This is an interesting analysis, let me know what you think.
You may have guessed that one listing was at a much higher price than the other. So, the question is … why does Owner B insist on a higher list price than Owner A?
In this case both owners:
¡ Are single, mid 60's, retired
¡ Own another home
¡ Will invest the full net proceeds of this house sale
¡ Want a gain of $40,000 in net annual income after this transaction
Both Owners will gain $18,000 annual net income from the elimination of house related expenses with the balance to come from investing the net sale proceeds. And that is where the problem lies.
Owner A listed his house for $499,900 and sold for that price in 30 days
¡ Net proceeds of $460,000 were invested in an Income Plus Plan
¡ Guaranteed minimum lifetime annual income of $23,000
¡ About $22,000 in net after-tax annual income (tax rate of 5%)
¡ Owner A achieves his objective of $40,000 net annual income – guaranteed for the rest of his life – and with the potential for future increases.
Owner B's home did not sell for 549,900
¡ After a number of price reductions it eventually sells for the same price as Owner A's
¡ Net proceeds of $460,000 were invested in a GIC at 4.5%
¡ Income of about $21,000 is generated
¡ About $14,500 in net annual income (tax rate of 30%)
¡ Total net income is $32,500 – some $7,500 less than Owner B's objective and subject to change based on interest rates in the future – and the risk that the income may not last.
Declining real estate values and low interest rates make it difficult for Owners looking to downsize. One way to help clients in this situation is to offer them a complimentary review and consultation on their income needs. As this case illustrates, there are options which deliver sustainable lifetime income – at a minimum guaranteed rate of 5% – with the potential for future increases – at preferred tax rates. Helping clients meet their needs in this way also helps them to list their house at a saleable price.
Please let me know if you have any questions,