The dream of retiring early didn’t quite turn out as planned for many of my fellow Late Baby Boomers. With the triple whammy of the housing bubble bursting, the lost decade of investment returns and continued high unemployment, even retiring at all is in question, much less retiring at 55.
Americans are in the middle of a retirement crisis. According to the U.S. Senate Committee on Health, Labor and Pensions, there is a $6.6 trillion retirement savings deficit between what Americans need to have and what they actually have saved for retirement. Pew researchers estimate Late Baby Boomers lost 25% of their wealth during the Great Recession.
The timing couldn’t have been worse for this generation, who are now 47 to 57 years old (born between 1956 and 1965.) A couple of other trends also created additional financial pressure: Right at the time when they should have been at their peak earning years, opportunities for advancement dried up as many employees delayed retirement and rising college tuition increased their out-of-pocket costs. To make matters worse, when their adult children graduated, many moved home instead of going out on their own.
When you think about it, it’s pretty hard to overcome so many obstacles at once so close to retirement. Late Baby Boomers (as well as Gen X) are now being told they might have to downgrade their lifestyle even to retire at 65.
I don’t know about you but I don’t want to downgrade my lifestyle in retirement—I want to upgrade it. I don’t want to wait until 65, 66 or 67 to retire. I want to retire now while I am healthy enough to enjoy it. Putting life on hold isn’t an option I personally want to entertain. Though you can’t have everything you want (which I spent a great deal of time repeating to my three-year-old granddaughter this past week), you can make the best of your circumstances.
I opted for a “working” retirement. Retiring smack dab in the middle of the worst retirement crisis in history wasn’t practical or feasible. So my husband and I upped and moved from our suburban home in Northern California to a condo in Park City, Utah, to enjoy “the greatest snow on earth.” We always planned on eventually retiring here. We figure if we have to work, we might as well work where the snow-capped mountains are steep, the skies are crystal blue, and the air is crisp and clean. We’re learning to ski in the winter, and enjoy biking, hiking and outdoor concerts in the summer (in the evenings and weekends.)
If you want to enjoy a “working retirement,” there are many factors to consider but the two deal breakers are housing and employment. Here are some tips on how to put them into place:
Rent out your primary residence, if you aren’t able to sell. The housing market is picking up, but if you don’t want to sell your house (or can’t for some reason), an option may be to rent it out. Work with a property manager to find a tenant who wants a long-term lease. Of course, you may need to weigh the prospects of being a long-distance landlord to make it work but having a local property manager may help.
The risk – cash flow. Cash reserves may be a key factor in being a landlord. Everyone has heard horror stories of tenants “trashing the place.” Even if tenants take excellent care of your property, they can still break their lease and leave you to make payments until you can find a new tenant (which could take months). Then there are normal repairs to be made whether you live there or not. I suggest you plan to set aside at six months of payments as a cushion.
The good news is by renting your property rather than selling, you always have a backup plan to move back if you don’t like it. If you end up loving it like we did, you can always sell your home and still receive favorable I.R.S. tax treatment on the capital gains on your home, excluding $250,000 of gains for singles and $500,000 of gains for married filing jointly if you lived in the property two out of the last five years.
Buy your retirement property now. If you aren’t ready to make your move right away, and you have the down payment, consider investing in property in your retirement community now rather than waiting. If you have the cash flow, you might decide to keep your property as a second home so you and your family can enjoy it as often as you like. The IRS allows you to write off the interest on the mortgage on your second home too (as long as the combined mortgage interest is not over $1M. (See IRS Pub 530.) Another option, of course, may be to consider it an investment property and rent it out with a long-term lease. This way you are setting your retirement plans in motion even if you aren’t able to use the property now.
The risk – having to make payments on two properties at once can leave you cash poor or worse. There may be other risks and tax laws to consider and you should discuss this with your accountant or tax specialist.
Consider furnishing the property so you can rent it and use it, too. A furnished place is attractive to seasonal renters or families building homes that don’t want to move all of their things twice. The IRS allows up to 14 days per year (or 10% of the number of days your home is rented out whichever is longer) for personal use to still qualify as an investment property. Of course, the transition between renters may not be seamless so it may be open more often than if you held a long-term lease.
Keep your housing options open. Don’t paint yourself into a corner. In today’s economy, stay nimble. If you haven’t sold your primary residence, consider renting a house or condo when you move so you don’t have to carry two mortgages. If you do purchase a property in your retirement community, choose one that is considered highly rentable – in a complex with amenities like a pool or gym, on a bus line, with covered parking, etc. Give yourself alternate plans in case yours change or other factors create a situation you didn’t expect.
Transfer with your employer. Obviously, if you can transfer with your current job, that’s ideal. The problem is, that’s what everyone else wants to do. But your employer is a great place to start. Jobs are most likely highly competitive in your retirement destination, but you never know, you might get lucky.
Go virtual. Carve out a niche by going virtual. Despite Yahoo CEO Melissa Mayer instituting a “no more work from home” policy, other companies are embracing virtual employees. According to research from Stanford University, working from home led to an increase in performance (by 13% in the case study). Some high-paying virtual jobs are nurses, professors, technical writers and tax preparers.
Create your own job. I hear the word “freelance” over and over again. Writers, consultants and web-based business owners all live and work here. They have found a way to work remotely. You might consider starting a side business (while keeping your full-time job), and when it begins producing steady income, make your move to reduce your risk of lost income.
Rather than waiting for someone to retire and open up your next promotion, housing prices to spike, and the market to produce consistent double-digit returns, why not make your own opportunities to live the life you love? Whether you are able to do it right away or at least get the wheels in motion, you can start planning an early “working retirement.” If you have to work, you might as well do it in a place you love.