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Dress Rehearsal

Steve Abramowitz

RETIREMENT IS SAID to be a time for reviewing and reminiscing. We try to understand who we were and how we came to be who we are. But the health trials of the retirement years can also project us into the future. When couples enter their twilight years, they begin to contemplate how they’d cope if the other died first. I believe “survivor rehearsal” is one way our biology helps us to contain the fear of having to cope on our own.

Some people think this rehearsal process is disrespectful or self-indulgent, and maybe that’s why it’s a phenomenon rarely discussed with partners or friends. Still, in U.S. society, I suspect survivor rehearsal is almost universal, though some folks may feel too guilty or ashamed to admit it.

Ever since my wife Alberta was diagnosed with breast cancer six years ago, I’ve found myself directing my own survivor movie. My need to experiment with different scenarios—and feel how they might play out—is surprisingly strong, though it’s not at all clear what this movie will look like. As things stand, my own precarious health makes me more likely to predecease Alberta than the other way around.

Knowing me so well after 40 tumultuous years, Alberta helps me discern which scenes are likely to roll out smoothly and which will require more than one take. If I’m the survivor, I know I’d have to grapple with my health on my own, be more proactive about my social agenda and maintain a mutually comfortable relationship with my son Ryan. And all the while, I’d need to work through the unimaginable grief of losing my best friend.

Investing has been a major theme in my adult life, but I’ll need to control it better than I do now. Today, my modus operandi starts with a merry addiction to following market movements and developments. But should I be the survivor, I’ll also be fending alone in the social and entertainment arenas, where I have depended on Alberta to be my concierge. It would be tempting to submerge myself in the financial domain, where I’ve had some success and feel more confident. My romance with the stock market looms as both a blessing and a curse.

Quite by contrast to my passion for the market, I dislike the responsibilities of private real estate investment. Our residential income properties served us well as an appreciation compounder and diversifier, but 40 years of direct ownership takes a toll, and I have no desire to shoulder the burden on my own.

I have a wonderful property manager, but she can’t shield me from all the vulnerabilities of private real estate investing. I want to wake up Monday morning looking forward to a pancake breakfast with an old friend and not obsessing about the mold my tenant—a lawyer, no less—found growing on his bathroom ceiling.

Different scenes about how I’d handle the properties play out in my imagination. I would love to shed the entire landlord business. But I’m trapped. I bought several small income properties starting in 1983 and have enjoyed substantial appreciation, which means a massive potential tax liability. I could potentially sell by taking advantage of one of real estate’s most egregious tax loopholes, the 1031 exchange, which would delay capital gains taxes.

But the transaction requires identification of the replacement property within 45 days of the sale and its purchase within six months. It’s an unnerving timeline, may force settling for a less-than-ideal substitute, and is vulnerable to a time-consuming dispute at the closing or a disastrous pullout by the buyer.

Besides, I don’t want to replace one set of properties with another. Rather, I want to cash out and diversify across liquid investments like cash, bonds and broad stock market index funds. I would allocate the largest amount, maybe as much as 30%, to real estate investment trust ETFs, which trade like stocks and would keep a healthy stake in property ownership without the headaches.

I’m also dissuaded from cashing out entirely by another preposterous feature of the tax code. If the properties are inherited, the heir’s cost basis is stepped up to the value of the investments on the date of death. The capital-gains tax bill I face today need never be paid, and selling now would mean forgoing that governmental gift.

My real estate predicament poses a dilemma: escape from a few years of bondage by unloading the properties or follow the financially prudent course. I, alas, know which course I’ll take. Ryan’s welfare and my family heritage trump my comfort zone. No, that’s not exactly a Hollywood ending for my peace of mind, but it is indeed a rational and loving final act.

Steve Abramowitz is a psychologist in Sacramento, California. Earlier in his career, Steve was a university professor, including serving as research director for the psychiatry department at the University of California, Davis. He also ran his own investment advisory firm. Check out Steve’s earlier articles.

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