Part four approaches retirement planning from another angle. If maximizing assets is one way of ensuring the retirement of one’s dreams, another way might be to simply adjust those dreams slightly. Brigham Young University professor and financial adviser Scott Marsh offers some tips about reducing one’s retirement needs.
One of the first suggestions many financial planners offer as a way to trim needs is a reduction in housing. Downsizing the home reduces the mortgage payment and may even eliminate it.
But with housing prices down, many homeowners balk at putting their home on the market. They worry they won’t get the proper return on their investment. However, the market should not be the driving factor in making this decision, according to financial adviser Scott Marsh. Instead, homeowners need to look at their own personal big picture. Debt is a negative investment and anytime a negative investment can be eliminated, it’s wise to do so — notwithstanding the current housing market. Yes, they’ll be selling low, he acknowledges, but they’ll also be buying low. The goal should be to eliminate mortgage debt completely.
Another possibility Marsh suggests is a reverse mortgage. These mortgages are a type of home loan available to seniors that allows homeowners to convert equity into cash. The obligation to repay the loan is deferred until the home is sold or the owner moves or dies.
Though reverse mortgages have become increasingly common during the past 30 years, Marsh still sees clients who resist the idea. “They say, ‘I want the house to go to my kids,’” he explains. But in a world where fewer than 15 percent of private companies offer employee pension plans, and where Social Security payouts are about to drop in real value, Marsh believes reverse mortgages are going to become a way of life for many more people in the near future. “I call them the 2030 Pension Plan,” he laughs, explaining that by then, retirement income needs will make reverse mortgages a necessary option for many.
As with a standard mortgage, the way for people to maximize their reverse mortgage benefit is to eliminate debt. “People will want to take a paid-off home into retirement,” Marsh predicts.
Other areas where Marsh sees room for reducing retirement expenses include food and medications. In his experience, some seniors become less conscientious about food expenditures. He encourages clients to plan menus ahead and purchase in advance, which can cut the household food budget by up to 50 percent. Shopping around and buying in advance are also important ways of reducing medication expenses.
Marsh’s final suggestion concerns travel. For many people, retirement dreams include plans for exotic vacations. But Marsh points to the recent “stay-cation” trend as a good solution for retirees. The question many ask is, “Can I accomplish the emotional release, relationship development and curiosity satisfaction that travel offers while staying closer to home?” Marsh’s research suggests the answer is yes. He cites a client in Arizona whose neighbors sponsor short trips for each other. The people who participate report a great sense of fulfillment. They enjoy learning about their local environment, and when they particularly enjoy a locale, it’s close enough to visit again.
Marsh recommends sitting down with a financial adviser for more information about reverse mortgages and the other strategies he recommends. Remember, your retirement plan should be as tailored to you as are your retirement dreams.
Featured in the July/August 2009 issue of Zions Bank’s Community magazine.
