With interest rates continuing to hold near historical lows since 2008, retirees increasingly find themselves in a struggle to produce enough cash flow to pay their bills. In addition, life has a way of producing financial surprises that force people to dip even further into their savings. Whether you are a pre-retiree (10 years or less away from planned retirement) or already retired, here are some strategies you can use to boost your retirement cash flow:
- Get a handle on your retirement expenses. Take a moment to sit down and go through your expected expenses for the next twelve months. For retirees, the best place to start is to review your expenses for the past twelve months. Pre-retirees should go through the same exercise but note which expenses will likely change during retirement years. To help you I’ve created a simple Retirement Cash Management form. Visit the Resource Center at www.WelchGroup.com; click on ‘Links’; then ‘Budget- Retirement Cash Management’.
- Downsize your home. For most people, their home is their single largest asset. Our goal for our clients is to be totally debt free, including home mortgage, by the time they retire. If you are debt free at retirement, downsizing will release some of your home equity which can be invested for additional cash flow. If you are retired but still have a mortgage, your goal should be to downsize enough to be mortgage free. You will have effectively increased your retirement cash flow by your mortgage payments. When you downsize, be sure to carefully evaluate the maintenance costs of your new home. Look for a property that will be low maintenance.
- Downsize your geography. A lot of people are not willing to pack up and move to another town or state but if you are, you can significantly reduce your living expenses including housing costs, property taxes, healthcare expenses and state income and sales taxes. For a list of possibilities, Google “Most affordable places to live for retirees”.
- Take a reverse mortgage. Reverse mortgages have come a long way since they were first introduced in the early 1960’s. Today they are highly regulated by the U.S. Department of Housing & Urban Development (HUD) so you don’t have to worry about shady operators or getting a bad deal. With a reverse mortgage, you choose to have the mortgage company either:
- Pay you monthly payments for life
- Give you a lump sum to invest as you please
- Provide you with a line of credit that you can draw on as needed
- The mortgage company takes all of the risks associated with the loan and you can never end up owing them money because your house value falls below your total loan amount. This is true for your heirs as well. The loan stays in place for as long as you live in the house. If you move out because of nursing home needs, death or any other reason, the home must be sold, generally within six months, and any proceeds left after satisfying the loan are returned to you or your heirs. For more information, visit the Resource Center at www.WelchGroup.com; click on ‘Links’; then click on ‘Reverse Mortgages’.
- Work longer. For pre-retirees, it’s critical that you do a detailed retirement cash flow analysis to determine how much capital you’ll need to meet your retirement income goals. This is one instance where you should seek professional advice. In my experience, it takes a lot more money than most people think to fully fund a retirement. The result of the analysis may strongly suggest that working a few more years than you originally planned is your best solution.
Next week, I’ll continue with Part II of Best Strategies for Retirement Planning.