To The Memory of J. L. Neeley, An Uncommon Friend
Costs and Benefits of Growing Old. Growing old has its advantages. One benefit is that you have some really good friends you have known for many years. One of the costs is that those old friends are growing old and either you die and leave them or they die and leave you. I knew J. L. Neeley for 42 years and and, although we sometimes went for years between visits, each new visit was just like we had just been together the week before. I know you didn't stop by this site to hear about my grief but I couldn't resist a small tribute to him the day after I learned of his passing. My life was better for having known him.
I Bet You're Tired of Hearing Depressing News on This Site. I'm a little tired of it myself. In my last post, I discussed some of my expectations for the future which also sounds a bit pessimistic but, as a notable TV personality says, "There's always a bull market somewhere." Perhaps its more important to discuss coping strategies for a recessionary environment than wealth maximization strategies for a growth environment. What are some of the things we can do to cope with this environment?
Control Your Expenses. I have spent considerable time with clients discussing the fact that retirement security is really about replacing the cash flow from your employment with cash flow from other sources. Clients are very interested in these discussions as long as we are talking about income opportunities but, when the subject of decreasing expenses is brought up, the atmosphere can become almost hostile. Like the lady who spent $300 a month at an upscale coffee restaurant who informed me that this was her main form of daytime recreation and elimination of this activity was "off the table." She maintained this position even after I informed her that it requires $60,000 in investment capital to generate that kind of income at 6%. In Colorado, I recently changed my phone, cable TV, and internet service, from $160 per month to $40. That reduces the capital I need to generate income to pay those expenses by $24,000 and, considering the small amount of time I spend there, the sacrifice is well worth it. Of course, you might remind me that the best thing to do is sell the Colorado property. I'm working on it.
Analyze Your Mortgage. Having spent many years counseling mortgage clients, this is one area in which I have a lot of confidence the expertise of myself and Susan at Westmont Companies. One of the biggest mistakes I see from retiring clients is over-emphasis on the interest rate of their current mortgage. For example, let's consider a soon-to-be retired client with a $200,000 5% mortgage with 10 years remaining. Payments on this loan are $2,121 per month. In order to generate cash to pay $2121 per month you would have to invest $425,000 at 6%. Granted the loan has an attractive interest rate but the principal payments of approximately 1300 a month is murder on the cash flow. There are a number of strategies for dealing with the situation, from paying off the entire balance with funds from other sources, to a reverse mortgage, to refinancing to a longer term mortgage. As an example consider the possibility of refinancing the entire balance with a 5.5%, 30 year fixed rate and payments of $1,135. Even though the interest rate is increased by .5% per year, the payment drops by almost $1,000 a month. It's about cash flow, not interest rate. Of course, you may have to give up on your idea of a free and clear house in 10 years but is the sacrifice worth $1,000 a month during the most enjoyable years of your retirement? This discussion just scratches the surface of the many things that can be done to improve retirement cash flow by restructuring a mortgage. There is no single answer that fits everyone but there are many opportunities available.
What About An Annuity? A lot of people don't consider fixed annuities because they consider them to be poor investments. While this may be true, an annuity is not really an investment but an insurance product. You are insuring that you will have an income as long as you live. A 66 year old male can purchase a guaranteed income of $1,500 for life with a payment of $250,000. Under this plan, a spouse or other beneficiary is also guaranteed to receive this income for 20 years from the purchase date in the event that you die during this time. Again, this may not be that great from an investment point of view but, in an environment with high investment risk, this may be highly beneficial for risk averse investors. Again, there are a number of different annuity strategies available each with different opportunities.
Investing With Options. I have attempted to discuss options strategies on this site several times but it have given up because they are often too complex to discuss with inexperienced investors. The most important thing to mention here is that, many investors and experts alike consider them to be highly risky. This can be true; however, there are a multitude of different strategies, some of which are considerably less risky than conventional investments. If you want to take the time to learn these strategies, the best place to start is a 1000 page book by Lawerence McMillan entitled, Options as a Strategic Investment. I have been reading and studying this publication for several years and am convinced that I am a better investor because of the knowledge I have gained from this publication.
Coming Back To Denver In September. The main purpose of my visit is to attend a gathering of several friends I have known for almost 60 years. You might guess that the death of my old pal, J. L. Neeley had something to do with that.
No comments:
Post a Comment