Tuesday, November 12, 2013

How to Overcome a Personal Finance Crisis in Retirement

retirement (Photo credit: 401(K) 2013)
Having financial troubles when you're retired is the pits. A financial crisis can strike at any time, however, and completely wipe you out. You've got little or no savings, and you just don't know what you'd do if you had to pay for a major car repair, a new furnace, or if you had to loan money to a friend in need. 

Go To Work Part-Time

One option that many seniors consider these days is going back to work part-time. Part-time work can include anything from a dietician or nutritionist to a mediator to Santa Claus during Christmas time. Now, dressing like Santa might not seem like it would rake in the big bucks, but it can. If you negotiate a 40-day season contract, you can reasonably earn between $10,000 and $50,000, depending on where you live.

That's more than some people make in an entire year. Of course, it all depends on your expertise. Entry-level Santas only make $10 per hour. 

Sell Your Annuity Payments

If you're desperate for cash, selling an annuity payment can help. This is mostly a last-ditch effort kind of thing though. Most courts in the U.S. make it difficult to sell payments to a third-party funding company unless there's a good reason for doing so.

Basically, you must prove that you will be put into a better position financially if you sell the annuity. Since annuity payments protect you from the possibility of spending through all of your retirement, many judges are reluctant to allow these transactions to go through. But you can convince a court if you wanted to, say, pay off a large debt or debts, if you were planning on using the money for emergency purposes, or if you needed the cash to pay for health insurance deductibles or an expensive medical procedure. 

Get a Reverse Mortgage

Reverse mortgages were popular in the mid-2000. They've mostly fallen out of favor because they were oversold. Still, for the right person, a reverse mortgage could be the right move. Basically, a reverse mortgage turns your home into a sort of savings account. Your home's equity is opened up, and you're allowed to spend it "at will."

Some companies encourage you to use an annuity in combination with the reverse mortgage, but many do not.

Now, because it's a mortgage, it's technically a loan against the property. The bank charges interest and fees, like closing costs, so there's a lot to consider before rushing out to sign paperwork.

One of the benefits of this type of loan, however, is that it does not need to be repaid prior to your death. If you plan on staying in the home forever, the reverse mortgage will be repaid either by your children or the home will be given back to the bank and the bank will sell it.

You can get around this by buying a life insurance policy that's just large enough to pay off the mortgage when you die. That way, the house stays in the family, but you get the lump sum of cash you need right now.

Anthony Jensen has worked with a number of retirees. He is thrilled to help people through difficult financial times.

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