Don Garman, Founder and Chief Investment Officer at Mirador Capital Partners, predicts a changing financial landscape in years ahead and tells retirees that when investment returns aren’t necessarily able to ensure a comfortable existence in retirement alone, they may need other ways to supplement income.
There’s one financial strategy that Garman says he would have never recommended to retirees 15 years ago: a reverse mortgage. But for those living in prohibitively expensive areas, such as the Bay Area, the idea of a reverse mortgage to supplement one’s post-retirement monthly income has become an attractive option.
“One option we’re suggesting to those who might be six to seven years from retirement is to focus their savings on paying down their mortgage now. This way, when they reach retirement, they can activate a 20-year income stream from the equity in their home,” says Garman. “This, coupled with Social Security and even modest investment returns, can provide people the retirement lifestyle they’re hoping for.”
“When I started in this business, there were people in their mid-50s. With increasing lifespans, many of those people are now in their mid-80s, and the question becomes, did you control your spending in retirement?” Garman says. “The baby boomers are getting older. They’ve experienced 30-plus years of declining interest rates, but their homes have gone up a lot in value. Some people have seen their portfolios crash and burn, and they might be running out of money. But then there are others who have more money than they expected.”
Another option that Garman suggests his clients consider, especially for those who might be closer to retirement age or well into retirement, is moving to a community living situation; a transition he recently completed with his mother-in-law. “People are living longer and feeling better, but at a certain point in each of our lives, that may change. It’s critical to find a reasonable retirement housing situation to help answer the question, how can we spend our golden years without becoming a burden on our family or enduring multiple moves?” says Garman. “Without the proper planning, you run the risk of subjecting your assets to a ravaging erosion if you’re not prepared.”
With seniors living longer and projections of investment returns in the future being lower, the key is exploring all options. Many retirement homes today offer amenities that facilitate active lifestyles while still remaining budget conscious. What’s important is to evaluate each retirement housing option while considering value and cost.
Family discussions. Garman advises honest conversations about living desires and financial ability between the retiring generation and children or heirs ahead of time – and as soon as possible – to prevent confusion. He also recommends clear, documented instructions on the distribution of assets to pay for retirement expenses, which may involve creating a living trust.
“In its simplest form, a trust is a series of instructions about how to act with your estate and assets. Here’s what you’d like done specifically so no one can ruin things,” says Garman. Too often, those leaving assets to heirs haven’t prepared them with a plan. “It’s like putting someone in the cockpit of a plane without any flight training.”
For boomers approaching retirement, Garman believes that the worst decision for one’s future is to make no decision at all. The best practice involves taking time to deliberate, making practical and informed decisions, and establishing an understanding of assets ahead of time.
Garman says when it goes wrong, there are predictably two types of heirs: those who ignore trusts because they’re unsure how to proceed with details of planning and those who run through the assets in 18 months because they believe $2.5 million dollars has the purchasing power of $25 million. “What does this money mean to the people who worked and saved all these years to have it?” asks Garman. “I just had a talk with my own father, and I asked him to make it clear to me, in different nuanced situations, how he’d like his estate handled. Because even though I might be the one literally making the call, it’s not my money, and I need to know how he wants to proceed.”
You can start a conversation about retirement housing options, retirement planning, and trusts with Mirador Capital Partners.
Mirador Capital Partners is an investment management firm with a 30-year history of advising individuals, families, institutions and businesses with innovative wealth management solutions. Don Garman, CFP®, CIMA®, AIF® is Founder and CIO at Mirador Capital Partners.
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