Sunday, May 31, 2009

Weathering the Market During Retirement

Meet Jessica and Joel Soffer. They retired early a few years ago while still in their fifties. But the current economic crisis is catching up with them.

As somewhat misleadingly reported by the Los Angeles Times, the Soffers have a net worth of $1.4 million. I say misleading, because their actual retirement funds started at just over $600,000 and are now, of course,less. The remainder is equity in the home they love and have no intention of leaving.

One's net worth is not necessarily, or even usually, what is available for use during retirement. We all need a place to live, preferably a paid for, mortgage-free place. If we don't want to downsize or if that's not realistic (in my northwest city, downsizing is possible in terms of home size, but not realistic in terms of cost. If a 970 sq. foot downtown condo costs the same as my inner-city 2800 sq. ft. home, what's the point of moving?), then the equity is largely useless. That might change should the terms of reverse mortgages get more reasonable. But for now, when it comes to retirement planning, I only count pensions (as in, wish I had one coming!), Social Security (please let it be there when I'm ready to bail from working life!), and retirement savings.

I understand the Soffers' wanting to keep their family home. I also understand their desire to travel now while they are early in their retirement and still have their health. But one thing I don't get is the balance that the Soffers carry on their credit cards. It's not clear from the article if this is a decreasing balance or one that was acquired during retirement but either way, I'm surprised that they haven't made it a priority to wipe it out.

What I also note about the Soffers (and what I see as a real possibility in my own future) is how much they expend on their two adult children. Both of their children are single parents, and over the course of one year, the Soffers have helped out to the tune of $15,500. I wonder if they would have paid out that much had they both still been working and had a better sense of their own monthly expenses. For myself, while I do help out my five adult daughters (more than I want and less than they'd like), the fact that I have only a certain amount of income coming in each month limits how much of that I am willing to use for them. I wonder if my feelings will be different after retirement, when suddenly there is a larger "pot" of money from which to draw. I wonder if I'll remember that that "pot" must last my lifetime.


Anonymous said...

I read their stories. It's a classic example on how people just don't/can't face reality. The economy has changed, ain't coming back like it was before and all of us must change with it. Failure to do so will leave them high and dry and possibly returning to the 9-5 grind. Good luck with that one!

They don't want to give up the $900K house, they have an equity line of credit to fund their extravagant vacations, their in credit card hoc and are giving $$ to their 2 single parent, unemployed children. Duh?

I thought I was bad. I woke up 8 years ago. They think they can sell their house any time they feel like it. Uh huh.

I'm already in laddered CD's and am holding several of the same bonds as the adviser recommended and I'm not a financial wizard. Plus I downsized at the top of the market. Not the bottom.

Oh well.

Live and learn.

Sharon said...

I read this too. I thought $7,200.00 was a great income, and it didn't include the wife's ss. I hope when we get to retirement, I won't need to sell my house so that I will be able to eat, if necessary. Guess I'll be working for another 25 years....

DogAteMyFinances said...

Really? You think it's OK to keep a million dollar family home?

Surely you can downgrade from a million dollar home anywhere, even California.

Florence said...

These people have no earthly idea how vulnerable they are.

"If we had to, we would go back to work," Jessica said. "But the thought of being accountable every Tuesday, Wednesday and Thursday at 10 a.m. has become unappealing."

I wish them good luck in finding someone to hire them at 63 and 59. Do they think they can just waltz back into their previous jobs and income??

As for the house, Long Beach is a very pricey area and unless they were willing to move to a lower cost of living area, they are probably just as well to stay where they are especially if the house is paid off.

I don't think that cutting out their big vacation trip last year and this year and rearranging their savings will be enough. IMHO.

Petunia said...

I'm surprised that a reverse mortgage was not brought up. If their home is worth 900k, and they took a reverse mortgage for 450k, they would have a lump sum of 425k or so. Invested conservatively in index stock and bond funds, that would give them additional income of 16k annually. No mortgage payments, no need to move.

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