We're retired. What's the best way to handle some large expenses?[ Edited ]
We are retired, ages 64 and 79. We own our home worth $250K to 300K and have about $1 million in investments. We need about $188,000 in the next 5 years to pay for home improvement, auto purchase, real estate taxes and long term care insurance premiums. The question is how to pay for those extra expenses. 1) directly from investments? 2) loans from USAA for each expense as it comes up? (which means paying it from investments) 3) home equity loan? (pay from investments) 4) reverse mortgage? ( no payment from investments) We would like to preserve our assets as long as possible. What is the best way to accomplish that goal? Thanks for any insight you can give us.
I think your best approach to answering these questions is to get with a financial planner or advisor and do some additional retirement planning. While this may seem a bit like closing the barn door after the horse is already gone, fact is retirement planning done right should be an ongoing process where you continually evaluate and re-evaluate where you stand versus what you planned.
Here are a few thoughts to help you frame your discussion with a planner or advisor:
- Recurring Expenses. A good first planning step for those already retired is to figure out how much of your assets will be needed to cover your lifestyle expenses. Here I’m talking about recurring expenses for things like real estate taxes, insurance premiums, food, utilities, etc. In other words, you need to try to determine how much of your $1 million of investments should be earmarked for paying for things not covered by your other fixed income sources like Social Security and pensions. For example (and it’s a way oversimplified example), if you’re recurring expenses are $50,000 per year and you’ve got Social Security and pensions of $35,000 you’d need your portfolio to somehow provide you with $15,000 per year for the rest of your life expectancy. There are many ways you could do this but ultimately you’ll need to allocate a chunk of your money for this purpose.
- Big Ticket Items. Once you’ve determined how much you’ll need to cover your lifestyle needs, you’ll be in a better position to know how much you can afford to spend on big ticket items like home improvements and cars.
- Investment Plan. Finally, having a rough handle on how much you’ll need for each of these categories of expense can help you determine how to manage your investments to pull it off.
So in summary: How much do you need for lifestyle, how much do you need for non-recurring items and finally, how should you invest to cover each.
If you crunch the numbers and it appears you have more than you’ll need, you might decide to invest more conservatively or perhaps spend more. On the other hand, if you determine that you might not have enough, you might decide to invest more aggressively or cut back on your planned spending.
A good financial planner can help you with all of this. If you don’t have a relationship with someone you trust, I encourage you to speak with our team of Financial Advisors here at USAA. They can be reached at 800-771-9960.
Thanks so much for your question. I hope this helps and I wish you all the best!