ST. PETERSBURG, Fla. — Imagine this: You’re 60 and divorced. You have a job you hate in a northern city with brutal winters. To complete the picture, you don’t have children. Your parents are dead, both of cancer. Your only sibling died a year ago, also of cancer.
It’s not a pretty picture.
But that’s not all.
Your federal government job has no possibility of advancement. Pay increases have been less than inflation. The best thing about the job is the modest pension, something most private sector workers don’t have.
Your job situation, by the way, isn’t unusual. Hundreds of thousands of federal workers are in the same boat, enough that there is worry about a “retirement tsunami” of older workers that could drain government agencies of knowledge and talent. But that’s another story.
This, by the way, isn’t a drill. It’s the real situation of a friend of mine. It’s also the reason for the St. Petersburg dateline. In spite of a heavy history of early deaths in his family, my friend believes he has to stay on the job until he is at least 67. That’s when he will have paid off his home mortgage. In addition, his Social Security benefits will be higher.
But why suffer?
Why not repot himself into a better life now?
A path to quick retirement
That’s why we spent a “boots on the ground” week on the Florida Gulf Coast.
The goal? Show him how to retire by age 62.
Why Florida? Simple. I can’t get the numbers to work in Texas. The real estate boom has priced urban Texas out of range for lower-income retirees. That wasn’t the case 50 years ago. Back then, the Department of Labor routinely listed Austin as the lowest-cost major city in America. Dallas, Houston and San Antonio weren’t far behind.
But that was then.
Today, while Florida real estate is soaring like Texas, it’s still possible, just barely, to retire on a limited income. My friend — let’s call him Alfred — earns $61,422 a year. But after paying the employment tax, federal income tax, state income tax, health insurance premiums and his savings plan contributions, his annual take-home pay is $41,298, or $3,441 a month.
That, however, is before his $773 monthly mortgage payment, which reduces his spendable income to $2,668. He also pays a $387 monthly escrow for taxes and insurance. He’s definitely not living in poverty, but few would say he’s living high on the hog.
Is there any good news here?
Yes. First, his estimated federal pension of $1,100 a month will take his monthly cash gap down to about $1,568 a month. That’s slightly less than his expected Social Security benefit if he took benefits at age 62, which is $1,604 a month.
Second, he has whittled his mortgage down to $52,000. His house is worth about $300,000. That means he likely has nearly $230,000 in equity.
He also has about $275,000 in savings — $175,000 in the Federal thrift savings plan and $100,000 in regular savings.
It could be lots worse. But can he withdraw now?
The three levers
It’s no slam dunk. But he has three big levers.
The first is shelter. It’s the largest single expense most of us have throughout our lives. If he can find shelter he likes for no more than his $230,000 of home equity, he won’t have a mortgage payment. It’s also possible that shelter expenses such as insurance and real estate taxes will be lower.
The second lever is deferring Social Security benefits. Deferring benefits for five years by spending $1,568 of savings a month brings a happy result. He’ll have spent $94,080, but his monthly benefit will be $2,292 a month. That’s an increase of $688 a month. And it will be inflation-adjusted.
Spending down his savings to defer benefits poses a risk, but it’s the most certain way to assure a higher future income. That $3,392 monthly total (pension plus Social Security) is well ahead of the $2,668 a month he has left after deductions from his job and his mortgage payment.
Third, at 62 he still has the option of working. Better still, he won’t need to worry about health insurance because he’s eligible for it at 62 as a retired government employee.
So he could work part time. This can replace some of the cash he spends deferring Social Security benefits.
Our first visit was to the Jacobsen manufactured home marketing office in Clearwater. There, Phil Hawhee let us tour the model homes. My friend decided that a two-bedroom, two-bath unit with about 1,000 square feet of space would suit him fine. Hawhee also told us that there was a long wait time for new units and that prices had nearly doubled in the past year.
For the unit we were looking at, the fully installed price had risen to $200,000. (Although manufactured home price increases have been high in Texas, they aren’t that extreme. Shane Sanders, the sales manager at Palm Harbor in Austin, told me that prices for new units were up nearly 50%.) A neighbor in the Dripping Springs school district sold his double-wide on 5 acres last year for just over $500,000. And I’ve heard about a quickly sold-out development in Dale where new manufactured homes on 1-acre lots sold for about $290,000.
Hawhee at Jacobsen keeps a valuable list. In addition to providing addresses of local manufactured home parks where the land is leased, he also identifies resident-owned manufactured home parks.
The distinction is important. As reported in a recent New York Times article, leased-land manufactured home parks can be sold out from under those who lease. Even if they aren’t sold, land rents can rise to levels that residents can’t afford. Resident-owned parks, on the other hand, protect residents from such sellouts. They also have far lower monthly payments.
We found a good example at Doral Village in Clearwater, one of the resident-owned communities on Hawhees’ list. Located just east of the picturesque harbor town of Dunedin, residents at Doral buy their community share for $30,000 and pay a monthly association fee of $204. The fee includes water, sewer, garbage collection, cable, lawn care and community resources such as the pool and clubhouse. Taxes on the homes are additional, but the all-in cost is lower than land-lease parks.
While units sell quickly, older units that have been remodeled were selling for less than $200,000, including the ownership share. Recently, Realtor Pat Long had four listings for homes in Doral Village that included an ownership share. They ranged in offering price from $149,900 to $184,500. The most expensive of those units dates from 2003 and had 1,900 square feet with three bedrooms and two baths. The homes are listed on the website selectamobilehome.com.
After introducing ourselves to the park manager, we cruised the streets. Alfred noticed how well maintained everything was — homes, roads, facilities and landscaping. Then we stopped to speak with a group of three women who were gathered outside one of the houses.
“We love it here,” the first woman said. “We feel safe here.” They had become good friends. They often had morning coffee together. They took care of each others’ pets when needed.
Feeling comfortable and safe isn’t unusual. Provided the community is a 55-and-over park, I’ve heard the same sentiment in manufactured home parks up and down the Florida Gulf Coast, in Arizona and in California.
According to the Resident Owned Communities organization website, Texas has only two resident-owned communities, one in Houston and the most recent (2020) in Austin. In Texas, most manufactured homes are in land-lease parks or in developments where the homeowner also owns the land.
The inflation-protected investment
According to immediate-annuities.com, a 62-year-old man with $30,000 to invest can get a life annuity of $152 a month. That’s $1,824 a year, or a fixed cash yield of 6.08% for life. Search for an inflation-protected life annuity and the yield will be lower still. That’s why deferring Social Security benefits is the best “investment” you can make in a life annuity.
It provides more income. The income is inflation-adjusted. And paying for it with retirement savings that could be taxable doesn’t hurt, either.
If my friend earns nothing and takes $1,568 a month out of his savings, he’ll spend $94,080 of his savings over the five years between 62 and 67. He’ll still have some savings left even if he doesn’t work. His tax bill will be minimal. If he’s really fortunate and buys a unit for less than his home equity, that money can also be used for deferring Social Security.
Should you worry about my friend spending a chunk of his savings to be retired? Perhaps. But he has the option of working part or full time. He could work part time at a place like Trader Joe’s (he shops at one now) and earn over $15 an hour, with no worries to take home. He could also be an Uber driver. A job without opportunity for advancement would be no worse than his current job. All he needs is a job he likes.
So how do the numbers work?
All he needs to replace is his after-mortgage payment monthly income of $2,668. After a government pension of $1,100 a month, he’ll be cash short about $1,568 a month. The amount could be a bit more if the monthly out-of-pocket costs for his ROC fee plus insurance and real estate taxes are greater than the $387 a month he currently pays for insurance and taxes on his conventional house. Most likely, it’s a push.
Is the move without risk?
Sorry, everything involves risk, including doing nothing.
What about conventional housing?
It would be difficult, but possible. Ellen Lincoln, a ReMax agent in Clearwater, showed us two townhouses in the price ballpark. But Florida, like Texas, is still a buyer panic market. Regular houses sell as quickly as manufactured homes. Check with Zillow and you’ll find almost nothing offered for less than $250,000 in the Sarasota area or farther south. Possibilities were better when you headed north of St. Petersburg toward Largo and Tarpon Springs.
Is my friend going to make the leap? Not yet. The big surprise is that the trip gave him a visceral sense that he had a choice. He could leave the job at a time. It was his to choose. Just knowing that was a big relief.
So he’s going to hang in a while longer. He might just be savoring the pleasure of choice.
What it all boils down to is this: If you want to retire early, sharpen your pencils. Do some legwork. Own your choice.