In a perfect world, you could sell the family forever home, live off the cash, and start a new life, doing whatever you want. Unfortunately, it usually isn't that simple. There is so much more to downsizing then, sell and go. Such a big change can be challenging because there are so many different things at play when getting ready to make a life changing transition like: your income and expenses, taxes, social security, estate planning, wills, and trusts. The big question is: Do you have enough money to do what you want to do?
That's why we invited Mike Rue of Evergreen Wealth Management to be our guest for episode 8; Time to Downsize: Can You Afford It? Mike shares his knowledge of wealth management, to give you listeners insights into the process of downsizing, and tips and strategies to find out if your plans fit your budget.
Mike Rue takes a holistic approach to downsizing when he advises his clients. He works with vetted professionals: like estate planners, accountants and tax advisors, and quality real estate brokers like the Edge Group Team, so your decisions are based on a complete picture of your life's situation.
Join Dennis Day and Mike Rue to learn how you can make your downsizing decisions work for you and your budget for a successful process.
Edge Group Team Website: www. edgegrouprealestateservices.com
Getting Your Edge: How to Right-size You Home and Life Podcast
Episode #8 Money, Money, Money: Do I Have Enough?
Dennis Day 0:13
Welcome, everyone to episode seven of getting your edge how to right size your home and life podcast brought to you by the fabulous edge Group team. We're here to give you an edge and all your real estate needs. We have a very informative show for you today. I'm your host, Dennis day, and my usual co host Judy Gratton is recovering from Soul shoulder surgery. Ouch. And she can't be with us today, Judy, we wish you a speedy recovery. I'm really excited about to introduce our special guest here my crew of evergreen wealth managers. Mike is an independent full service financial service firm serving the greater Seattle area and based in Bothell, welcome Mike Rue
Mike Rue 0:58
that US Good morning. Nice to be here.
Dennis Day 0:59
Before we get going on this interview, I'll remind you this podcast is free to all with no subscription fees or advertising. So I'm asking you to please send us a feedback through Apple podcasts, subscribe or follow us give us a star rating on Spotify or other directory, share the podcast link with someone who could use the information this would really help us out and building our audience. Thank you. And I do have a special offer at the end of this podcast. So be sure to stay tuned to the very end. Let's get started. My crew give us a little history about you and what you offer people in financial advising. Oh, terrific.
Mike Rue 1:39
I'm a a financial planner. And I've had a practice for about 30 years now. Working under the auspices of a independent financial firm broker dealers is that is what they call it. And so I'm not the advice I give is my own and the oversight is through through that kind of that kind of organization. I work with retirees, pre retirees, folks who need some help getting getting some organization and risk management and grow investments and make it work for them. Oftentimes, it's retirements sometimes it's college planning, sometimes it's new businesses, that kind of thing. But doing it for quite a long time and enjoy it. I've got the best job in the world, perhaps next to yours, right?
Dennis Day 2:27
Oh, well, yeah, so this edge Group team is as far as Do you want to add a little thing about your family life maybe your hobbies and things like that I hear you're a hard worker.
Mike Rue 2:37
I live in Bothell with my wife and I we have two cats if anyone wants a cat just give a holler we can we can work something out. I'm active in the chamber of commerce and my past president and active in the community just doing stuff which volunteer stuff which I enjoy got a shop in my house that I make sawdust and it make furniture for the friends and family in our in ourselves. So I just making sawdust is what I call it build up a couple houses full of furniture that I made. enjoy doing. That's one of the several hobbies of that.
Okay, I wanted to let you know that our edge Group team has really geared our business towards helping people who want or need to right size their life, meaning their home is not working for them. They need a change question I asked you the questions I asked you, it'd be related to the people who are thinking of downsizing, going from that forever home and finding the right fit and the lifestyle that they want to live. So we've got a lot of people here who are in their big forever home, they've probably paid the mortgage off, maybe they have some original residual mortgage left from a remodel or something. But basically there they've got a large quantity of equity in their home. It's too big, they are tired of the maintenance, their yard work and all those things, maybe even high taxes so they're ready to make a change and those options are endless. Really, they go to a condo, the Rambler the RV, moving to changing to a multi generational household, renting, selling and then renting living abroad or manufactured home or even a retirement community all kinds of choices there. So my question is my before downsizing process begins? Yeah. And the home is sold financially. What would you suggest these homeowners do first? Well, And these are typically people in their 60s or 70s. But every situation is different. There are a couple of several aspects to this. Some of them is our financial which is an area that I work in how to make assets of any kind, whether they're it's a newly sold house or assets that you already have into income and that's that's an that's in my in my wheelhouse on how to kind of sort that out. But the other side of that is lifestyle. folks who are in that situation that you describe are making these big decisions. And they're not easy to make. And their involves change. This is a way I've been doing it for 3040. However many years that they're doing this, and maybe their kids are saying, or maybe they're coming to their own realization that we got to be in a different thing. And it's hard, just the size of the project of getting rid of stuff, the feeling of what it feels like to move mouse, you've been in for a long time to move into a new one forum, not foreign, but a new environment that they have to get used to. So it kind of requires good loves, oftentimes to make that happen. For professionals, such as you, who are suggesting making suggestions about that. And both were, you know, what kinds of these decisions that you pointed out, whether it's with a small house, or apartment, or retirement community, or any number of things, just how to make that work out? What is involved in that. And the front end is to get an assessment of what you have, and what your income needs are, and the value of your house and equity of the house. Sometimes there's a mortgage sometimes not. And to see if the if the math works,
Dennis Day 6:11
You get an assessment of how much the house is worth, and then assess your other finances as well.
Mike Rue 6:17
Absolutely. And a real important part of that. And I ask this question of my clients a lot, and they frequently don't know or don't know, accurately is how much do you spend every month on stuff, and some people will live on two or $3,000 a month, some people will live on $20,000 a month, just on on paying the bills and, and the lifestyle that you've dialed into this. And those things matter a lot, the size of your nest egg will support a certain level of income for the rest of your life. And sometimes there's plenty big, I've got a million dollars, and I only spend $2,000 a month, you're golden. But if you've got $20,000, and you spend $10,000 a month, the math doesn't work. So either yourself do that and do that kind of analysis, or have somebody help you do that. That's an area that I certainly can be of help with. But the amount of your assets, what a differential would be if you're going from a big house to a small house, what what's left after you're done after you're done doing that, should you have a mortgage on the second house, sometimes that makes sense. And just see if the income supports what you're considering doing.
Dennis Day 7:26
Great. So Mike, before we go into this interview, I we talked in you said your business you like to take a holistic approach to financial management. Can you explain what that means to our listeners? Well, in
Mike Rue 7:41
The in the marketplace out there of people who do things similar to mine, it's hard for a consumer to know who you're talking with, what are their qualifications? Are they representing you? Are they representing a company? Are they selling insurance? Are they selling, things like that, and how how they are compensated matters. But so if you're looking for somebody to be the most help, in my opinion, somebody who has a team work as a team of financial people, real estate people, oftentimes legal people have them, they have lawyers who can help with state planning issues, which isn't its own, its own large topic and an important one, accounting, the things that come up with sales houses, and coordination of all of this. And it's common for a person to get conflicting advice, called my accountant said this is too much tax, don't do it. Without knowing all the other things that are getting involved in that I called my real estate person who's going to charge a big percentage for for a transaction invest too much I can't pay it. Well, look, let's take a step back and take a bigger picture and get the the people in the same room here if needed to look at the big picture here. Rather than just a little slice the problem you're
Dennis Day 9:00
Dealing with these people, the lawyers, the accountants, and so tend to be in silos and with your holistic approach, you're you think this is more helpful to clients? No question. Social Security is an important part of retirement. Could the sale of a home and downsizing have an impact on someone's Social Security income?
Mike Rue 9:20
No as the short answer, the your Social Security will remain the same if you're regardless of where you're living, but there are some definitely some social security issues that come up. If you are in your 60s. Typically you have choices, your choice as to when to start up social security. You can start up anytime between age 62 and 70. That's a decision on this. On this grid financial planning stuff is when to do that sale about the sale of a home. If you're in your 60s and you have not taken not yet started up Social Security. The sale of the home might enable you to push back this this decision to take it later. For a higher dollar amount, the sooner you start, if you start at 62, you're gonna get x, if you wait till 66, it's going to be x plus 20%. And if you wait till you're 70, it'll be x plus 14 45%, something like that a much bigger number. So as we analyze your income flow, your income need and where your sources of income are socially good, the timing of when to start social security matters, depending on the other assets that you have. If you've already started, it's you're locked in.
Dennis Day 10:31
So if they've already started collecting Social Security, it's not really an issue, whether they selling their home or not,
Mike Rue 10:37
Right, but if you are, depending on your age, group, and health and such, if you have a spouse who dies that can. And oftentimes, these kinds of downsizing are triggered by events like that. So the Social Security income will go down, because of you having to focus down to one for one surviving spouse, the surviving spouse will generally get the higher of the two social security. If someone if someone's getting $2,500 a month, someone's getting $1,800 a month, the survivor will get $2,500 A month like that. But if there's a death of a spouse, income goes down. And so that leads to enter into the entering of this picture. As you're doing income projections.
Dennis Day 11:20
And often lead up selling a home like this can often lead to large quantity, if they have equity in the home. Or there should downsize there's work worry about the tax liability, their home being sold. Well,
Mike Rue 11:34
The issue is capital gains, not everyone will pay capital gains. And the capital gains means what you what you paid for a house or securities to theirs is not only houses if you paid, if you've got a if a couple, for example, bought a house in 1970. And it was worth by today's standards, not very much $100,000. And then here it isn't 2023, and they sell it for a million dollars. And that's not an uncommon scenario, Uncle Sam will say that $900,000 is capital gains, you get an exemption from that, they'll give you the 500 day 500k as a married couple, and then you the capital gains, that would be 400k, you pay 15 20% of that. So in that scenario, yes, and so but if it's if they bought it at $700,000, and sold for a million, that is not so those those numbers matter. And tax professionals should be involved. That's where getting one involved early here to make that a more firm number for which you to make your decisions on is an important part of process. Another thing that enters into capital gains is if if a spouse dies, there's a step up in basis, it's called where the date of death is now a new marker of where you're computing the capital gains from a accounting professional should be involved in that discussion as well. But that's from from a purely financial point of view, that is a tax, a tax event that you need to pay attention to, in that as part of that decision.
Dennis Day 13:09
The widow or widower could have some relief from that huge tax bill.
Mike Rue 13:14
But let's say that you that you've done a transaction or intend to do the transaction, and the accountant says, Okay, you're you've got a large, you've got large check in your in your that we just sent you 500,000 million dollars, whatever number is set aside, $150,000 set aside, because next spring, you're going to be paying that spring following the year in which it happens. And so you segregate that, or you can actually prepay it if you want to avoid making a quarterly payment and and just build that into the build that into the plan. It happens. It's usually not as big as, as people fear that it's going to be and it frequently doesn't happen at all, but item that you need to know about
Dennis Day 13:58
Going back to the holistic approach. So you've talked about working with real estate professional to help someone assess their home, a tax adviser, an accountant, you as a financial planner, and even a lawyer for?
Mike Rue 14:14
Well downsizing is not necessarily related to downsizing. Downsizing is not related to estate planning. Estate planning is something that in my conversations that always comes up with my clients. Do you have your will or alternative to move assets that you have when you die to somebody who remains? It's really important and it's not it's pretty painless. So when a if you're a married couple and you move from A to B nothing legally happens in terms of your estate plan when people die or become a firm that they become unhealthy and cannot can no longer make decisions on their behalf. Then having powers of the appropriate powers of attorney and in place to make those kinds of difficult decisions is important. And it's so much easier to do on the front end of that, as it is tried to do that after the fact then it becomes much more complex, expensive and lengthy. And you may not get the results you want, and attorney should be involved in this process. So
Dennis Day 15:18
Is the estate planning part of your work?
Mike Rue 15:20
Absolutely, absolutely. Though I'm not an attorney, I'm very conversant in the issues that they deal with. And I am oftentimes sitting in the attorney's office, the clients, like let's get the squared away, here's the here's the money side of this, and I know how that's working. Let's coordinate that with with legal work that's higher than net worth of the client. And more important this is,
Dennis Day 15:41
How do you choose the people you work with in all these different areas?
Mike Rue 15:47
Oh, well, because I've been doing this for a while I get acquainted with these folks professionally from any number of sources, other referrals, or just people I've known really, sometimes for 1520 years or, and I've worked with them. And I know how to do that there are some professionals that I work with. And I say, let's not use this person anymore. Even highly qualified and credentialed folks sometimes both follow up well, or it's not their specialty, or any other overworked and understaffed, or sometimes you need quick answers. So it's a selective process, and a new boss is going in and out. I've had accountants and lawyers and others, say books associated my business for 20 years, and they fight to them over overtime.
Dennis Day 16:30
So over the 20 years, you've added your partners. Yes, absolutely. Downsizing process. You oftentimes get a large quantity of money at once. Yeah, can you give me some situations where that can be problematic?
Mike Rue 16:50
Well, we discussed the capital gains. Sometimes there's family dynamics that play into this. And if you have family, kids who are perhaps not on the highest epics, or who are or especially needy and that kind of thing, it's certainly been known to happen where they take advantage of moms or dads inability to make decisions or or unwillingness to upset the applecart, that kind of thing. You know, I need to I need a new car, or a new horse or a new, I do something and all day as my Anna, and I've seen this where someone in that situation, I mean, that situation has just barely enough to get by. And then some, you know, family members doing this and saying, I need money, I need money. And it's to their detriment, my I say, my advice, and that happens is that's not sustainable for you to do that financially. And we find another way, and I'm successful only part of the time on that it creates situations which are, which are compromising or can be compromising our clients. That's not the only thing that can happen. But that's one of them.
Dennis Day 17:56
It's been mentioned that the Americans have most of their wealth in their family home. Is that really true?
Mike Rue 18:04
That's frequently true. Lots of exceptions. But that's frequently true. It depends on your age, you know, if you're, if you're 70, it's almost always true. If you're 25. It's almost never true, but it's so it just kind of depends on what stage of life you're in that that's the case. And when you sell a house, or sell a home or any other large asset, that usually the question that comes up for grabs you and for me, my business is how do I turn this in this proceed into a sustainable income stream? Almost always want to have it, you've got a half million dollars here? How much income can this add to my income stream to last for the rest of my life? And the answer is easy. If you tell me how long you're gonna live.
Dennis Day 18:52
And they usually get there. Right?
Mike Rue 18:54
They shrug it off. But and if you do that I can have you spend the last dollar on the last day, but other considerations come up in there. So there's a kind of a quick shorthand that, that you need to take with a grain of salt. But if you have taken a 5% withdrawal, and let's say you're in your 70s or mid 70s, and you take a 5% withdrawal from your nest egg, it'll almost always sustain you for the rest of your life. So a half million dollars in what's called bank, you took $2,000 A month that's $24,000 a year of income to your stream, it'll almost certainly be there or it was it allowed survive you and it can be a legacy for kids, which is important to some people and not for others. So that's part of this process. Or if you take $4,000 a month, double back then you'll have a declining, declining balance. And that's sort of okay, depending on how steep this curve is. It's okay if if you run out of money when you're in the numbers say when you're 105. That kind of works, but if you if you're over drawn to that it runs When you're 81, that's not good. And my job is to make sure that this is sustainable and all and I'm in my my position here, I'm ethically and legally involved are labeled as a fiduciary, which means that I make recommendations based on not on my own needs or compensation, but they got very seriously employed in my practice.
Dennis Day 20:21
Are there times when a homeowner shouldn't downsize?
Mike Rue 20:25
Oh, maybe more of a lifestyle decision than anything else. I have a client who lives up in Arlington, and she's 9090. And her husband died here four or five years ago, she's got this big three or 4000 square foot Rambler that she's lived in for 3040 years, longtime engineering, her health is starting to become an issue. But she has good support. She loves her house, she's mobile, she has a good sub family support around her and knows who to call when the roof leaks and enough assets that that's that works for that's fine shows your downside of nine, that was just the worst work. So okay, that comes up. It's a little uncommon, but it's really comes up,
Dennis Day 21:06
Should they make a plan for the next move, though?
Mike Rue 21:09
Well, yes. If you're a consider it, what's the what you don't want to be an event you don't want to have happen. And this is a family thing, when you're an advanced age, and perhaps declining ill and postponing this decision to move is not to have something, at least a plan in place. And having a professional kind of be on the lookout for you. If what can happen that is creates problems for families is when mom falls and breaks a bone and you need or breaks a hip or whatever. And you need, we need to find all for her next Tuesday, you know, fast, there are professionals who do that. And I and I know several of them who who are looking retirement places and sometimes long term care facilities, that's all they do is find the best one in the best location, the price, all that sort of stuff so that it fits into this person. And having those conversations can't hurt at all. But it would be unusual for someone who's healthy and active and otherwise happy with where they are to pull that trigger, because then you start a process. But having these having these folks and these connections at a time, always good idea.
Dennis Day 22:22
They make a plan. I've experienced on that when my mother and father wanted to go into a retirement community together. And then after just even a few days, my father, we really discovered that this facility could not give him proper care and had to move him immediately. It was very, very difficult and stressful. And you're making decisions on the fly. Yes. Oh, yeah, make a plan. Oh, you baby boomers, your plans with your parents and be ready. Believe me from personal experience, you will benefit from having some kind of ideas of what you want to do in the future.
Mike Rue 23:00
My mother is 91-92 here initially, and we've bought 12-13 years ago we build a rebuilt a new house and and provided a mother in law apartment for her downstairs, her own access and parking that kind of thing. And she's going through that now. And last year she had her health is declining some somewhat sharply. But still, that's a very comfortable environment for her. And for us as cared caregivers. We've recently removed her keys for her car. Which was difficult. And I feel the same way. But it's those kinds of things that come up that you have to kind of massage and do that. But she's this has worked out really well for her. And for us, there might be a time where that we're not, we're not able to continue to provide that. But it's just that that kind of stuff that you need. I bet good time context to make that happen. But it's yeah, it happens for folks. You're over 50 Right, and I'm over 50. Wherever those were aging parents become our sort of condition.
Dennis Day 24:06
Is there anything else you'd like to tell our listeners and viewers about preparing for retirement and downsizing?
Mike Rue 24:13
I'm a planner. So always have a plan, be proactive on it. Rather than rather than trying to put pieces together when craziness happens on you. Suddenly, it costs nothing to do that if you if you want to have a consultation with me, I'll gladly provide that at no cost to anyone who wants to a more detailed discussion. Happy to do it. So take advantage of that and
Dennis Day 24:36
so they can reach you at this evergreen wealth managers. And here's the address based in Bothell, Washington.
Mike Rue 24:44
There should be a email there too as well. Mike@evergreenplanning.com
Dennis Day 24:48
What is the website address?
Mike Rue 24:50
Dennis Day 24:51
Evergreen planning.com. Great. Thank you Mike for joining us.
Mike Rue 24:59
And Happy to help.
Dennis Day 25:01
So that's it for our episode number seven of the edge group real estate team, how to right size your home and life podcast. As always, we have a freebie packed with our information. Mike's going to send us some information about well downsizing, planning and so forth for let's say, I'm not saying that very well, planning for retirement downsizing and the future, if you're thinking about downsizing, you can give him a ring. And as I said, we're going to have a special gift from the edge Group team. If you are the first person to give us a five star review of this podcast at Apple podcasts and we only can do it at Apple podcast because that is the only place right now that we know where you can leave a review all the other places you can leave stars ratings, but Apple is the only one that gives her review. If you send us a five star review, we'll email you a $25 amazon gift card for just taking a few minutes to say a couple of sentences. Thank you very much. My thank you for all of you who stayed with this program and follow us or SUBSCRIBE, LIKE, SHARE COMMENT on any of our previous podcasts. And thank you for watching and or listening. That's it. Thanks Mike.
Mike Rue 26:19
Thank you. Goodbye.