How do you plan for the unplanned?
Have you ever heard the adage, “Stuff happens?” Well maybe you heard someone use a different word or maybe you have even said this phrase yourself. The reality is that most of us have said this more than once in our lifetime because it is true, stuff happens! In fact, this phrase is even in Wikipedia and if you read what it says in Wikipedia, it says that “life is full of unpredictable events…”. I personally have modified this phrase and I say, “Life happens!”
So how do we plan for retirement when we simply don’t know what is going to happen tomorrow?
The world is filled with uncertainty and yet we must create a plan, so how do we do that? Well, one of the best ways is to have a contingency or backup plan in case your plan does not go according to the plan. Yes, you read that right, you must create a backup plan in case your plan does not go according to your plan. In other words, you must plan on your plan not going according to plan. Let me provide you a few statistics to validate my point:
• The housing market is in the process of value correction… house prices have gone down from their peak in 20221
• Only one in three retirees (38%) have saved enough for retirement2
• Nearly one in three retirees (30%) have nothing saved2
• 65% of retirees say they are not financially secure2
• More than half of retirees (51%) believe they will outlive their savings entirely2
• Nearly two-thirds of retirees (64%) retired earlier than they planned, with more than half citing health issues as the reason2
• 48% of retirees say the economic downturn of the COVID-19 pandemic impacted their finances- and 49% of those said their finances still have not recovered2
• 10 million seniors have reduced cash flow due to existing mortgage debt3
• Senior housing wealth has hit a new record at $11.81 Trillion, as per Q3 2022 for homeowners 62 and over4
I am not here to scare you, however I want you to understand the economic factors that we are facing in today’s economy. The reality is that people are living longer and the cost of living consistently goes up over time. Additionally, the longer we live, the more money we will need. On top of all of that, as we age, “life happens!” People get sick, have a loss of income or a loss of a spouse, etc. When these things happen, how do we handle our finances? Do our expenses go down as we get older or when we lose a spouse? Not typically. My father used to say, when life hands you lemons, make lemonade! This is why I tell people that you should get an umbrella so you are prepared for a rainy day.
There are different strategies to protect yourself in the event of a “rainy day” or when life hands you lemons. I am not in expert in all of the options or all of the different strategies, which is why I highly recommend that you work with industry professionals for expert advice like: a tax advisor for your income taxes, a financial advisor for your financial plan/retirement plan, an estate planning attorney for your estate plan, and a mortgage advisor to help you manage your mortgage and also manage your equity. Most people consider their home equity as part of their overall net worth, but most people do not have anyone to help them to manage their home equity. This is a huge disconnect in my opinion considering the fact that 73% of older American’s greatest asset is their home. This is something that you might consider discussing with your financial advisor and suggest bringing in a mortgage advisor who can help you review all of your options, including how to incorporate home equity into your retirement plan.
Overall, I suggest that you make a plan and then create a backup plan. You should meet with the appropriate professionals to help you create your plan, fund your plan and manage your plan. Don’t just make a plan and throw it in a drawer and forget about it. Lastly, do not be afraid to incorporate some of your home equity as part of your overall retirement plan. There are great ways to safely incorporate home equity using a reverse mortgage or a home equity conversion mortgage while still maintaining ownership of your home and without the requirement of making a monthly mortgage payment as long as you remain living in the home and pay your property taxes, homeowner’s insurance, maintain the home and pay HOA dues if applicable.
SOURCES 1. https://www.yahoo.com/now/ second-biggest-home-pricecorrection-181833868.html 2. https://listwithclever. com/research/retirementfinances-2022/ 3. https://hecmworld.com/reversemortgage-news/10-millionseniors-have-mortgage/ 4. https://reversemortgagedaily.com/ articles/senior-housing-wealthhas-hit-a-new-record-at-11-81trillion/
Gabe Bodner is a retirement mortgage planner and licensed mortgage originator in Colorado. Gabe utilizes the latest research from the top researchers to assist his clients to live for today and plan for tomorrow. To reach Gabe, call 720.600.4870, e-mail gabe@bodnerteam.com or visit reversemortgagesco.com.