, and it would be nice for the main bedroom to be on the first floor.
Pros and Cons
In addition to wanting your bedroom on the first floor, you may want:
Fewer stairs
A smaller space that is easier to maintain
Downsizing may mean worrying less (or not at all) about constant tasks like yard work, stairs, and cleaning additional bathrooms.
In the Raleigh-Durham area, housing prices have been going up for quite some time. People are concerned about going into a smaller home that may be even more expensive than the home they are in currently. From a financial perspective, moving to a new home may be an even exchange but the person may lose some square footage and land.
Depending on the community, landscaping, and some outside work that you may not be able to do on your own may be included.
Scenario 2: Cash Flow Scenario
You’re in a beautiful home, but you want to reduce the mortgage and the strain it may have on your financial plan. From a cash flow perspective, downsizing may be a better option and provide peace of mind for the next 10 – 20 years.
If your house has appreciated in value and you don’t have much to pay off on the mortgage, you might find yourself in a scenario where you can sell your home and buy another one in cash.
A $1,000 – $3,000 mortgage can have a drastic impact on your financials.
When we look at a retirement plan, we look at a person’s income and expenses to see where they may be having stress in their finances. For some people, downsizing can either:
Reduce the mortgage
Eliminate it
If you eliminate the mortgage, you may have the additional cash to travel or have less of a strain on your finances in retirement.
We talk to clients from the beginning about their homes and if it makes sense to downsize.
Planning from the start to downsize can offer a realistic view of what freedom selling the house may offer. Of course, not everyone will need to sell their home or have a desire to do so.
If selling does make more sense from a cash flow or mobility standpoint, then it is something that is worth discussing with a financial advisor.
Moving to a CCRC is a conversation that we have, too. The CCRC allows you to receive community and care throughout the various stages of retirement, which is also a nice perk.
What Happens in Our Strategy Meeting
We have software that allows us to plug in the numbers and look at what your financial decisions today will mean in the future. Let’s assume that your target date for retirement is five years from now.
In five years, we can simulate:
What the sale price of your home is likely to be in five years
Tax consequences of selling the home
What it looks like if you use the funds to buy into a CCRC or another home that’s better for your scenario
Our goal is to show you how downsizing in retirement may benefit you. We’re able to see how a lower mortgage (or no mortgage) can benefit your overall cash flow and retirement plan. If you don’t have a $1,000 – $3,000 house payment, it can make a world of difference in your expenses.
Visualizing all the cash flows through the software helps you feel more confident in your decision, which may or may not be to sell your home.
We can look at this scenario for you if you have two homes and want to sell one in the future or even if you want to make a large purchase in the future. Seeing the figures of your retirement and how the decisions you make today can shape your retirement is empowering.
If you need help to secure your retirement, are considering downsizing and want to see how it may benefit you or want to know if you can really afford that once-in-a-lifetime trip, we’re here to have that conversation with you.
We do love it when someone refers a family member or friend to us. Sometimes the question is, “How can we introduce them to you?” Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.
Here are this week’s items:
Portfolio Update: Murs and I have recorded our portfolio update for January 22, 2024
In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the risk and reward concept in retirement investing and how your age and life experiences will impact it. You will also learn how to avoid uncertainty and unpredictability with an investment strategy and the importance of a good long-term strategy and a diversified investment portfolio.
For a moment, you might be up and doing pretty well, but just like the stock market, things changed quickly. Risk and reward are crucial in retirement planning. You can roll the dice on investments and certain things a little more when you’re younger, but many want to limit rolling the dice when you’re 5 or 10 years away from retiring.
We were recently at a conference in Las Vegas, and it made us think about the retirement gamble. Gambling isn’t for everyone. Someone will hit a jackpot, but others simply aren’t good at it.
Murs went into the casino, and within ten minutes, he had lost the $100 he had set aside.
For a moment, he was up and doing pretty well, but just like the stock market, things changed quickly. Risk and reward are crucial in retirement planning. You can roll the dice on investments and certain things a little more when you’re younger, but many want to limit rolling the dice when you’re 5 or 10 years away from retiring.
When Does Risk Change in the Retirement Gamble?
Risk doesn’t matter as much when it’s money that you have set aside. If you put $10,000 into crypto using money that wasn’t going to be for retirement and whether you lose it or it triples, the outcome will likely feel different because you used money that was set aside. However, risk should be tamed the closer you get to retirement because you don’t want to have to be in the workforce for an additional year or two or more due to too high of risk.
Your risk tolerance can change at any time, but we often see two main circumstances where it changes:
Life experiences and milestones
Age
We have some clients in their 80s that are rather aggressive investors, and they’re often business owners who have dealt with ups and downs regularly.
Other clients are much younger and more conservative in their investments because they’ve been burned on investments in the past. These clients don’t want to deal with losses like they did in 2008.
Of course, the stock market is risk and reward, but there’s a stark difference between the risks of certain stocks. One stock may be in a dying industry, while another is a major grocery chain with less risk.
There’s no absolute wrong or right answer to the risk that you’re willing to take. We help our clients manage risk based on their tolerance so that they can be confident in their retirement strategy.
Uncertainty in Your Investments and Retirement
When people sit down and really start retirement planning, it’s common to have some uncertainties. You’ve never lived through retirement, and you don’t have experience knowing how to transition to using your retirement funds to:
Pay the bills
Derive income
Address taxes
You can have predictability and certainty in your retirement plan. Rules, just like at the casino, can help you manage your money so that it lasts the rest of your life. Plans allow you the freedom to leverage advanced tax strategies and have a steady stream of income from retirement that allows you to live the life you want without running out of the money you worked hard to invest and save.
Instant Gratification vs a Good, Long-term Strategy
Picture back in 2020, during the pandemic, there were MEME stocks, such as Bed Bath and Beyond and FOMO (fear of missing out). You would see on the news that investors were riding on the coattails of certain stocks, and everyone would follow the crowd.
Ultimately, these people who followed the crowd lost a lot of money because many of these stocks were being over-inflated.
People had a lot of fun with these trends, but as a long-term strategy, these trends ended up failing. A long-term plan is your best choice for retirement. We believe in multiple “buckets” in retirement so that all your money isn’t tied to the market.
For our longtime listeners and readers, you know we often discuss a few main buckets:
Growth
Safety/income
Safety/income buckets may make a 4 – 6% return in the next few years, and they’re not tied to the S&P 500. You can be confident that this money will be there for the next 10 – 20 years.
Growth buckets are separate from the safety and income buckets.
We can act like we’re in the casino with a growth bucket, still investing wisely, but your safety/income bucket is secure, and you can ride the ups and downs of the market. Volatility is here to stay in the market and it’s important to have a long-term strategy in place that allows you to secure your retirement and still make a nice return on investments.
Diversification in Retirement
You don’t want to put all your eggs in one basket or bet everything you have on one investment. A savvy gambler will put money on multiple games, and that’s what you should consider doing in your retirement.
For example, if your growth bucket has a high level of diversification, you hedge against losses and still have your safety/income bucket to rely on.
If the market goes down, you don’t have to stress or the emotions of the S&P 500 being down 20% because you have the money in your safety bucket to maintain your lifestyle. Your safety bucket allows you the freedom to let the stock market go back up again because history shows us that it will go back up if enough time passes.
It’s easy to see stocks down and sell because you’re down hundreds of thousands of dollars. But you’re less likely to sell at a loss and make a rash decision like this when you have other money to rely on.
Psychological Aspects of Investing
Investments are a gamble. Sometimes, people get stuck, and they say well, “I lost $1,000, but I have a good feeling this stock is going to rise.” Behavioral finance shows that sometimes people make decisions they may later regret based on what’s happening at the moment.
A sound strategy allows you to take a step back and avoid making rash decisions because you lost money in the stock market.
It’s inevitable that you will lose money in the market – periodically – but these losses are very likely to turn around. Going into the market with a plan of action and staying the course (with tweaks along the way) is better than making rash, costly decisions.
We don’t want you to gamble with your retirement.
Work with someone who will help you with investing, tax planning, Social Security and all of the other aspects of retirement. It’s helpful to have a professional in your corner who can help you navigate the different aspects of retirement.
We don’t have all the answers, but we have people on our team who can help.
