Husband and wife at 60 want to retire owning $600,000 house with no mortgage and 300,000 savings,what to do?

Question

Getting combine $2000 from pension securities, how would you retire?

Answer 1

First, you can retire and you are actually in pretty good shape. Below is an explanation how I would do it, and why, but this is by no means the only way.

First, I would sell that house, and buy a small condo in a retirement community. The condo shouldn't cost more than $100k. This is achievable in many areas of the country. This gives you $500k from the sale of the home + $300k in savings, or $800k for investment.

Now, with the $800k, let's look at your big risks:
1) If you live too long, you can run out of money.
2) If you get sick, long term and medical care can eat up your savings fast.
3) If you get stupid, you can spend your money too fast, make unwise investments, or trust your money to an unscrupulous adviser. Nothing encourages unwise financial decisions like a few hundred thousand in a savings account.

I suggest fixing risk #1 and #3 with an immediate fixed annuity. This is like life insurance in reverse:
- With life insurance, you pay them every month until you die, then get a chunk of cash.
- With an immediate annuity, you give them a large chunk of cash and they pay you every month until you die.
Specifically, I would want a joint immediate annuity (that means it pays until you are both dead) that indexes for inflation. If you don't index for inflation, the payments will be bigger today, but they will look really small in 20 years when everything costs 3x as much.

For $800k at your age, Vanguard (one annuity provider among many) will give you about $32k/year with their joint-inflation-adjusted product. Vanguard isn't the only provider of annuities, but they are a good one. Shop around. Just about every life insurance company or financial services company offers annuity products.

So, you've got $32k/yr from the annuity + $24k/yr from pension = $56k/year with no mortgage payment. That ain't bad. And, in a few years, social security will kick in, giving you a bit more. You will live a good middle-class lifestyle. You won't be jetting to Bora Bora every month, but you won't be sweating where the grocery money is coming from either.

Now, we have risk #2.
- Buy long-term care insurance. If one of you gets sick, the $56k/year isn't going to cover a nursing care.
- Buy health insurance until Medicare kicks in.
- Buy prepaid funeral arrangements. Because of the annuity, your heirs won't get an inheritance - annuities don't pay anything after your death, so at least don't sock 'em with a big bill.
Yes, all this insurance is going to cost you a packet. And because of this, things might be a little tight until Medicare and Social Security kick in.

Lastly, consider what you want to do and where you want to go/live. The $100k home is available in many parts of the midwest and south, but if you are dreaming of a coastal lifestyle, it may be out of your reach. Think about how you want to spend your time.

The good part of my strategy is that your investments (pension, annuity, social secuirty) don't require active management. You don't have to worry about your investments or money. If you LIKE investing, you might make more trading, but you won't get the same level of secuirty, and you can't guarantee that you won't outlive your money.

-->Adam

Answer 2

Wow, reading the other answers is interesting.

Move to mexico, reverse mortgage, sell your house and move to somewhere cheaper are all plausible (I'd add move to Panama, hear you can live well on social security alone down there but need to brush up on your Spanish).

So the other assumptions that need to be made are that you will have no additional health insurance costs to bear until you eligible for Medicare. You have no outstanding home equity lines, credit cards, car payments, etc. All your children (if you have any) are finished with college, etc.

I get the sense that you are frugal folks so the 2k will probably pay most of your expenses. You'll be eligible for social security (if you're part of the program) at 62 (partial benefits) and around 65 (full benefits). So you need to do some serious expense tracking to see what you are spending on a yearly basis and then do the math to see if its feasible. If you can live on your pension and social security, then enjoy your retirement.

And while I think life insurance is not needed, I think long term care insurance might be a wise choice (we looked at it several years back but didn't qualify due to pre-existing health conditions).

Besides looking at your expenses, you need to define what your plan is for retirement. You're likely to both have 20+ years in retirement.

Do you want to live by your children (well, that's nice but living by your grandchildren might be what you really want). Do you feel the mountains or oceans calling you? So housing and where you live plays a big part of the equation.

Part of the joy of retirement is that you get to set your priorities and have an enormous amount of freedom. But not having a plan can result in some serious boredom and searching. Better to do it while employed than afterwards. Maybe its time to work part-time at a task that you've always wanted to try. Also, quite a few seniors have started businesses as well. So take the time to define what your plans and goals are for the next 10 years and it will go a long way to helping you decide whether to retire.

Lastly, are you ready to move from savings mode to spending mode. This may sound a bit strange but we spend so much time saving for retirement, its actually pretty difficult for some to live off their savings. The way you approach money and expenses changes. A budget will help in this area. If there's an opportunity to work part-time or contract back with your current company, that may be desirable.

Whatever happens, I wish the both of you a long, healthy and joy filled retirement.

Answer 3

$300,000 will only spin off an average of 4-5% consistently, long-term, and since you are retired you must put it somewhere relatively safe. So your savings will earn you ($300,000 * 5%)/12 = $1250 a month, plus your pension is a total of $3250/month. There are folks that could live on that, but in 6 or 7 years, that will only have the spending power of $600-700 a month, so if you expect to live past age 70 you will soon run out of money, unfortunately.

You might consider selling the house, investing the money, and renting or buying less house...

Talk to an investment advisor.

Best wishes!

Answer 4

Not really enough to retire comfortably assuming you both are in good health and will live another 20+ years. However, you might be able to pull it off if you're willing to live modestly. If so, sell your house and move to an area where the standard of living is less and where you can purchase an acceptable home for about $200,000 or less. Make sure you carry good health insurance until you qualify for Medicare. Also consider having an umbrella liability policy. Wealth can be depleted quickly with health problems and/or by an unexpected lawsuit. Don't start taking social security until full retirement age (again, assuming you're reasonably healthy). Consider some part-time work to minimize depletion of your assets. Invest your assets in several "no load" mutual funds with a good long-term track record (about 50%) and the remainder in a mixture of high quality bonds and short-term investments. The money invested in bonds should be "laddered" over a 5-7 year timeframe (this means divide the amount to be invested in bonds by 5 or 7 and invest that amount in 1 to 5 (or 7) year maturities.

This recommendation probably gives you the best opportunity to stretch your assets with relative conservatism and an acceptable standard of living.

Answer 5

If the $2000 is per month, then it might be possible, but you'll be living frugally. Otherwise that $300K isn't going to last nearly as long as you hope.

Total up your bills including property tax, and what you'll need to live on the way you expect to, and see if your income will cover it. You are too young to dip into the $300K except for using the income from it.

Your other option might be to sell the house, but if you are in an area where housing costs are sky-high, that might not help since you have to live somewhere. Selling it and relocating to somewhere where you could buy a house for $100K would free up the other $500K

Answer 6

Get rid of the house. Start downsizing. Why have all of that space and start selling items? Buy a small cabin or house near a lake or in the mountains. Think only two now. Do so traveling and start seeing America while you are still able to. Go on cruises and see some of the world.

Answer 7

I agree with Frank Castle because that's how I have my retirement set up. You are guaranteed a set amount each month or however you want to set it up as. The rate of the return isn't great but you can't lost a dime even if the Stock Market has a bad month.

Answer 8

I could retire if I had $360,000 cash. HELP ! Am getting old and am starting to see my dreams slip away. So, how are any of you doing now? If you live in a mountain community within 45miles of a major metro like in Southern Cali, Denver, Sacramento, Washington, etc. and need a male housekeeper, buddy, butler, etc. send me a message. Am single, 43, tired of trucking and not able to live up to my dreams ( mountain living, healthy diet and exercise program, with a regular work schedule, taking care of greenhouse, pets, yard, etc.) thank you

Answer 9

I would move to an area that has no taxes like Delaware or Florida. Sell your house and move into a smaller one story house or condo that has very little maintenance. A retirement community would be good because you would meet people your age and have many activities.

We moved to a condo and I don't regret it at all. No more stairs, lawn, or worries about the roof, water in the basement, etc. Life is much easier and costs less.

Answer 10

Get a referral for a Fee Based Financial Planner. They don't sell anything, just consult for a fee. There are some good tips here but you need more info.