Every Friday, Gary North answers readers' questions in his free e-newsletter, Reality Check. His answers are very blunt — so blunt that he suspected it as a reason for only getting about one in 500 of his readers to submit a question in the first place! He's a straight shooter. (I haven't submitted a question to Dr. North yet, by the way!)
His advice has recurring themes. One technique he mentions for retirees is downsizing your home when you retire, especially if it's more than is needed and if there is insufficient wealth elsewhere to make ends meet.
One of his retired readers has a $650k home with a $175k mortgage balance, meaning there are payments of $3-4k per month to support the house. The reader has less than $300k in other assets, and asks if paying off the mortgage is wise.
Gary North recommends selling the house and moving into more affordable housing. He offers a link for information on buying space for $20 per square foot — easily a quarter of the price of custom housing. The caveat: the space is a mobile home!
He recommends this path because the reader's current living arrangements are unsustainable. This pays off the debt (the original note must be paid off) but it's a different debt payoff than sending in a cashier's check for $175k. A retiree without substantial income cannot afford that kind of house.
Downsizing can be a bitter pill to swallow. It implies a loss of prestige. Frankly, I wouldn't want to do it if I could avoid it. But it does accomplish the goal of debt reduction. And one could argue that selling a single-family home in a hot housing market is a wise move, anyway.
So, debt reduction is not only paying off what you've bought over time, but also analyzing what you've bought over time and deciding whether you want to buy it again or not. For a few purchases, like a home or transportation, it's not really an option to do without, but you can not buy quite as much of it the second time around: a used mobile home instead of a permanent dwelling; a used sedan instead of a new SUV; a perfectly viewable 17″ TV instead of a plasma-screen TV.
I'm not familar with Gary North but found this post very interesting. I'm 57.8 years old and working full time. Two months ago I sold my townhome and bought a condo that even with a lot of remodeling cost half the sales price of my townhouse; and my mortgage debt is now 40% of what it used to be. My monthly overhead (HOA fees, utilities) costs are also less than half here. I'm only two miles from my former home. I don't live in a slum, I have a nice 1200 sq foot condo with lots of nice features in a well-built and well-managed complex.
Downsizing has been tough in many ways but it's all about getting positioned to make a serious career change. This time next year I can be drawing a nice monthly retirement check, and though I'm planning to be working at something if worse comes to worse now that I've dumped that big house I CAN live on that retirement alone!
Don't know about the mobile home thing, though. Hard to believe you couldn't find some sort of stick-built accommodations within your means.
Hi Suz, thanks very much for your comment! (I edited your first comment according to your second comment and deleted the second one.)
I think that Gary North's intent with the mobile homes was to give people as much of a cushion as possible while allowing them to maintain their privacy and independence. It also is a possibility that some people cannot afford a stick-built accommodation within their means.