Owning A Home Could Be Your Strongest Retirement Asset

 

Despite the fact many people think owning a home in retirement is a big mistake, it could actually end up being your strongest asset. There are several benefits in home ownership during retirement. Today we will discuss just a few of these.

 

Lower Variable Costs

A variable cost is one that is not definitive from month to month or year to year. These costs can change, and while your mortgage or property taxes may increase slightly over the years due to inflation it is nothing in comparison to the quickly rising costs of renting.

 

Keep Money In Your Portfolio

When retirees run into rising rent costs they tend towards pulling money from their portfolios. This is, of course, what those portfolios were built for – to cushion you throughout your retirement. Unfortunately, once that money has been withdrawn or those stocks sold, they no longer make any profit or receive any return on investment.

Without a large mortgage or rental payment more of your portfolio can stay intact longer. The less you withdraw, the more of a cushion you are provided for those events where a larger sum of money may be needed – certain healthcare costs or purchasing a new vehicle, for example.

 

Generating Income

A big benefit to owning your home is that you are given the potential to generate income beyond any social security or pension payments you might have. There are two ways this is possible.

First, if you are over the age of 62 mortgage companies will allow you to borrow against the equity placed in your home – called a reverse mortgage. You are not required to repay this amount for the duration of your life, either. Remember that things which seem too good to be true often are, however, and there are costs associated with this type of income – such as the potential for losing your home or passing debts onto your children.

Second, you can rent a portion of your home out. If you have a spare room or two you could rent the space out for a small influx of monthly income. Depending on where you live and how much real estate is going for, you could potentially generate $200 to $600 a month for each room you rent.

 

Better Tax Breaks

Owning your home outright allows for much better tax breaks. Property taxes, for example, are deductible whereas rent is not. Oh, and if you choose to take the route of a reverse mortgage that money is not taxed – meaning you could potentially create a tax-free income.

 

When to Rent

Sometimes renting may be the best option. For example, if you can get a good deal on a rent-controlled apartment you may want to take that option. These are very hard to come by, however, because – of course – they are in an incredibly high demand. Before jumping on one of these opportunities, however, make sure you have the necessary income to maintain such a dwelling.

All information presented in this article is intended for general information purposes only. Such information does not constitute legal, tax or financial advice. Investors should consult with their legal, tax and financial advisors concerning their personal circumstances. The information contained herein is derived from publicly available sources, but its accuracy cannot be guaranteed.

An investor should consider investment objectives, risks, charges and expenses before investing. All disclosures should be read carefully before investing. Investments are subject to investment risks, including loss of principal amount invested.

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Is One Million Dollars A Lot in Retirement?

 

 

When people think of how much money they should save for their retirement, a million dollars tends to be the ultimate goal. In years past this amount of money may have been considered a vast sum that would not only pay all expenses during retirement, but cover the costs of funerals, burial plots, and leave inheritance. These days? Not so much.

 

Wide Variations Across States

The truth is that it depends on where you live as to just how much money a million dollars is. The cost of living varies greatly across the different states. Where you might be able to live moderately well for two decades on a million dollars in some states, it will barely buy you a dozen in others – if that long.

Thinking about this consideration, GoBankingRates decided to do a little investigation and crunch some numbers. They compared the average annual expenses for people over the age of 65 in each state to see how long a million-dollar nest egg would actually last. The results took into consideration food, household items, housing, basic utilities, transportation, and health care. It did not, however, take into consideration any investment income (like interest on savings, for example).

 

5 Most Affordable States

If you are looking to find the states with the most affordable living the following five show the most promise. With a million dollars you could live fairly well for more than 24 years. This means that someone who retires at the age of 65, they would be able to afford all their normal bills until they reach approximately 89 years old. Most of these states are located in the southeastern US.

1: Mississippi – 25 years, 11 months
2: Oklahoma – 24 years, 8 months
3: Michigan – 24 years, 7 months
4: Arkansas – 24 years, 7 months
5: Alabama – 24 years, 7 months

 

5 Least Affordable States

The following five states are the most expensive, which means that a million dollars would give you the least amount of years in retirement. Incredibly, the least affordable states would only allow for 11 to 16 years of moderate living. Those retiring at age 65 would only have their expenses covered until they reached about 76 to 81 years.

1: Hawaii – 11 years, 8 months
2: California – 15 years, 5 months
3: New York – 16 years, 8 months
4: Alaska – 16 years, 8 months
5: Maryland – 16 years, 8 months

 

The Takeaway

So, is a million really that much? The answer varies widely based upon which state you live in. Even within a state the cost of living can drastically shift with just an hour’s drive. If a million dollars is your goal for retirement, the best advice is to do your research. Consider your current cost of living and think about how long a million would really last you. Take into consideration inflation, emergencies, and more.

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How to Stay Happy in Retirement

 

The idea of not having to work is exciting, but upon reaching this momentous milestone many retirees realize it is not all they thought it was going to be. The reason so many people feel this way is a failure to plan accordingly for the two biggest challenges in retirement: finances and free time. Below we have some suggestions on how to plan for these two key categories, so you can stay happy in retirement.

 

Finances

The sooner you can begin saving for retirement the better. Not only does this allow you the option of having a larger nest egg, but it can make saving for your goal significantly easier for those with tighter budgets.

Another idea is to plan to work part-time during retirement. This can successfully increase your monthly budget while taking up a little bit of your free time. If you are receiving social security, make sure to check current allowances for supplemental income first. Typically, allowances are made for one to two shifts per week. Even better, you could work from home as a freelancer.

Other ideas for how to help with finances during retirement include:

  • Taking out a reverse mortgage
  • Renting out a spare bedroom or two if you own your home
  • Building a diverse portfolio of stocks and bonds
  • Pay off any large purchases (like a mortgage or car loan) before retirement if possible, to reduce your cost of living

 

Free Time

All that extra free time is often cited as even more an issue than finances. While the idea of having no job to go to each day sounds great, many retirees find themselves growing bored fast. Even worse is that most people do not plan for this element of retirement. They may fantasize about the trips they can take or the people they will now have time for, but they do not really PLAN for it.

We mentioned getting a part time job in the previous section and that can fulfill the need for something to do, also – not just supplement your income. Working one to two days a week can offer some schedule to your retirement, even if you only work four hour shifts or decide to freelance from home.

If you would really rather not work, there are a lot of other options that can offer you a loose schedule in retirement. Volunteering is one way to give back to the community. You could volunteer at hospitals, nursing homes, churches, food banks, soup kitchens, or other community organizations.

Now you have time for friends, you should try to see them. Try setting up a weekly lunch date with other retired friends or family members. By creating a group of at least four people you can be sure someone will show up each week.

If health allows you could join a bowling team, create a walking group, or join a yoga class. Many fitness centers offer classes specially designed for seniors which are easier on the joints. This is a fantastic way to socialize and stay healthy at the same time.

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How to Diversify Retirement Savings

 

Saving is vital to a happy retirement, and the key to saving is diversifying your portfolio. As the old saying goes, “Don’t put all your eggs in one basket.” In this case, we are speaking about your nest egg. The idea is that by investing into different applications you can save yourself from financial ruin. If your eggs are all in different baskets you still have some when a single basket gets crushed. Below are several different ways to save for or during retirement.

 

Stock Market

Varying your stocks to include an assortment of investments will help to offset the chance of all stocks bottoming out simultaneously. You may want to consider asset allocation and index funds, among other options. Be aware that this should be far from your primary retirement savings form. While you can earn serious money on the stock market, you can lose it just as quickly.

 

Cash Savings

Cash savings is typically people’s primary form of savings because it helps provide a cushion should other investments fail, lose money, or need to be sold off. Cash never goes out of style. The best part? These savings have already been taxed, so it is kind of like having free money in retirement.

 

Real Estate

Selling your home can provide a considerable lump sum at the start of retirement. Alternatively, you could consider a reverse mortgage where money is borrowed against the equity you’ve already paid into your home. Another option is to rent out your spare bedrooms, or even consider purchasing investment properties to rent out.  

 

Certificate of Deposit Accounts

Certificate of Deposit accounts are better known as simply CD’s. This is a very easy way to earn a small amount of interest. The exact number fluctuates based on the account and how long the money is left inside, but typically ranges anywhere between one and four percent. The drawback is the money can not be touched for the agreed upon term, which can range anywhere from three months to five or more years.

 

Social Security

SSI is earned by meeting a certain number of work credits. If eligible, you can begin to receive social security checks upon retirement. Keep in mind this should not be your only source of income, because SSI is notoriously low.

Unfortunately, many people nearing retirement wrongly believe these checks will cover all their expenses and fail to plan for other sources of income or savings.

 

Working

The final option is to work part-time while in retirement. This may sound a bit redundant, but many people find they enjoy having a small schedule to stick to it. It not only helps supplement income, but keeps seniors busy, allows them to socialize, and generally gives them something to look forward to each week.

You can even work part time and still receive SSI. Just make sure you check the current laws and regulations against supplementing your SSI checks before signing any employment paperwork.

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