How to Retire on a Limited Income
There are four basic rules to retiring well on limited income.
1) Marry well!
Two partners working together in harmony is one of the greatest assets in retirement planning. Conversely, a bad marriage is usually catastrophic not only to retirement planning, but to life in general, because the discord usually involves money or the lack thereof. Divorce in a limited income family almost always results in loss of most assets.
2) Don’t have too many children.
As lovable as they are, they are expensive. In today’s world of effective contraceptives having children can be managed, also. But whatever you do, don’t limit your family by abortions. The consequences of that are not worth having as good of a retirement. Guilt will limit your working motivation for life; not to mention the morality factors.
3) Don’t base your self-worth on how much money you make.
The amount of money you make hasn’t as much effect as how you use it does. Do not feel you have to ‘keep up with the Jones’. Remember, if you work hard, God will help you with ALL your needs and some of your wants. The Jones’ shouldn’t enter into the equation.
4) If you are self-employed or your job doesn’t provide health insurance, buy that first. Most people leave this to the last priority. The chance of you and your family not going through a major sickness or tragedy throughout life is slim. Health insurance is a must!
Now the nuts and bolts! The goal of all this is to be debt free by your retirement age
1) Put away six months of living expenses even if you have to start with $50.00 or $100.00 per month. Emergency money makes one have more confident and obviously comes in handy during job loss or periods of sickness.
2) Buy the best house you can afford on a FIFTEEN YEAR MORTGAGE AT A FIXED RATE! Let me repeat that: Buy your house with a fifteen year mortgage at a fixed rate even though you may have to settle for a lesser house!
Buy in an area that is in a good school district whether you have kids or not, because houses in these areas appreciate better and faster. It doesn’t matter if it is an old house or new.
Now here is the plan.
1) You have researched and bought the best house you could afford in a good school district on a fifteen year mortgage. Let’s say your mortgage is $600.00 per month.
2) You have started to put away your emergency money in an interest bearing account. Let’s say the amount is $100.00 per month and you want to have four months of living expenses in your account and they are $2,500.00 per month including your mortgage, car payments and so on. That would be a goal of $10,000.00. It would take about 8 years to achieve this goal with interest earnings.
3) Now, if you should pay something off and don’t have to replace it, like a car payment, take the money you paid on the car and put it into the emergency account.
4) Once you have the emergency account funded, take the money you were using for that and put it on the highest interest loan you have. Maybe it might be another car or whatever. Do this until all your non-appreciating loans are paid off. Then, take that money and put it on your mortgage.
5) By doing the above, you may have paid off your mortgage within 10 or 12 years.
6) Depending on what age you started the above program, maybe you feel you need a bigger or better house. This is the time to do it. But remember, the goal of all this is to be debt free by your retirement age!
7) Now is the time to think about a retirement investment plan like CD’s or annuities.
8) Lets say you want to retire at age 62 and you are debt free. Also, let’s say that whatever home you are in (the first or second etc.) that you paid $150,000.00 for is worth $250,000.00. If you desire, you can get a reverse mortgage, usually in the amount of 60% or 70% of the value of your house. You can get it either in cash or in a monthly income payoff. This mortgage does not have to be paid off until the house is sold. (More about this latter)
As for this scenario, let’s say you take the cash; buy a new car or whatever, and put the rest in a CD or an annuity for retirement income. Let’s assume you get a 65% payout on your $250,000.00 home value. That would be $162,500.00. You buy a new car for $32,500.00, leaving $130,000.00 for CD’s or an annuity. Let’s say you choose the path of the CD and the interest rate is a paltry 5% as can be found today. That would leave you an extra $6,500.00 per year or $542.00 per month. No, it doesn’t sound like much, but remember, you are debt free.
Using today’s Social Security rates, at age 62, you and your spouse together will get about $1745.00 per month plus the $542.00 on your CD’s would amount to $2,287.00 per month or $27,444.00 per year.
The amount here may seem low, but remember, it is based on a couple together making $30,000.00 per year. That’s minimum wages earnings! Most couples earn far more then that!
Now here is some general information about Reverse Mortgages. As said, they usually offer 60% to 70% of your homes value. This loan never has to be paid off until the house is sold, even if you live to be 100! However, it is based on the oldest person’s life. There is rumor that a plan is coming out that is based on the life of the last person to die. Anyway, they are counting on the reserve; 35% in our scenario and appreciation on the house to cover their investment. Also, if the house is sold, the owner gets the difference between what is owed and what the house sells for, too.
The only disadvantage I can see is that your heirs will not inherit the full value of your home! However, in this scenario, they will inherit the money in the CD’s!
One other thing to remember, perhaps things won’t go smooth enough for you that you can keep to this commitment 100%. But don’t be discouraged. It can be restarted at any time!
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