May 27, 2024

Money Through the Ages: Pondering Risks in Retirement

FRANCES AND JIM LANGERFELD know exactly how much they spent as newlyweds in August 1968. Rent for their house: $115. Groceries at Publix: $12.26.  A suit for Mr. Langerfeld: $62.68.  It is all meticulously detailed in an orange budgeting book that Mrs. Langerfeld pulled from her garage one recent evening. She kept several others, which offer a window into their family’s financial life.

The ledgers show that the Langerfelds bought only three new cars over the last four decades, including a big white Dodge van that they drove for 300,000 miles, mostly to ferry their four children to choir, hockey and soccer tournaments. Their biggest expense over the years, beyond their home here, was private school and college.

Now that the children are grown, the Langerfelds — he is 64, she is 62 — are contemplating retiring as soon as next year. While they have lived frugally, amassing about $720,000 in savings, they have the same reservations that vex many Americans on the cusp of retirement. Can we really afford it? Will our standard of living fall? How much will we ultimately get for the house?

Mr. Langerfeld, an engineer for a construction company, said he still enjoyed his job — and would not mind working a bit longer. For his wife, however, retirement cannot come soon enough. “I don’t want to die in my cubicle,” said Mrs. Langerfeld, who survived advanced breast cancer nearly seven years ago.

But the Langerfelds said they might have an ideal solution: buying a 10-room motel on an idyllic island, just off Maine in New Brunswick, Canada, where they already own half of a vacation home with friends who want to sell their share. The motel, popular among bird watchers, typically generates about $25,000 in income a year after expenses.

Mr. Langerfeld, a master repairman, would keep busy maintaining the motel, while Mrs. Langerfeld, a fastidious record keeper, would handle the books.

“We figured it was a good investment and would give us something to do,” she said.

They discussed their situation with Kathleen Rehl, a financial planner and author in Land O’Lakes, Fla., who, as a 64-year-old widow, is thinking about phasing into retirement herself. She calculated their net worth at $1.2 million. Their only debts are $20,000 in education loans for a son and a $10,000 401(k) loan.

“Right now, they are standing at the abyss, and they have lots of risk in their life,” said Ms. Rehl, who said she had major reservations about the motel.

The Langerfelds do not know how much their house will fetch, but the motel would lock up at least $200,000. Then there is the business risk, though the couple has met with the motel owners and studied their finances. They must also run the motel for two years before they can apply for permanent resident status, which an immigration lawyer said they were likely, but not guaranteed, to get. And it could be tough to sell the motel if they needed to.

Though healthy now, the Langerfelds have had three cancers, heart bypass surgery and a minor stroke between them. Mr. Langerfeld would qualify for Medicare by the time they got there, and could easily go to Maine for treatment. But Mrs. Langerfeld would have to buy health insurance for the three months they said it would take them to get Canadian health care.

Ms. Rehl raised other questions: Can either of them run the motel alone? What is their exit strategy? The Langerfelds said the current owners ran the motel five months a year.

“Jumping into the motel business would be challenging,” Ms. Rehl said. Ideally, she would want Mr. Langerfeld to wait until full retirement age to collect Social Security, which would yield a bigger check, for him and for his wife, should she live longer.

Ms. Rehl suggested selling the Tampa house first, then renting for two years while they still worked. Mrs. Langerfeld did not dismiss that idea. Still, she expressed a sense of urgency if they were going to proceed with the motel. They said they were more likely to gain permanent residence status in Canada sooner than later. “We’re lucky to have the years that we have, after all the health scares,” she added. “I want to do something else.”

Here is what their income picture would look like: if they clear at least $400,000 from their Tampa home — it is worth $502,000, according to Zillow, the real estate Web site — and use the proceeds to buy the motel and their friends’ share of the home, their $720,000 would remain intact.

So Ms. Rehl estimated the Langerfelds would have $67,000 in income — $38,000 from Social Security and nearly $29,000 from savings, assuming a 4 percent withdrawal rate. Since the bulk of their retirement money is in traditional Individual Retirement Accounts and 401(k)s, she said they would owe about $2,000 in federal taxes on that income. But she suggested they speak with an expert in cross-border tax issues.

The motel income would be extra, and the Langerfelds said their cost of living in Canada would be much lower. Ms. Rehl said they spent $100,000 in 2009, excluding their savings, but the Langerfelds said it was an unusually expensive year because of their two sons’ weddings and Mrs. Langerfeld’s mother’s funeral. Ms. Rehl said if they downsized in Florida, they would have more money from which to draw. But the Langerfelds said their cost of living would be higher.

Then there is their portfolio, where stocks, precious metals and mining investments account for 72 percent of their money — far too risky for their age. “I had to take the risk because we didn’t have enough money to retire,” said Mrs. Langerfeld, who handles the investments. “It has been a successful ploy.”

But she knows her luck could turn quickly, and is ready to shift into something safer. In fact, she was not certain she wanted to put as much as 40 percent into stock index funds, which Ms. Rehl had suggested, since she predicts the market is headed for a fall.

For now, the Langerfelds are honest about the myriad risks of the motel and continue to do research. Mr. Langerfeld said it would ultimately be an emotional decision. “There are so many factors beyond our control,” he said, “that there is really no way to make a logical decision.”

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