Читать книгу Bargains Beyond the Border - Get Past the Blood and Drugs: Mexico's Lower Cost of Living Can Avert a Tearful Retirement - Tom MD Kelly - Страница 7

In a three-day period starting on September 14, 2008 Merrill Lynch was sold in distress, 158-year old Lehman Brothers declared bankruptcy, setting off a worldwide panic. On the following day, the Federal Reserve loaned $85 billion to AIG, the first of four bailout payments.

September 16, 2008 was “The Boomer Moment.” And, the flames were fanned soon thereafter when President George W. Bush uttered “The D Word” (Depression) on national television.

The Boomer Moment was the precise point at which consumers began to seriously consider if they would be able to retire at their planned age. This moment got the boomer tag because this particular group was the least prepared, in the greatest denial and had the least amount of time to recover. Although the signs had been there for some time, the Boomer Moment turned out to be the perfect storm.

Several events occurred within the same timeframe:

•Fannie Mae and Freddie Mac, the two giants of the mortgage industry, were placed into conservatorship of the Federal Housing Finance Agency, taking approximately $6 trillion of the mortgage market with them.

•The Dow Jones fell by over 500 points in one day.

•Uncertainty over the $700 billion bailout put together by then President Bush sent stocks into freefall for the majority of September and into October 2008

•Various other institutions closed before the end of the year

Rumors of economic collapse spread like wildfire throughout the world. It later emerged that the U.S. had been in recession since December 2007. Then President Bush sent most of society spiraling into panic with:

"I was in the Roosevelt Room and Chairman Bernanke and Secretary Paulson, after a month of every weekend where they're calling, saying, we got to do this for AIG, or this for Fannie and Freddie, came in and said, the financial markets are completely frozen and if we don't do something about it, it is conceivable we will see a depression greater than the Great Depression.

So I analyzed that and decided I didn't want to be the President during a depression greater than the Great Depression, or the beginning of a depression greater than the Great Depression."

If you are one of the 79 million of people in the United States that are heading into retirement in the next 10 or so years, you probably thought you were most likely on track to live a decent lifestyle during your retirement years. Your investments were good, the value of your property would continue increase and you could rest easy knowing that the hard work over the years had paid off.

Until . . . The Boomer Moment hit you in the face like a Sandy Koufax fastball.

The bitter truth is that many people - not just the boomers - relied too heavily on home equity and certain investments to bank a return without actually considering what would happen if the world economy sank like a stone. Most did not save nearly enough, relied too heavily on U.S. property appreciation and were lulled into the belief that the good life would always last. As a result of the global economic downturn, however, the use of retirement funds targeted for carefree leisure years had to be reworked. Some were lost altogether. Now, patterns must change.

The baby boomer generation never met a loan it didn’t like. That cohort is now paying the fiddler. This generation, born between 1946 and 1964, effectively changed everything it touched. Start with cars, jeans, ice cream, houses, home loans and health care. The oldest of the generation will be aged 65 in 2011 and the youngest of the generation will be hitting their 60^th birthdays in the year 2024. Both of these ages represent the approximate time most baby boomers wanted to retire. In fact, according to the personal accounts of many baby boomers in various newspapers, magazines and other media outlets, many wanted to be retired by the age of 55 if at all possible.

We are now informed that these people will have to work longer into retirement. Many will work for the rest of their lives. Why is that? There’s more to it than the dot-com bubble and low down-payment, adjustable-rate mortgages. The boomer generation was the first generation to break many of the financial rules that previous generations had lived by for decades:

Save in your middle age. Boomers did not save. It is as simple as that. Previous generations have spent their 20s building businesses, raising families and enjoying themselves before settling down to significant saving plans in their 30s, 40s and 50s. Most boomers saved their way – a reliance on home appreciation. Although a few had regimented savings plans in place like their parents and grandparents, others failed to save and invest their money wisely.

Make safe investments and always keep something back. Previous generations may not have gotten the best return possible on their money, but they knew exactly how much money they had and whether they were on track for their retirement. Baby boomers were risk-takers in property and stocks. Regular savings accounts were not deemed wise.

Never borrow. Older generations lived through the Great Depression in the 1930s or were children of those that lived during that era. As such, they realized the importance of living within your means. They held mortgage-burning parties. They only took out second mortgages when there was no other way out. For many baby boomers, borrowing became a way to live and a fixture in society. Car loans, credit cards, personal loans, home equity lines of credit created artificial disposable income that was easily washed by rising home values. Sustaining a certain lifestyle now became more important than saving for it later.

Several research companies report that only 25 percent of all 79 million baby boomers are financially prepared for retirement for the lifestyle they expected. So what about the remaining 59 million baby boomers?

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Baby Boomers - the healthiest, wealthiest and largest segment ever seen on the North American landscape – are not as wealthy as a group as they used to be. Many will need to dramatically change their future plans, including food, health care and housing.

Mexico has a variety of housing options with attractive down-payment plans. In Puerto Vallarta, consumers can purchase affordable, well-located, attractive condominiums starting at $145,000 with as little as $9,000 down.

The down payment programs are extremely flexible, especially for investors. While the minimum down payment is 20 percent, MexicoAlive will accept $9,000 at signing and then the difference in monthly payments, interest free, until the buildings open. For example, if a buyer decides on a $140,000 unit, the 20 percent down payment would equal $28,000. After the $9,000 at signing, the buyer would make payments of approximately $1,000 for 17 months. When the building opens, the buyer would have long-term financing in place or pay cash for the unit.

In Mazatlan, at El Cid, one of the best-known names in Mexican property, new, two-bedroom, two-bathroom homes on the golf course start at $180,000. Its master planned, beach-front community includes a 27-hole country club, four hotels, canals, tennis courts, fitness center, spa, restaurants, bars and shops. It is situated in the heart of the city’s "Golden Zone".

One of the more intriguing possibilities in Mexico lies about one hour south of Cancun on the Caribbean Sea’s Riviera Maya. Madrid-based Bahia Principe Group has built a condotel, Sian Ka'an, on a golf course adjacent to its huge waterfront resort that guarantees owners-investors a 10 percent annual return on their investment for seven years. Personal use is allowed, yet owners-investors can also enter their unit in the guaranteed rental pool. After that period, owners-investors can renew the contract or take sole possession of their unit.

The hotel group said it needs more options for the visitors during the more popular seasons of the year and is more than willing to guarantee a return – regardless if the unit is even occupied. The condo hotel gated community with 24-hour security has access via private bridge to the resort and its pools, spa, restaurants, tennis courts and boutiques.A 10-percent guaranteed return on real estate in the sun? It’s time to do the research.

There are those who believe that housing markets will soon recover and that the reported “transfer of wealth” from the more frugal (and thus more affluent parents) will pull the boomers through all financial difficulty. Not true though. Foreclosures continue to rise, more lurk just under the surface and the transfer of wealth will probably help only the wealthy. In addition, people are living longer (including the parents) and assets will be stretched further into their lifetime before being left to the kids.

Another factor that has contributed to the present predicament is the cost of living which has risen exponentially in recent years despite the recession. Although baby boomers have experience the highest income growth of any generation, the level of expenses has grown as well, including:

Health care - Advancing treatments, pressure on resources, lack of comprehensive employer benefits and pharmaceutical company greed has elevated the cost of health care the past decade. Payments have sometimes come from savings accounts, reducing funds earmarked for retirement.

Caring For parents - People are living longer. They stay longer in nursing homes and longer on prescription drugs and other medications. This puts a strain on household bank accounts. A growing number of adults who are now caring for their aging parents while supporting their own children give their household’s current financial situation a negative rating, and they are having to make tough financial decisions and cutbacks.

A study 2010 conducted by Zogby International and Generation Mortgage Company revealed that the “Sandwich Generation” – those baby boomers who are now “sandwiched” between obligations to kids and parents – has been forced to make serious cuts in their spending habits to survive during the recession. Seventy-three percent have decreased spending on entertainment, recreation or eating out. Moreover, 43 percent have decreased overall spending on food or groceries and three out of five of those polled say it is difficult to be a caregiver for their parents and/or in laws while financially supporting their children.

School tuition - Raising children has proven to be incredibly expensive in recent years. School tuition has increased. Subsidizing the lifestyles of children at college their book costs and other general fees are usually underestimated.

Basics - Food, gas for your car, home energy and other similar expenses continue to rise.

All of the above are examples why people on low incomes have found it nearly impossible to save. What is curious is the number of high income families that also are dipping into their 401(k)s and pensions plans just to make ends meet. Cool cars, luxury vacations and designer clothes have eaten up money that could have been saved and invested for retirement.

“The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble”, a 2009 study compiled by the Center for Economic and Policy Research, revealed a key statistic. The report indicates that 30 percent of home owners between the ages of 45 and 54 are in negative equity and thus struggling to keep up with mortgage repayments. These owners would also have to come out of pocket to pay their lender should they decide to sell their homes. Similarly, 18 percent of consumers in the 55 to 64 age range are also in negative equity and do not classify their home as an asset any longer.

“This analysis indicates that the loss of wealth due to the collapse of the housing bubble and the plunge in the stock market will make the baby boomers far more dependent on Social Security and Medicare than prior generations,” wrote Dean Baker and David Rosnick, authors of the study. “While it will be desirable to develop more secure mechanisms for workers to save for retirement in the future, the baby boom generation for the most part has insufficient time remaining before retirement to accumulate substantial savings. Therefore, they will be largely dependent on social insurance programs to support them in retirement.”

Employment, saving and investing patterns must change – not only for the soon-retirement-age boomers but for all consumers seeking a comfortable later life. In our next chapter, we offer a viable strategy to help you get there, thanks to some help from a U.S. ex-pat.