Escaping the Two-House Cash Crunch

Last Updated Sep 24, 2009 12:04 PM EDT

Don and Sherry Radosevich knew exactly what their life would look like after Sherry's 2006 retirement. In the five spring and summer months, they'd live in their four-bedroom Wisconsin house where they raised their four children and continue working part-time — Don, 70, as an attorney at the firm he founded in1970 and Sherry, 66, as a nuclear medicine technologist. Then, when the north wind started blowing, they'd head for their Florida condo, purchased in 2005.

The dual-home lifestyle seemed quite manageable back when they had about $1.5 million in savings and retirement funds. But the market freefall — and a loss of about $800,000 — has forced them to reconsider their plans.

They had originally figured that they could live the good life by withdrawing about $60,000 to $80,000 a year from their holdings to supplement earnings and Social Security. Now they are looking for ways to cut a budget that doesn’t quite square with what they’ve got, and their biggest cash drain is, of course, the cost of running two households, now about $35,850 a year. Expenses for the Wisconsin house, which has no mortgage, run $10,860 annually including $5,500 in real estate taxes and insurance, $1,000 for utilities, and $1,000 for maintenance. In addition, they are paying $2,760 a year (interest only) on a $70,000 variable-rate home-equity line of credit they took out last year to help with expenses. The Florida condo, which has a $190,000 mortgage, costs $28,920 a year, plus the cost of travel back and forth, about $2,500 a year.

Should the Radoseviches quit work entirely, the cost of running two houses will loom even larger in their expenses. But Don and Sherry both so enjoy working that they have set no date for stopping. Don is actually looking to increase his hours. He says he continues to enjoy practicing law, and relishes the time in his office overlooking Main Street. Sherry has a similar affection for her own job. “I plan to stay as long as they want me,” she says.

Time was, they spent fairly freely. To reward themselves for saving so prodigiously over the years, they ate out frequently after they retired, sometimes three meals a day. They were happy making generous gifts to family — including airplane tickets for their out-of-town kids and grandchildren each Christmas, at a cost of several thousand dollars. All that is history.

They’ve considered selling the Wisconsin house, figuring that when they’re up north, they could rent a little cottage for just about $5,000. MoneyWatch.com editor-at-large Jill Schlesinger, a certified financial planner, notes that eliminating the costs associated with the Wisconsin house could add thousands to their budget and bring their retirement funds up to $1 million. At that point, “They could withdraw a conservative 3.5 percent a year from their various accounts,” she says. “That amount would supplement their current income, and allow them to enjoy a healthy retirement.”

Here’s what she recommends.

Use Stock Sales Proceeds to Pay Down the Home-Equity Loan

Schlesinger believes they should sell the majority of their individual stocks and use the proceeds to create an emergency fund, diversify their portfolio and pay off the $70,000 home-equity line of credit. Currently, the rate is low, but it’s variable and it’s bound to tick upward. “They need to pay that off before rates start to rise — in fact, rates already have started to creep higher,” says Schlesinger. The remaining $16,500 could be used to start an emergency fund.

Sell the Wisconsin House

With Don and Sherry’s part-time work supplementing their Social Security payments, the couple can manage two homes in spite of the hit to their retirement savings. But once Don is fully retired, they’ll need to give up the longtime family home to conserve their retirement.

Prepare for Trade-Offs

They should reconsider their plan to rent for five months of the year after they sell the Wisconsin house and are no longer working. To afford the expense, they may have to chip something else off their day-to-day expenses.

Don’s Response

“We will have to sell the house, but I want to wait until the real estate market comes back a little, the timing is not good now. I’m concentrating on building up income. This year we’ll have to take about $35,000 from savings to help with taxes and other things. But next year we’ll look at cutting down expenses further.” Recently, the pair sold some of Sherry’s bank stock to pay down $30,000 of their home-equity line of credit.

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