If you are in your 50s or early 60s, you're in the Peril Period. And the Worst of All Possible Worlds appears to be happening: Home values, 401(k) balances and jobs are going down the drain just as you're getting really serious about retirement.
How would you like to restore your long-suffering retirement savings in a single step?
Well, it's possible. Maybe, just maybe, the collapse of housing prices is an opportunity.
How do you turn disaster into opportunity? You move from a high-cost area to a lower-cost area. You move from a somewhat-depreciated area to a much-depreciated area. You move from an area of discomfort to an area of distress.
Let's see what can happen if you can accept disappointment in the sale price of one house but buy another at a bargain price. Can you use the difference to restore a shattered retirement? Some back-of-the-envelope figures indicate that you can.
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Let's imagine George and Gina Mover. They're about 60. They live in New England. They had hoped to retire soon.
But then the housing crisis came along. It took 7% to 20% off the value of their home.
Then the financial crisis came along. It took at least 25% off the value of their retirement savings accounts.
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Now the recession may take their jobs. This would force them to retire sooner than expected.
Question: How do they turn these lemons into lemonade? Answer: They make the traditional retirement move to a warmer climate.
If they owned a median-priced house in the Boston area (.pdf file), for instance, it was worth about $400,000 in 2006 but is worth only $336,000 now. But if they are among the many homeowners over 50 who have no mortgage, they can sell the house and move to any number of places where the median home price is lower. Then they can add the liberated home equity to their retirement portfolio.
Anyone who lives in a relatively high-priced area can do this.
Some readers will be shocked by the idea that many 50-plus households have no mortgage, but the data come from a recent study (.pdf file) done by the AARP Public Policy Institute.
If the Movers went to Miami, where the median home price has declined from $371,000 to $234,000, they could add $102,000 to their nest egg.
They could liberate still more by moving to Orlando, Fla., where the median home price has fallen from $270,000 to $175,000. This would liberate $161,000 for investment.
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Or they could move to Florida's struggling Cape Coral-Fort Myers area, where home prices have plummeted from $268,000 to $111,000. That would allow them to add a hefty $225,000 to their retirement nest egg.
What if the Movers don't like Florida?
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