Wow, after weeks of back and forth over documentation, retirement Phase 1 is COMPLETE.

Phase 2 is a week away….

Phase 3…. that’s out there…

Some down time (do I hear vacation??) is overdue…

In life as in most things it is important to have a plan and to execute that plan. Intentions are great, talk is cheap, execution is the key. Think, plan, execute, and either enjoy the rewards or review what went wrong. There are no guarantees in life, but you will never succeed if you don’t try. Granted you will never fail if you don’t try, but that brings to mind Bob Dylan’s song where he sings, “she knows there is not success like failure, but failure is no success at all.”.

To succeed without adversity is not to grow, that is the definition of luck. Many people take on challenges, come out the other side, never face adversity, and think of themselves as experts. “I’ve done XYZ many times, let me show you how it is done”. It is the unexpected, the adverse, the near disaster that divides the dilitant from the expert. Let’s hope we never have to face that test; I believe many would fail.

For now we are successful in our plan, our endeavor. There has been adversity, but only a mild of a mild inconvenience. I have been successful in most things I have undertaken. I have seldom faced extreme adversity. I hope I never do.

Then there is the issue of planning which by necessity includes risk/reward considerations. But that’s a topic for another day.

Ron

Here we are, Retirement Phase 1 is not complete and we’re well into Retirement Phase 2!

We have a contract to purchase a 2nd home which will become our retirement home. It is large enough to host weekend family get-togethers, yet small enough for the two of us. It is in a community of dense housing, but has a southern exposure on our moderate sized yard. The house is roughly 2500 sq ft, but represents a 70% reduction in real estate taxes. Over time taxes on our current home would eat us alive.

To say that housing has recovered from 2008 is a miss-statement. Housing is booming in the San Francisco Bay Area. Most homes will see multiple offers if they are well located and well priced. In the area we’ve been looking, house prices are increasing about $20,000 a month more or less and a house will sell in about 7 days with multiple offers. This is very good news for owners who saw their equity drop to into negative hundreds of thousands of dollars. Those with ARM mortgages and negative equity had no way to refinance. If they have been able to hold onto their homes, they will be able to refinance or sell.

Short sales are common in this market. People who could not hold on to their homes are forced into a short sale or worse, a foreclosure. For buyers, there are good deals to be had; but (and this is a big but) the lender(s) must be willing to take a loss by selling at a reduced price. If a short sale is listed at $340K (typical in “this” area today), and a buyer offers $395 or $420. The bank can tentatively accept the offer. During the 2-3 months the bank is processing paperwork, the house value will increase, perhaps by $80K. The bank then can come back to the buyer demanding more money. If the new price is still a short sale, the process resets and the lender could counter offer in another 2-3 months! In some cases the short sale will go through without a hitch, but in many cases the price is adjusted upwards, the sale lost, and the house goes into foreclosure.

We chose not to go the short sale route; it is too unpredictable. I’m not saying that a conventional house purchase is predictable, just significantly less risky than a short sale. It’s a time/money trade-off. If you have the time, a short sale could be worth the risk.

In any event and for many tens of thousands of dollars more than I had expected, we are entering Phase 2 of our retirement plan.

Next, Phase 3….

Retirement Phase 1 is winding down. Short of a catastrophy, Phase 1 will be history next week. On to Retirement Phase 2.

Retirement Phase 2, downsizing. Finding a home that is 30% larger and 75% less expensive than our current home. Off to see open-houses tomorrow.

We met with our financial planner last week for the second time. If you are considering retirement, I highly recommend meeting with a financial/retirement planner. It is valuable to have a second opinion on your retirement plans and it goes a long way to providing “domestic tranquility”, i.e. your wilfe will no longer think she will be a “bag lady” after five years after retirement.

The first time we met with Joe (I’ll call him Joe), we discussed our expectation on retirement and discussed our “gozinta” and “gozoutta”, but not at length.

With the “internets”, it is so easy to compile your annual income and expenses on a spreadsheet accurately. After some tweaking and adjusting, I sent our income/expenses to “Joe”. Last week we met with him to go over our “exit plan”.

Joe had put together a presentation of our income and expenses projected into the future. The projection included life expectancy and ran until we “croaked”. The program Joe ran (a monte-carlo simulation) twiddles a significant number of economic future possiblities. This simulation then spits out a number that represents the probability that over your expected lifetime and given variable economic situations, you will not go broke.

Our plan is very likely to succeed. If you have not yet retired, I recommend you meet with a financial/retirement planner to validate your plans or to create a plan if you do not have one!

Not all retirement planners are created equal. Do your homework.

Oh and what’s in it for Joe?  He will be managing our IRA funds when we retire.  Joe will be tracking  our plan, both income and expenses, so we know when/if we are not on track.  I’ll keep track as well.

Phase 1 is nearing completion: pull a bit of equity from our house.