Retirement - The new Solution - MOVING

You’ve heard that baby boomers, as well as Generations X and Y, are behind on their retirement savings, right? These demographics are regularly bludgeoned in the media and by the financial industry’s marketing machine for their negligence in saving for the future.

While some in the media are well-intentioned in their criticism, I can’t help but recognize the bias within the financial industry when it admonishes savers to save more — in their proprietary savings vehicles, of course. Because of this bias, the emphasis has always been on new and different ways to invest. And while I certainly do believe your investment strategy plays a very important role in the retirement planning process, it’s decidedly less important than two behavioral moves that can dramatically improve your retirement readiness.

The first retirement silver bullet may be the most powerful: MOVE, to an area with a lower cost of living.

A moving truck operated by Piedmont Moving Systems, an agent for Mayflower Transit based in San Jose, California. (Photo credit: Wikipedia)

The huge impact this maneuver can have on an investor’s retirement prospects becomes especially apparent when comparing the areas with the highest cost of living to the areas with the lowest. According to Sperling’s Best Places, an online resource that estimates the cost of living in areas across the country, the median home price in Chevy Chase Village, an idyllic Washington D.C. suburb located in Maryland, is $1.5 million. The cost of living there is 252% higher than the U.S. average. By comparison, the median home price in Great Recession-battered Detroit is $35,700. The cost of living there is a full 26.7% lower than the U.S. average.

But if that example appears all too convenient and unrealistic, consider this contrast: Washington D.C. suburb Alexandria, Va., boasts a median home price of $444,200 and a cost of living 55.5% higher than the U.S. average. Meanwhile, Knoxville, Tenn., the vibrant and colorful home of the University of Tennessee, has a median home price of $109,200 and a cost of living 19.3% lower than the national average.

Let’s picture a prospective couple in Alexandria trying to figure out their plan for retirement:

In Alexandria

• Their home is now worth $500,000.
• They have a $200,000 mortgage (from college costs and home improvements).
• They need $100,000 in annual income to cover expenses:
  • Mortgage principal and interest payment ($200,000 loan at 5 percent for 15 years) = $19,000 per year
  • Other income needs, less mortgage = $81,000 per year
• They took a pension lump-sum offer, invested in a 401(k) and have total retirement assets of $800,000.
• Social Security plus a 4 percent withdrawal from their retirement accounts = $50,000, or 50 percent of their estimated need.

In Knoxville

• They could purchase a comparable home for $200,000, mortgage free.
• They could add the $100,000 in net proceeds from the sale of their home in Alexandria to their retirement nest egg, now $900,000.
• According to the cost of living ratio, a $41,120 annual income in Knoxville would feel like their $81,000 income in Alexandria.
• Social Security plus a 4 percent withdrawal from their retirement accounts = $54,000, or 119 percent of their estimated need.

This is the set of choices our prospective couple is facing presented in chart form:

If you find yourself in a retirement planning pickle, I’m not suggesting you read this and immediately put a “for sale” sign in your yard. Cost of living should not be confused with quality of living. If your geography and proximity to friends and family is where you derive the most joy from life, I’m not suggesting that you have a financial duty to uproot. But, if you’ve reached a retirement plan dead-end and find yourself without options and a yearning for a refreshing change of pace, there is no question that transplanting your financial life to a lower cost of living area can transform a bleak retirement into one that is quite comfortable.

Aging in Place the Next 30 Years

Aging in Place- the next 30 years

This is a great article written about how our society needs to deal with the aging population over the next 30 years.

The article is timely for people over 55 - their families, realtors, builders, and home care agencies.

I hope you enjoy it!

Diane

Home Price Affordability Scale Tipping in Western Metros

February 11th, 2014  |  by Alyssa Gerace Published in Data, News, Reverse Mortgage

With most metropolitan areas continuing to log strong yearly home price growth through the fourth quarter of 2013, the scale is starting to tip in certain areas in terms of affordability.
Metros in the West are among those with less favorable pricing conditions for buyers, according to an annual affordability report by the National Association of Realtors, which also recently issued its latest quarterly report.
Prices for the median existing single-family home jumped in nearly three-quarters (73%) of measured markets as 119 out of 165 metropolitan statistical areas logged gains, based on closings in the fourth quarter of 2013 compared to the same quarter the previous year.

However, that marks a decrease in the number of rising markets compared to the third quarter, when price increases were recorded in 88% of metro areas from the year before, according to NAR, with a third rising at a double-digit rate.
There are pros and cons to rising home prices, economists say.
“The vast majority of homeowners have seen significant gains in equity over the past two years, which is helping the economy through increased consumer spending,” said Lawrence Yun, chief economist at NAR, in a release. “At the same time, home prices have been rising faster than incomes, while mortgage interest rates are above the record lows of a year ago. This is beginning to hamper housing affordability.”
Four of the five most expensive housing markets in 2013′s fourth quarter are in California: San Jose, with a median existing single-family price of $775,000; San Francisco, at $682,400; Anaheim-Santa Ana at $666,300; and San Diego, at $476,800. Honolulu, Hawaii, rounded out the top five with a median price of $670,80.
In contrast, the national median price for an existing single-family home in the fourth quarter was $196,900, up 10.1% from a year ago, says NAR.
“The national figures provide useful background, but it really gets down to supply and demand in a given neighborhood,” said NAR President Steve Brown. “Metropolitan area figures are an excellent gauge of local housing markets, but there can be widely ranging conditions within a metro area.”
On the other side of the scale are the five lowest-cost metro areas: Toledo, Ohio with a median single-family price of $80,500; Rockford, Ill, at $81,400; Cumberland, Md., at $89,500; Elmira, N.Y., at $99,500; and South Bend, Ind., at $101,100.
Two of those metro areas, Toledo and Rockford, are among the metro areas with the greatest housing affordability conditions in 2013, along with Decatur and Springfield, Ill., and Lansing-East Lansing, Mich.