STAGE 1 -- DRAWING ON THE EXPERIENCE OF OTHERS

Ron Iverson, copyright, 2007

Following are examples of drawing on the experience of others-- misconceptions which caused problems.  Knowing the problems ahead of time, will help provide information to those seeking solutions in this series of articles in the blueprint.

Experience Example No. 8:  "We want to do some things to enjoy retirement, but the money just won't seem to stretch..."

For a varying period of time retirees feel good enough to remain active, but doing so usually requires money--money for travel, money for entertainment, money for dining out, etc.--all of which means that money must be there to supplement activities of time replacement, which formerly had been time spent at a job.   Without the proper funding up front, years of retirement can become a hardship for those who outlive their money and their ambitions, to continue enjoying the retirement. 

The retiree normally is active until some incident of bad health sets in.  Then money matters take on a new priority--and, obviously, for both spouses.  At that time, "making the money stretch" will require proper planning far ahead of the event, both in terms of medical insurance (cure) matters and possible long term (care) matters.  In short, doing the things to enjoy retirement is a matter of planning, not an "on the spot" decision.

Experience Example No. 9: "We thought the rising value of our home would be enough."

The incredible growth in the value of real estate during the last four decades has indeed been a blessing for homeowners.  Although this trend took a slight downturn in 2007, appreciation of real estate has outstripped the imagination of any young family who purchased a home during this period.  Even a home purchased for $25,000 thirty years ago may well have a value of $200,000 today.  That is the blessing.  However, other factors have surfaced which run somewhat counter to the positive factors.  Rising property taxes, increasing homeowners insurance premiums, higher costs for repairs and improvements, and hefty raises in utility bills have become a burden for the fixed-income homeowner.

An old phrase, "House rich-Cash poor" aptly fits the situation.  While an income was available during the time the value of the home was appreciating, the loss of the income through retirement, leaves the homeowner with the inflationary leftovers of that ownership.  Thus, the problem is created.  Assuming that a mortgage has been paid, or is nearing the end, the retiree is left with both a blessing and some challenges.  The good new is that the challenges can be overcome with a little-known technique called a "Line of Credit Reverse Mortgage."  The value of the reverse mortgage is addressed later in the "Solutions" part of this retirement blueprint.

Experience Example No. 10:  "We thought taxes were supposed to go down when we retired."

This is just silly thinking, probably perpetrated by wishful thinking and poor self advice.  Likely, only income taxes--and then done with accounting advice--have a sensible chance of going down.  Who could expect that any other tax will go down?  Certainly not property taxes. And while sales taxes, excise taxes, "sin taxes", gasoline taxes and several other forms of "hidden" taxes should hold fairly steady, count on them being a factor.  We are even subject to "bed taxes" in nursing homes-in most states-and very high ones at that.  Figure that one out, if you can.  The point is that counting on taxes going down is not even wishful thinking--they have an impact on those retirees trying to live within a fixed income. 

However, the good news is that you can logically calculate to some degree what taxes you can expect to encounter, normally based on geographic location and property values.  In other words, sales taxes saved in one location, may be offset by higher property taxes in another-and so on.  Look at the expected tax burden before you leap into retirement.  But don't expect any tax other than income taxes to go down.  Won't be happening.

Now that we have covered the nine parts of Stage 1 of "A Retirement Blueprint," in a few days, we will move on to Stage 2 "A Personal Asset Inventory" in our next installment--Part 10.