Retirement Archives » Larry & Kathy Reichle

A Bridge To Your New Home

June 11, 2018 by Kathy Reichle Leave a Comment

Question: My mother wants to buy a condominium, now that she is living alone and no longer needs the old four-bedroom family home. She prefers to buy a condominium first, and make the move from the house to the condo over a period of time. After she has completely settled into the new condominium, she will then put the house on the market for sale. Assuming the condominium will cost less than what the house sell for, what is the least expensive way to bridge the two sales? In other words, is it possible to obtain a mortgage for only three to six months?

Answer: Your question has raised a number of issues, which I will try to explore in this column.

First, in my opinion — and if you can afford it — it is always better to move into a new home before you sell the old one. This gives you an opportunity to do whatever renovation is needed, without having to immediately move all the furniture into the new place.

But, obviously, not everyone can afford the luxury of owning two houses, and sometimes having to pay two separate monthly mortgage and duplicate real estate tax bills.

In your mother’s case, the family home is free and clear of any mortgage obligation. She should be able to obtain a “bridge” loan from a responsible lender, to enable her to have sufficient funds to purchase the condomimium. The loan will be secured by a first deed of trust (a mortgage) on the family home, and will be paid off in full when that house is ultimately sold.

Second, you ask whether short term loans are available. The answer is not simple, insofar as mortgage lenders do not want to spend a lot of time — and money — processing a loan application, only to have it paid off within a couple of months. Thus, while you might find such a short-term bridge loan from a mortgage lender, the interest rate may not be competitive.

On the other hand, your mother may be able to get a regular bank loan for the amount she needs, secured by a deed of trust on either or both the family home or the condominium unit. Much would depend on your mother’s financial situation at the time of loan application.

However, there is another way that, in my opinion, makes the most sense. Your mother may be successful in selling the home immediately; it may also be on the market for a long period of time. She does not want to commit herself to repay a loan in just a few months time, when there is uncertainty as to when her house will sell.

Thus, she should consider obtaining a regular mortgage loan on the family home. If necessary, you could co-sign and guarantee payment of the loan. She should obtain an Adjustable Rate Morgtgage (ARM) for one year, and make sure there is no prepayment penalty. If she is lucky and sells the house quickly, she can then use the sales proceeds to pay off the new loan. If, for any reason, the house does not sell quickly, she will have a low rate of interest for a period of one year.

More importantly, however, your mother should carefully review her financial situation. If she uses all (or most of) the cash from the sale to purchase the new property, will she end up “house rich and cash poor”? Perhaps she should consider obtaining a mortgage on the condominium unit (again your help may be required), and then keep the cash when the house is sold.

She should also review the tax situation before she sells. Will she have a large capital gain to pay? Is she eligible for the up-to-$500,000 (or $250,000) exclusion of profits? When did your dad die?

From a tax point of view, it makes no difference whether or not she uses any or all of the sales proceeds to purchase the condominium unit. She is either eligible for the exclusion or she is not.

There are two other alternatives which should be considered.

First, can she obtain a home equity loan on her current house and use these proceeds to purchase the condominium? Even under the new tax laws, so long as the money obtained from the loan is used to buy a new home or improve your present one, your mother will be able to deduct the interest she has to pay.

Second, are you in the financial position to lend her the money to purchase the condominium? If so, your mother can borrow directly from you, at a reasonable interest rate, and the loan will be secured by the new property. She can pay you interest only on a monthly basis, and you can decide at a later date if you want to gift her back a portion of the loan on a yearly basis, tax free.

Under no circumstances, however, should you consider going on title with her on the condominium unless you have fully explored all of the legal and tax ramification of such a move. There are significant negative aspects of putting your name on the deed, and obviously you want to maximize the tax benefits as much as possible.

Children often want to do right for their parents, and this of course is commendable. However, there are serious IRS repurcussions if the wrong steps are taken (even for the right reasons), and you must explore the situation with your own tax advisors before signing any legal papers. Also, we all have to carefully analyze the impact of the new tax law.

Bottom line: your mother should first talk with a financial adviser to explore all of the options.

WRITTEN BY BENNY L. KASS

When Does It Make Sense To Work With A Financial Advisor?

August 14, 2017 by Kathy Reichle Leave a Comment

Consider the following scenarios: You’ve worked hard all your life, been careful with your finances and are now looking forward to retirement. You have a general sense of how your assets are performing, but could use some additional guidance. Or, perhaps you haven’t been much of a saver and you are now playing catch-up and have fears of running out of money in retirement. Both scenarios are ideal for consulting with a financial advisor. Yet – many people don’t. Perhaps there is an underlying fear that they don’t have enough money to even qualify for speaking with a financial advisor, or that they are in such bad financial shape that it makes no sense for them to reach out to an industry expert. The important thing to remember is that if someone is willing to take the step to meet with an advisor, it can be advantageous for them to do so, as they might pick up a few tips and strategies they would not have otherwise been exposed to.

So…when does it make sense to work with a financial advisor? In a 2014 survey, people ages 50-59 were only saving $78/month towards retirement, and another 50% that were questioned think they needed less than $500,000 in retirement savings to be financially secure. These are scary statistics and saving this little each month does little for retirement security; you would be looking at working until 70 or 75 to ensure you had a solid nest egg built up. $500,000 will only generate about $25,000 worth of income in retirement; most people need more than that to live in the Northeast.

With that in mind, you should consider working with a financial planner if:

You have concerns you may run out of money in retirement. This is the number one concern of Americans when they discuss retirement: Do I have enough? What is my ROI? How much do I need to be saving to live the retirement I envision?
You would benefit from a structured retirement income strategy. For some people, it is better for them to have a concrete plan when it comes to their finances and future goals. This type of plan helps decide what part of your money you are going to spend first in retirement, what accounts can be left alone until later, and what (if anything) you plan to pass on to family members.
You want help investing properly FOR and IN retirement. Once someone comes up with a good retirement income plan, then it’s a matter of matching their investment strategy to that plan. A lot of people get tis backwards and start focusing on their investments first, without having a plan in place.
You want to have confidence in your financial future. People that seek out financial advisors go because they want to feel more prepared and remove some of the fear from their future.

Financial planners aren’t just for people that have money or people that already have a strong sense of their finances and retirement plan. Financial planners can also be an excellent resource for people that don’t have good sense of their finances and are lacking a plan. They offer unbiased, expert advice and can open your eyes up to tips and strategies you might not have been aware of. As all financial advisors have their own style, do your research to determine which one is the best match for you and your needs. You go to the doctor to ensure you are in optimal health; why not go to a financial advisor to ensure your finances are healthy, too?

Joel Johnson

Forbes Contributor

If you build it, they’ll stay; boomers remodel their homes

May 2, 2017 by Kathy Reichle Leave a Comment

NEW YORK (AP) — If you build it, they will stay.

The small businesses that dominate the home remodeling industry are expecting robust growth in the next few years, thanks partly to baby boomers who want to remain in their homes.

Home remodelers say they’ve had a pickup in projects from boomers who are in or approaching retirement and are seeking to modify their houses. It’s a trend known as “aging in place,” an alternative to moving to smaller quarters or a warmer climate.

Many of these homeowners are hoping to make their surroundings easier to manage and safer in case they have health problems.

They’re replacing bathtubs with walk-in showers, installing safety rails, widening doorways and building ramps — features known as “universal design” since they can be used by anyone, regardless of physical ability. Boomers are also redoing their kitchens and sprucing up other areas — since they’re staying put, they want to enjoy their surroundings.

Zach Tyson estimates that 30 to 40 percent of his revenue is now coming from boomer renovations, up from 15 to 20 percent five years ago. Most of the projects come from homeowners who are healthy and mobile now, but want to be prepared if illness or injury hits.

Besides making bathrooms safer, they’re enlarging rooms so wheelchairs or walkers can be used more easily, and also to give the rooms a more open feel.

“It’s trending up, for sure,” says Tyson, co-owner of Tyson Construction in Destrehan, Louisiana.

The oldest of the 76.4 million boomers, the U.S. generation born after World War II, are turning 71 this year. As more of them retire and make decisions about where they want to live, there will be a great need for accessible housing, according to a report released in February by Harvard University’s Joint Center for Housing Studies.

“A large share of these households live in older homes in the Northeast and Midwest, where the housing stocks have few if any universal design features,” the study said.

The report predicts home improvement spending by homeowners 65 and older will account for nearly a third of the total amount of remodeling dollars by 2025, more than twice the portion that group spent in 1995-2005. Owners age 55 and over already account for just over half of all home improvement spending.

“The boomer activity seems to be driving the market,” says Abbe Will, a research analyst at the Harvard center.

That’s a change from the past, when older homeowners generally handled maintenance, repairs and landscaping but tended not to renovate. And some of the boomer-driven remodeling is coming from younger homeowners who expect their parents might later come to live with them and want to be ready, Tyson says.

The requests Tiffany and Bryan Peters get from boomer customers include replacing traditional turning doorknobs with lever handles that can be pushed down. Homeowners want motion-sensor light switches and faucets, and non-slip flooring. In bathrooms, they’re replacing fixtures with models that are designed for people with disabilities — showers than can accommodate wheelchairs, and toilets at the same height as wheelchairs, Tiffany Peters says.

“We’ve definitely experienced an increase in requests for aging-in-place work,” says Peters, who with her husband owns a Handyman Connection franchise business in Winchester, Virginia. “We get several requests a month.”

Home remodeling companies began seeing an increase in boomer spending about 18 months ago and expect it to contribute to their growth in the next few years, says Fred Ulreich, CEO of the National Association of the Remodeling Industry, a trade group.

“We see this as something that is dramatically affecting the marketplace,” Ulreich says.

Boomers typically live in homes that are several decades old, prime targets for remodeling, Ulreich says. Unless they move to a brand-new home that’s designed for aging in place, their decision is likely to mean remodeling.

Sal Ferro says boomers are his biggest group of customers, but he’s not getting many requests for aging-in-place projects. It’s more renovations to make their homes more enjoyable.

“They’re finally getting the projects done that they always wanted. They’re getting that kitchen or bathroom,” says Ferro, owner of Alure Home Improvements, based in East Meadow, New York.

Some remodeling companies are specifically marketing to boomers, sending salespeople to trade expos and events those customers are likely to attend.

Miracle Method, a franchise business that refinishes kitchens and bathrooms, has increased its outreach to boomers, says Erin Gilliam, the company’s marketing manager. Franchise owners say much of the 11 percent growth in the franchise’s overall business in the past year was driven by boomers, she says.

Gilliam’s husband, Gabriel, sees the trend in the franchise he owns in Salt Lake City. He estimates that revenue from boomers has risen between 10 and 20 percent, and the growth is prompting him to hire more workers. He has five staffers now, having added one per month the past three months, and expects to reach 10 in the next year.

“I’m hiring as quickly as I can,” he says.

By JOYCE M. ROSENBERG

3 steps to make your retirement savings last a lifetime

December 1, 2016 by Kathy Reichle Leave a Comment

If I want my savings to support me the rest of my life after I retire, how much can I safely withdraw each year? –Danny

As much as I’d like to, I can’t give you a specific figure. There are just too many uncertainties that come into play when trying to predict how long one’s retirement savings will last.

For example, if your retirement investments fare poorly or you experience a bear market soon after you retire, your money could run out a lot sooner than if the financial markets perform well.

Similarly, having to shell out money for large unanticipated medical costs or other expenses during retirement could wreak havoc with what appeared to be a perfectly valid withdrawal plan.

And then there’s the big unknown of how many years you’ll actually need your nest egg to sustain you after retiring.

But while I can’t give you a quick and easy answer to this important retirement question, I can give you advice on how to approach this issue so that you can come up with a withdrawal strategy that has a good chance of generating the income you need without subjecting you to undue risk. To achieve that goal, I recommend that you take these three steps:

1. Get a sense of how long you might live in retirement. In order to pace your withdrawals so you don’t deplete your nest egg too soon, you’ve got to have an idea of how long you might live. The operative word here is “might.” You can’t predict with any real accuracy when you’ll shuffle off this mortal coil. But you can get a decent enough estimate of how long you might be around by going to the Longevity Illustrator, a tool designed by the American Academy of Actuaries and the Society of Actuaries to help people with their retirement planning.

The thing I like most about this tool is that, unlike other calculators that gauge lifespans, it doesn’t just spit out an estimate of your life expectancy. Although that’s the figure you hear most often in discussions of longevity, life expectancy can be misleading as it represents the average number of years people of a given age and sex are expected to live. But roughly half of people will live longer than that average, many much longer. The Longevity Illustrator allows you to see your chances of living not to just one age, but a variety of ages, based on your sex and state of your health, thus allowing you to make a more nuanced judgment of how long you could end up relying on your nest egg.

So, for example, if you go to this tool, you’ll see that a 65-year-old man who’s a nonsmoker and in average health has a 34% chance of living another 25 years to age 90 and a 16% shot at making it another 30 years to age 95. The chances of a 65-year-old woman making it to those ages are higher (45% and 25% respectively), and the chance that at least one member of a 65-year-old couple (man and woman) will still be alive and kicking at 90 or 95 are higher still (64% and 37%, respectively). Your chances are even higher if you’re in excellent health.

Of course, these are only estimates that pertain to large groups of people, not a guarantee of how long any individual is going to live. Nonetheless, this tool demonstrates that to be on the safe side most people should probably figure that they’ll need their savings to support them at least into their early 90s and in the case of couples into their mid-90s, perhaps longer if their family has a history of long lifespans. What you don’t want to do is underestimate how long you might live — as research shows many people do — and run the risk of depleting your assets too quickly and spending your final years of retirement with little or no savings to fall back on.

2. Start with a reasonable initial withdrawal rate: Once you understand how many years you may be counting on your retirement accounts to supplement Social Security and any other sources of income, you then want to gauge how likely your savings are to last for as long as you need them to given different withdrawal rates.

You can do this sort of analysis by going to T. Rowe Price’s retirement income calculator, which uses Monte Carlo simulations to make its projections. You plug in such information as your age, the number of years you want your retirement savings to last, the amount you have saved for retirement and how much you initially plan to withdraw, and the calculator then estimates the probability that your savings will last that long, assuming you increase your initial withdrawal by inflation to maintain your purchasing power throughout retirement.

So, for example, if you’re 65, have $500,000 in retirement accounts divided equally between stocks and bonds and you withdraw an initial 4%, or $20,000, from your nest egg, this tool estimates that there’s an 80% chance that your nest egg will be able to sustain that withdrawal amount adjusted annually for inflation for at least 30 years. Plug in a lower withdrawal and you’ll get a higher success rate (about 90% for a 3.5%, or $17,500, withdrawal), while going with a higher withdrawal yields a lower chance of success (about 65% for a 4.5%, or $22,500, withdrawal).

Keep in mind that you’re getting estimates of how likely your savings are to last based on forecasts of how the financial markets are expected to perform. These aren’t guarantees. Still, by trying out a variety of scenarios with different withdrawal rates, you can see how your chances go up or down. Based on that you should be able to arrive at a withdrawal rate that has an acceptable margin of comfort for you.

That said, you don’t want to arrive at a withdrawal rate that’s more to your liking by “cooking the books,” so to speak, and plugging in an unrealistically short lifespan or assuming that an aggressive investing strategy will generate returns large enough to support outsize withdrawals.

3. Be prepared to adjust your withdrawals. A withdrawal rate isn’t something you can set once and put on autopilot. So whatever withdrawal rate you start with, you need to be ready to adjust it over the years based on how much of your savings you’ve spent and how well or poorly your retirement investments have performed.

For example, if a market setback or a large withdrawal to meet an unexpected expense has substantially reduced the balances of your retirement accounts, you may want to scale back withdrawals for a couple of years or forgo inflation increases to give your accounts a chance to rebound and avoid depleting them too soon.

If, on the other hand, your nest egg’s value climbs steeply after a string of outsize investment returns, you may want to take the opportunity to spend more freely and enjoy a splurge or two. Otherwise, you could end up late in life with a big pot of retirement savings, and the realization that perhaps you lived more frugally than was necessary.

By going back to the retirement income calculator I mentioned above and re-doing the analysis with updated information every year or so, you should be able to figure out whether you need to adjust your withdrawals to stay on track. retirement2

Bottom line: It’s impossible to identify an ideal withdrawal rate in advance. But if you follow the three steps I’ve outlined, you should have a decent shot at getting the retirement income you need without too high a risk of running through your assets too soon or ending up with more savings than you want in your dotage.

3 steps to make your retirement savings last a lifetime

If I want my savings to support me the rest of my life after I retire, how much can I safely withdraw each year? –Danny

Contact Us

Larry & Kathy Reichle

Real Estate Tools

Eastside Real Estate Blog