Possibly the most important aspect of growing older is to have the right overall attitude. As we grow older, our physical bodies suffer from “stages of decay.” But if we are fortunate, our minds can continue to grow.
We need to take the position — maybe exaggerated — that we have a lot still to do in our lives. My uncle was working into his late 70s as an attorney, and he said to me “Frank, I’m five years behind in all the work I want to accomplish.”
Another example for motivation in growing older is Dylan Thomas’ famous 1947 poem, “Do Not Go Gentle Into That Good Night:”
“Do not go gentle into that good night
Old age should burn and rave at close of day
Rage, rage against the dying of the light.”
In short, we have to be in a good mental condition as we grow old.
My first practical suggestion has to do with extending your retirement date. I have spoken to many of my contemporaries who regret retiring too soon.
If you have a job you enjoy, there is no hard and fast rule that you should retire. Staying with a job you enjoy keeps you connected with others, particularly with younger folks. It helps you keep up with changes in culture, society and technology.
I am still working, and the information and contacts I have from the job are invaluable for successful investing. But if you are counting the days to retirement, then get out or change jobs.
Retired or not, how will we preserve and invest our wealth? What type of investment portfolio should we have? In the past and in some cases currently, as people got older, many investment advisers recommended an approach that started with 50% of funds in stocks and 50% in bonds. As we aged, the ratio increased for bonds.
This conservative approach has proved wrong in recent years as the stock market has done better than bonds. If we use 1970 as a starting year, $1,000 invested in bonds would have yielded $7,991 versus $40,760 in stocks.
Timing of all this matters, of course. Investing in 2001 or 2008 would have presented a different outcome. But overall, it’s clear that stocks outperform bonds. That fact should influence somewhat how we balance financial security and financial returns. Those past ratios don’t work in today’s economy.
As we grow older, let’s look at the decision of whether to pay off our mortgage. The iconic ideal of paying off one’s mortgage comes from a different time, and I think it is also out of date.
The reason I think the conventional approach has been wrong is due to significant lower interest rates combined with the ability to deduct interest paid on our tax returns.
From my perspective, paying off a mortgage is a mistake. You lose the tax deduction for interest paid and you miss out on the opportunity to access very low interest rates.
No matter what your age, I would take all of the 3% money I can get and invest it in equities and alternative investments. There is currently an anomaly with low interest rates. We should take maximum advantage. How about a refinance and increase your mortgage? With inflation, you will pay back the debt with cheaper dollars.
As we grow old, many of us are confronted with the decision of whether to downsize and sell our current home. Many see the house they have as too big given that children are often reared and out on their own. After all, do we really need that much house, is something I hear folks say.
But here again, I think it is important to question the conventional wisdom. It is imperative to look at all aspects of this financial decision, particularly in high-tax California.
Previously, if you sold your longtime home, you would have to give up an unusually low property tax base due to Proposition 13, the landmark 1978 ballot measure to limit property tax increases.
Proposition 19 helps somewhat since you can now transfer that tax base anywhere else in California. But you also lose an opportunity to save on capital gains taxes, particularly in California, and a step-up basis for your estate.
What are the alternatives to selling your home? I think there are a few options to consider. First, given the amazing tech platforms that are now available — Airbnb and Vrbo, to name just two — renting your house to generate additional cash flow may be one way to go.
You could also consider adding a so-called granny flat to your property. Regulators will currently allow up to 1,200 square feet.
Possibly the biggest benefit in renting is, in retaining ownership, you benefit from both inflation and appreciation. Just look at Montecito in the past year.
My final tip: Stay busy, stay active, stay engaged and stay optimistic.
— Montecito resident Frank McGinity is a CPA and founding partner of McGinity & Nodar LLP. The opinions expressed are his own.