Sunday, September 29, 2013

Downsizing for Retirement

There comes a time in life when it may make sense to downsize!

Children may have grown up, and left home.  A spouse may regrettably pass away.  Perhaps an ever-increasing cost of living demands changes to accommodate a lower budgeted income due to retirement, loss of a job, etc. 

Of course there may be more and/or other reasons to consider downsizing.  Regardless of the reason, it takes time to plan and manage such a complex process.

If you are retiring and planning to live on income earned from investments, then – more than ever – taking time to calculate and record ongoing expenses to arrive at a monthly budget become critical.  Remember to also include planning for any unexpected expenses in a monthly budget, like illness, car or home repairs, etc. 

If your home has no mortgage owing against it (at retirement age you ideally shouldn’t have a mortgage), and you wish to remain in your current home… then you should calculate whether living on your investment income would cover all your living expenses.

Calculate your living expenses by creating a simple spreadsheet.  There are many sample budgets available on the Internet, for free. 

Make sure to include the cost of food, property tax, assumed maintenance costs, and utilities based on historical costs and expected increases.  If your cost of living is higher than your income, it is time to take the next step to downsize so that you can live according to your income.

Ask yourself some tough questions!

Do you really need to live and maintain a huge property?  Does the idea of a smaller apartment or condo offer you a chance to downsize your total living expenses?  Finding a smaller condo that is e.g. within walking distance to shops can be a huge benefit.  Shopping locally may reduce or eliminate the ongoing cost and maintenance required for a car.  

An opportunity to save on transportation costs would be complemented by walking as part of a daily routine, offering a good chance at regular, light exercise.  Or perhaps you could consider a condo near the beach, offering an opportunity to walk outdoors, and to enjoy the seashore experience!

Selling you existing home, and purchasing a smaller home could free up additional funds for investment.  Moreover, a smaller property may also offer savings on the ongoing utility costs, property taxes and maintenance costs.  

Savings AND extra money to invest!

If you decide to keep your property, calculate whether the plan to rent it out could cover the total cost of ownership.  Can renting your existing home also cover the cost of a smaller home/apartment for yourself to live in?

Life is full of choices and retirement planning is all part of the adventure.  Whatever you do, don’t panic!

Take time and make choices that to accommodate your desired lifestyle.  Downsizing may also mean more time, to do more with your available time.  This may include time to perhaps engage in some part-time work for extra cash, volunteer your services for the benefit of your favorite non-profit and their charitable mission… and more importantly, to do the things you really love!

Don’t get stuck worrying about money in retirement!  Downsizing your existing home is just one of many alternatives you will be able to consider as you plan your golden years!

The Zen of Risk & Reward

Life is a series of fortunate events.  I recall, when I was much younger, asking a friend how he was doing. Without much hesitation, he said: “I’m alive.”  In response I asked him what was so great about that. Once more, without much faltering, he replied with “Well… consider the alternative!”  Rehearsed and practiced? Maybe, but yet an effective response to light social, every-day bantering.

What’s your thing?  No-one is right all the time.  We see it when we watch the talking heads on TV offering their qualified opinions on everything from the debt ceiling, to Obamacare, to stocks that one should be buying (or not), and more.  In fact, there’s a good chance that these pundits and experts are wrong at least 50% of the time, given that the market goes up and down, the U.S. political environment is split 50/50 between two hopelessly inefficient political parties, etc.

Just last week I posted a rant on this blog site.  I included this prediction: “…the Oracle-sponsored America’s Cup Grand Prix boat, valued at around $10 million, is about to lose the final to New Zealand.” I was wrong.  At the time of my prediction, NZ was leading 8-1 in the America’s Cup final, needing to win just one more race to take the Loius Vuitton Cup.

My prediction was a sure thing, mathematical odds stacked heavily in my favor.  I lost.  I’m happy I lost that call.  I’m long $ORCL, and my LT position is in the money.  For this last reason I may view as favorable, anything positive that Oracle does, within reason, at whatever cost they deem affordable!

If the talking heads win/loss ratio were unfavorable beyond 50/50, they would be limited to perhaps considering careers in politics, meteorology... or perhaps they could become economists?  I can’t think of other careers where you can be wrong most of the time, and still keep your job.  Doctors?  I don’t think so.

What’s with Obamacare anyway?  How did seemingly smart people screw up so badly?  Maybe it started with Pelosi saying “we have to vote for it so that we can see what’s in it.”  It is possible that the original bill – now law – contained much good stuff and intent, but what a screw-up by the elected leaders in packaging and positioning a piece of legislation that they neither understood, nor read!

And what’s up with Pelosi anyway?  According to Politico, she decided not to turn up for the Continuing Resolution (CR) vote on the debt ceiling.  A matter as trivial as deciding whether to shut down the American government:  “Speaker Boehner has told me he has the votes for his proposals on his side of the aisle and that he will not need our help,” Pelosi wrote in a letter to colleagues.

Maybe you think I’m biased, unfairly targeting vitriol at one Democrat only?  I’m not.  The Republicans and the rest of the Democrats are collectively so inept, I just couldn’t decide on only another one or two people to aim my rancor at!

What I do know for sure, is that our elected leaders are negatively impacting my investments.  This is a result of the ongoing debt ceiling debate, the cost of Obamacare to the economy, uninhibited Federal spending, a money-printing Federal Reserve buying back government securities to artificially impact capital and monetary valuations globally, etc. 

Remember “buy and hold?”  Today, it’s buy and sold, especially if you have stops plugged in to mitigate financial losses as the market volatility spins anyone dizzy!

Here’s my new prediction:  This government induced, ongoing mismanagement is the new normal, so get used to it.  From one crisis to another!  And it’s not limited to the U.S.  Oh no, the current shenanigans in Italy, in addition to near-bankruptcy of countries like Portugal, Ireland, Greece and Spain (PIGS) will be with us, for most of our current generation.

Emerging markets?

The so-called BRIC (Brazil, Russia, India and China) countries are intellectually and morally corrupt.  Not the people - they're nice - just most of their politicians.  I used to do much business with China... well, actually Taiwan, before the feud about whether Taiwanese people were actually Chinese, or not.  These are countries where employees are rewarded for making excellent quality copies of other products.  Today, they simply copy financial statements and (other vague, subject to interpretation) Western economic metrics, when they share information that you may base your investment decisions on.

If you want to invest in an emerging market, and mitigate investment-loss risk, invest in global corporations that do business in these countries, and in all others around the world.  That’s a form of diversification.  For example, rather than investing in PetroChina ($PTR), you may consider investing in Exxon Mobil ($XOM).  Or how about Coco-Cola ($KO) or Boeing ($BA).  You just can’t beat 100+ years of solid growth, especially with reinvested dividends!  Some of these are not great investments in terms of returns (i.e. you could do better elsewhere), but they're relatively low risk and safer investments, offering nice dividend yields.

Unfortunately, you simply have to pay attention to your investments.  Don’t settle for under-performing mutual funds, or even ETF investments that collectively under-perform the S&P or Dow.  

You owe it to yourself and your family to match or beat the general market performance… so get cracking, and best of success!

Disclosure: long $ORCL $BA

Image above: San Francisco Examiner: - Dan Schreiber