Debate Over How Much You Can Safely Spend in Retirement Simmers On

For many baby boomers one of the questions we have always loved to debate is about to change. The old question was – how much do we need to accumulate in savings to afford a comfortable retirement? The old question had a corollary which is also changin – when will we be able to retire and start spending?

These questions will change direction because retirement is either here for a lot of us boomers, or it will be here within just a few years. We will have saved and invested what we did, and that is what we have to work with. for many of us, our traditional careers are over. So now the question has mutated into – how much can we safely spend each year and not run out before we die in 30 years or so from now. The decision is a momentous one, because if we miscalculate we might end up working as a greeter at Walmart to make ends meet. Or almost as bad, we will reach the age when we can no longer do anything with a pile of money, but regret that we never took the trips or had the fun we actually could have afforded.

According to several financial analysts inteviewed in the New York Times, (How Retirees Can Spend Enough, But Not Too Much) the question of how much we can take of our 401ks, IRAs, and other retirement savings isn’t that clearcut. And it has even gotten a lot murkier since the recent stock market crash. Will our portfolios ever get back to where they were? Will future returns be assured as they have been in the past?

A rule of thumb used to be that 4% or 4.5% of the principal a year was the right number. So say we had savings of $200,000, that means that we could withdraw $9000 a year and add that to our Social Security and any other pension income. Using that formula we would be able to keep up with inflation, so every year we could safely give ourselves a 4 or 4.5% raise.

Now some experts are questioning that rule of thumb. Some suggest that the right withdrawal rate might be 5 or even 6%. As you might expect, after the experience of this down market that type of thinking has given a lot of people the willies.

Michael E. Kitces is a financial planner with Pinnacle Advisory Group and Jonathan Guyton is with Cornerstone Wealth Advisors in Edina, MN. They have different approaches to setting a withdrawal figure, although they share one principle: flexibility might be the key to finding the right number. If the stock market is overvalued, it might be a good year to take a little extra out of your retirement fund – maybe even 5.5 – 6.5%. The thinking is the market is about to head down anyway, might as well spend it as lose it. Similarly, if the market is severely beaten down (sound familiar?), then we might be looking at a good belt-tightening year. Save the capital now and it will probably come back. Guyton has another idea we like. Carve out a separate discretionary fund for special trips, projects, or down years. His idea gives us some fun money, we just have to realize that once it is gone it is gone.

Also Robert Shiller’s data used in this story

For further reference:
Article: A Surprising Answer: When You Should Start Taking Social Security
Forum Discussion: When to Start Social Security (including buybacks)

Home Prices Are Now at 2003 Levels

Some say it’s a good thing: declining real estate prices are an indication that demand and supply are finally catching up with one another. Fueled by foreclosures and distress sales, at least homes are selling – even if prices aren’t what sellers would like to see.   Year over year price declines slowed in the 2nd quarter of 2009 – the first quarterly improvement since the current slump began.  Even better, economists are pumping fists and high-fiving over the month to month price increases that showed up in many markets during July.

The Zillow Real Estate Market Report for the 2nd quarter of 2009 was just released, and it shows a 12.1% decline in prices from the comparable quarter of 2008. Predictably, the worst hit metros were those who showed the biggest price run- ups and overbuilding in 2005-2006. Florida (-23%) and California (-19%) were hit the hardest hit. Pennsylvania, on the other hand, only experienced a 3.8% decline in prices. As an example of the worst markets Fort Myers (FL) took a 29% haircut in prices, El Centro (CA) a 37% decline, and in Las Vegas prices were off 35%.
For more details check out the Zillow Real Estate Report.

The S & P Case-Shiller Index for the same period, released on August 25, showed very similar results. Its widely watched U.S. National Home Price Index recorded a 14.9% decline in the 2nd quarter of 2009 vs. the year earlier quarter.  That represents an improvement over the 19% decline experienced in the 1st quarter. According to that index, prices have now reached where they were in 2003, and are off some 30% from the 2006 peaks.  Las Vegas and Detroit continue to be the worst hit markets, whereas Dallas and Denver have now recorded several months of positive returns.

Buttressing these favorable (or less bad) reports was news that The Conference Board Consumer Confidence Index ® rose in August – always a good sign for the economy.

Sunshine Harder to Find in Florida These Days

Along with California, Arizona, and Nevada- Florida is one of the hardest hit states in the nation when it comes to the real estate bust. In the Sunshine State these days the usual optimism is harder to find; many are starting to talk about a need for change.

The foreclosure rate in Florida is frightening; 268,064 properties were foreclosed in the first 6 months of 2009. Put in perspective, that’s 3 times the number of condos and houses sold during the same period. Over the winter Lehigh Acres near Fort Myers became a household word when the collapse of its real estate market got national headlines.  Although prices of homes have recently stabilized and some experts even believe prices are now at reasonable limits, there is plenty of fear and even anger.

Florida, where construction is one of the most important industries, is in recession. Unemployment has gone over 10% (10.6) and people are beginning to leave the state. The state’s fiscal coffers are bare – layoffs and cuts are frightening the state’s employees, universities, and residents. Conservationists are scared about recent initiatives which will relax restrictions on growth.  In short, optimism is in short supply in a state based on unbridled quantities of it.

The New York Times has a thoughtful article, “On the Mat, Florida Wonders Which Way Is Up” today. Many believe that Florida has to change in significant ways if it is going to succeed in the coming years. It even quotes Florida author Carl Hiaasen, who says of Florida that “…we need to do something bold”.

Woodstock Trivia Quiz

Our friends at Eons.com ran a pretty nifty trivia quiz about Woodstock, now celebrating it’s 40th anniversary. The survey’s rankings of favorite rock groups playing at Woodstock: #1 Crosby, Stills, Nash and Young, #2 Credence Clearwater Revival, and #3 Jimi Hendrix.

Favorite expression from that era: “Far Out” was “out of sight” compared to 2nd place finisher, “Groovy”.

For full details, go to the Eons summary of the Woodstock poll.

How to Find Your (Bargain) Retirement Dream

If the old cocktail party conversation was about how much your house had gone up in value, the new one could be – what a great 55+ bargain you found in this distressed market.  Home prices are down, big-time, in most markets. Smart buyers are out there now looking for the best deals.  This article will talk about possible strategies that you might follow to buy a house at a bargain price – and without getting burned in the process. Our emphasis is on the “nearly new”, homes that are 1 or more years old.

There are several ways to buy your retirement home, whether it is in an active adult community, a 55+ development, or in a mixed generation town:

1.  From the development sales office. Generally this means you are buying a brand new home, perhaps one that hasn’t even been built yet.  You will probably pay the highest price, but you also get the best guarantee – and a new home.

2. From the existing owner. You might get a very good deal, but you also carry plenty of risk and no guarantees.  Extra due diligence is called for without  any professionals involved in the transaction.

3. From a real estate agent.  There are many advantages. Although you will probably pay a little more, that could easily be more than made up because of the broad selection of properties you are shown, their experience, and their market expertise.

4.  At foreclosure. Perhaps the biggest bargain opportunity, along with the highest risks. You are buying as is – if  you buy a lemon you better be prepared to open up a lemonade stand.  You can buy foreclosures from banks, agents, or even at auction.

5.  Short sales. In this type of  sale the home is in danger of being foreclosed, and is worth less than the mortgage.  You might get a good deal by buying before it is foreclosed on, but you must be patient and persistent. Most short sale deals fall through because the banks or servicing agents don’t agree to the terms.

Existing homes often the best bargains.
There are several advantages to buying an existing home rather than a brand new one:

- The house is broken in, obvious defects have been repaired
- Additional amenities and improvements have been added
- The owner wants to sell fast and willing to negotiate. You will probably pay less
- The developer’s price chart is out the window
- The neighborhood is built out; you can tell what it’s really like, and promised amenities are either there or not

Buying from the developer also has advantages:
- You will normally get a strong guarantee
- You get to design the final stages of the house, choosing exactly the features and design you want
- Some people like living in a brand new home where
no one else has ever lived

Finding the bargains out there
Our good friend and Topretirements member OldNassau had some wonderful suggestions for finding the bargains out there. Here they are:

1. Copy the name (e.g. “Ashton Lakes”)
paste, with ” ” and the state or nearby city, into Google searchbar.
add “resales”.

Either specific homes or local real estate agents will pop up.

Browse through these listings and you will find a lot of possibilities

I have found that resales are not only often cheaper than the same model, new, but have owner-added amenities.

2. For real bargains and the best buys in active adult communities, go to Trulia.com. Type in the community and/or city and you will see all kinds of ways to search for properties: You can select various price reductions (10%; 10 – 20%; 20+%). You can even specify $/sq.ft, or type of sale (bank, foreclosure, owner…). Usually these search options are displayed clearly, but Advanced Search also brings them up. You can get other really helpful information at AOL Real Estate – including the markets with the most sales, the best value, the most foreclosures, etc.

3. Another suggestion: after the development name, type “lawsuits”. Or “HOA”. There are many possibilities.

Point is: don’t depend on the in-house panegyrics. Use all the tools and you should be able to find your dream retirement community – at a great price. Good luck!

For further reference:
“Mint Condition, Low Miles” (NY Times)

What do you think? Please post your opinion in the Comments section below. And be sure to see additional thoughts from Old Nassau on the same topic!

Housing Market Recovers Some Ground

The consensus appears to be that we are at or past the bottom, at least for many real estate markets .  Inventories have been going down a bit and prices correspondingly up in places like San Francisco and Boston, and that is definitely a good thing.  NPR has both a web article and a podcast, “Housing Market Shows Some Signs of Recovery” that gives a good explanation of what is happening.  It cites figures from the widely regarded Case-Shiller Home Price Index as well as anecdotal remarks from various buyers and industry figures.

Meanwhile another interesting article comes to the same conclusion about inventory declines.  In “U.S. Housing Nearing Bottom…“, Mark Zandi, an economist with Moody’s Investors Service shows an extremely interesting chart. The chart displays a map of the U.S. that color codes markets where prices are out of whack – either too high or too low. Sure enough, the most battered markets (such as Las Vegas, a lot of California, and South Florida), those where prices have been hammered by foreclosure sales,  now appear to be undervalued. What goes around, comes around?

GE: Net Zero Energy Homes by 2015

Interested in building or refitting your retirement home so that it’s green? General Electric (GE) announced last month that by 2015 it will have developed the products needed to let new home builders and existing homeowners  manage and generate electricity for overall net zero annual energy.  If achieved, that means that you will have a zero energy bill! GE will get to that goal through its current portfolio of energy-efficient lighting and appliances products,  demand response technology,  and residential power generation products like solar PV and residential wind products.

The GE net zero energy home offerings will come from three major groups within the product portfolio: energy efficient products, energy management products and energy generation/storage products.

Energy Efficiency Products: GE’s portfolio of energy- efficient appliance and lighting products will help enable the net zero energy home by reducing energy consumption in the home.

Energy Management/Demand Response Appliances: GE demand response products will help consumers to manage their costs and energy consumption while helping reduce utility demand peaks, thereby reducing the need for more power generation – depending on utility participation.

• GE plans to be the first manufacturer to offer a full suite of demand response appliances that will work with utility smart meters to help shed load from the grid, while helping consumers save money during peak demand usage and pricing times. GE appliances and products will work with smart meters to delay or reduce energy use without major interruption to consumer’s lifestyles by giving the consumer control over their energy use. Residential housing consumes 37 percent of the electricity produced in the US. Appliances, Lighting and HVAC represent 82 percent of electricity consumed in the home.

• As the second single largest energy users in the home, incorporating highly efficient water heaters into the net zero energy homes is critical. GE will offer the its innovative GE Hybrid Electric Heat Pump Water Heater with demand response technology in late 2009. The new GE Hybrid Electric Heat Pump Water Heater is designed to use about 2300 kWh per year, which is less than half of the energy of a 50-gallon tank water heater that uses approximately 4800 kWh per year. The energy savings of approximately 2500 kWh per year represents a savings of about $250 per year based on 10.65 cents per kWh.
• In 2010 GE will introduce the Home Energy Manager – the central nervous system for the net zero energy home that will work in conjunction with all the other enabling technologies in the home to help homeowners to optimize how they consume energy. In addition to the Home Energy Manger, GE will introduce a line of smart thermostats, also available in 2010.

Distributed Generation/Storage

• Collaborating with GE Energy, products like solar PV, advanced energy storage, next generation thin film solar, small wind will help GE reach its zero energy goal.

What do you think? Is zero energy in your home a worthwhile goal – or something you could care less about?  Let us know in the Comments section below.