Long Beach Real Estate-Downtown Long Beach Condos

 By:  Jeff Brown

WARNING: This post is long, isn’t very funny, and involves concepts requiring explanation. Although I can’t promise you’ll be ecstatic by the end, I think maybe, more likely than not, you’ll have a serious conversation with yourself, or your spouse. One more promise: I’ll try to be funnier and shorter most of the time. :)

So what the heck is this Purposeful Planning stuff? It’s what my entire professional philosophy is founded upon, that’s all.

Unless you think arriving at retirement’s door with a very cool income (read: high income), and much earlier than you imagined is mostly luck, doing things on purpose matters. Does luck matter? Oh yeah. How many people do you know who started investing in real estate some time after 1996? They’re easy to identify at social events. They’re the ones holding court, dispensing wise tidbits on how to turn less than a hundred grand into over a million in five years.

I can tell you exactly how right now, cuz it’s so easy you’ll kick yourself when you read it.

Just wait until you’re sure the appreciation in your area is gonna hit 20-40% for the next five consecutive years – employ leverage – execute a couple tax deferred exchanges to keep the fire burnin’ hot – then collect your newly minted comma, ready to insert into new XL sized net worth.

Of course, when you mention the hyper-appreciation as maybe being the major factor in their success, they tend to turn uppity on you. :)

Purposeful Planning is what makes or breaks retirement plans. It’s like gravity: you don’t have to believe in it to feel its consequences. It’s part of what I call economic physics. And like gravity, it can be used for your benefit, or ignored at your peril.

First, you have to know where you are now, financially. It’s much like finding a new store at the mall. You find the directory, locate the new store, then head off. Oops, you forgot something. We can’t get from point A to point B without knowing where point A is exactly. So we find the little icon that says, ‘You are HERE’, and proceed to the new store.

The 2 most common investment myths

There are two myths I hear repeated constantly from folks during our first meeting. First is, their very strongly expressed view that hitting retirement with zero debt is their #1 goal. Following quickly behind that is, ‘we just don’t have the capital to get started’.

Imagine a 40-something married couple living in their Long Beach condo. They bought their condo in 1999 and still love it. What’s happened since they bought it? It’s more than doubled in value, that’s what. The current market value could well be hundreds of thousands more than they paid. And since they have the original loan still in place – ah, Helllloooo? Anyone home? They’re almost drowning in available, and accessible  investment capital.

But this, they say, is the problem. If they tap into their nicely inflated equity, they’ll be increasing their debt, and that simply cannot be allowed to happen. The reason is almost never that they can’t afford it.

That mindset worked for Grandpa, but is literally asking for disappointment in place of the magnificently abundant retirement of which you’ve been dreaming.

Because Grandpa worked under a totally different set of rules than we do today. Very few folks actually were able to buy a home in his day. Also, the threat of having his home loan called ‘due and payable’ – at any time, was always a potential – and at the lender’s option. So he was motivated to pay the dang thing off, preferably yesterday afternoon at 4:30.

Add to that the fact Grandpa knew if he worked hard, kept his nose clean, and reached retirement age, his company would give him his hard earned pension. Add that income to his Social Security check, along with a free and clear home, and he’d have it made in the shade.

And for the most part, that strategy, that Plan if you will, worked like a charm for decades.

Those rules don’t apply to them. Besides, Grandpa’s idea of inflation was what he did to his car’s tires. Our couple? Since they were in junior high all they’ve ever heard about was inflation. Also, instead of the pension Grandpa had, they’re in charge of saving and investing on their own. And that was one of the biggest rule changes.

Add the fact that a starter condo, in even the lowest priced areas of Long Beach is still somewhere around a quarter million clams. You can see they have almost no chance to live Grandpa’s experience.

Let’s look at what would have happened to him if he’d retired in say, 1990. He arrived at age 65, ready and rarin’ to go, with his free and clear home, his Social Security check (probably less than $800) and, if he was particularly frugal, $200,000 in the bank.

He’s now 82, and his savings are gone, due to the cost of living. He has no tax shelter whatsoever, so the income from his savings was fully taxed by both the feds and the state. His retirement has not turned out anywhere near what he’d planned. If not for his kids, he’d be in real trouble.

Yet, what would he have replied if you’d have asked him, when he was 30, (1960) if he’d like retiring with around $25,000 a year? Before you answer, remember this: In 1960 the median income hadn’t yet reached five figures annually. Now you know his answer. :)

He’d of thought you had the fabled Magic Wand. Retire with more than 2.5 times what he’d ever made in his life so far? His only question probably would’ve been, ‘Where do I sign up?’

There are thousands of retirees who are victims of what I coined years ago as Grandpa Economics. It wasn’t their fault, because the rules changed while they were in the middle of the stream. It wasn’t fair. Inflation, taxes, the way everything became so dang complicated, finally took its toll. Grandpa was caught in the crossfire of massive economic and cultural change. Let’s see how it came out.

 

He’s the father of one of my clients. He and his wife are in their 70’s and very healthy. They live in a state contiguous to their son and his family, which includes three grandkids. Their very old house is paid for, requiring constant maintenance. They’re annual income is around $35,000 a year – over half of which is taxable. A few years ago, because of the expense, they had to stop flying to see their son and grandkids. To save money, they drove.

This spring they had to cancel a long anticipated visit because they couldn’t afford the gas it would take for the trip. Let that sink in. Fortunately the rest of my client’s siblings live in the same town as his parents, and they take excellent care of all their needs.

This is what our Long Beach couple is planning for, though they’re blissfully unaware. I hear these two myths quoted to me a few times each month, so I’ve developed a question in reply. I’ll pose it here.

You can have a free and clear home with your savings and Social Security at retirement.

 

You can create a Purposeful Plan that gets you to retirement with a five figure monthly income, much of it tax sheltered. Of course, you’ll probably have a house payment too.

One of the downsides to my job, is hearing stories like my client’s parents – and often.

Is the real life Grandpa living out the retirement he anticipated, or is he living out a life sentence?

A magnificently abundant retirement doesn’t happen through luck, at least most of the time. It happens as the predictable result of a Purposeful Plan.

 

 

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