Last week, I was traveling (thus the lack of posts…sorry!). My father had quadruple by-pass heart surgery in Birmingham, Alabama. Just as an aside, he is doing extremely well following the surgery. Thanks to the many of you who inquired or prayed for my father.
On the flight from Tampa to Atlanta (first leg), I was fortunate enough to sit by a older women heading to Eugene, Oregon to take care of her brother, who has cancer. She liked to talk so I obliged and asked her about life as a retiree. She told me what I believe is a pretty common story of retirement gone bad!
She and her husband had retired early from AT&T with a lump sum distribution package. They hired an advisor who invested it all with a “buy and hold” strategy in the markets.
They then relocated to Crystal River, Florida (a sleepy retirement area north of Tampa, Florida) from San Diego, California. She told me the cost of living was lower and that she had family on her side in Florida.
In 2007-2008, their investment portfolio was devastated! As a result, they both have had to take jobs in retirement to afford the larger home they build in Florida. She works at the Home Depot and he works at Publix (a Florida grocery chain).
After having lived here for five + years, all their Florida relatives have now passed away and they long to spend more time with their grandkids in San Diego, California. However, they cannot afford to do so.
So why do I tell you such a sad story? Because this sad story didn’t have to happen! Their planning was flawed and I hope you can learn from her situation.
So here are a few ideas I gave her on how to overcome this sad story and/or avoid it in the future:
First, we discussed her home in Crystal River. It seems she and her husband wanted to build a dream home. So they used part of their severance package from AT&T and the proceeds from their small home in San Diego to build a large home with pool in Crystal River. Now it turns out this home is too large and they never have time to use the pool.
My observation to her was “you did this backwards. You should have had the larger home when your kids were home and you should now be downsizing, not upsizing.” She, of course, agreed but seemed stuck on what to do about it.
I inquired as to the value of the home and she stated probably about what they had in it. I suggested they consider selling it right now. “The market for real estate is being artificially propped up and now is the time to get out,” I told her.
We next discussed her portfolio. She said they lost a lot in the markets in the 2007 –2008 financial crisis. We talked about “buy and hold” and I then explained to her the problem with this strategy. The problem is that in a period of major economic turmoil (secular bear markets), like now, you will be lucky to earn back your losses by the time the next major crisis begins. My suggestion to her was she needed to diversify by strategy in her portfolios as well as positions. I referred her to our blog post and video on How to Get Rid of Your Investment Worries Once and For All. I suggested she mix more active investment strategies, like trend following, with the buy and hold approach for better long-term returns and a smoother ride.
Next, we discussed their current situation. Since the both took their pensions with AT&T as lump sums, they had no other retirement income. They were both too young for social security and thus were working at Publix and Home Depot to make ends meet. I suggested that selling the house would alleviate some financial stress, but I also suggested that they take a look at relocating to somewhere else where the cost of living was lower and where the population was younger, providing the necessary care givers for future years. I suggested that she Google the cost of living index by country.
I further suggested she explore alternative retirement locations based on a review of those countries listed below the U.S. on the cost of living index. For example, Columbia, Peru or Mexico all have a lower cost of living index than the U.S. She and her husband could downsize, see their dollar go further, use some of the proceeds for the home sale to get them to their retirement age and social security and still have some money left over to visit their grandkids in San Diego. They could still work if they chose, but probably would not need to.
Since these countries generally have a younger populations than the U.S., they would also have more available caregivers, if necessary.
She liked these ideas, but I could tell she needed something else. Finally, I suggested we could help you model this, take a look at your investments and hold your hand through this entire process. She liked that idea!
Did you know we can do the same for you? Why not sign up for our Free Second Opinion?
How about you? What is your retirement dilemma? Maybe we can help. Just leave a comment below.