People are always resentful of those who have more than them. Drive a nice car and you get lots of dirty looks and fingers.
Retiring early - how much $ would be enough?
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I went through this recently, and determined that I couldn't retire early. Started saving too late, have too much going on now to put money into risky investments. Toss in whatever it will cost to pay healthcare insurance prior to 62 and I'm not sure I even want to retire early. I think I'll be content to just get everything paid off in 15 or so years, and then reach a point where, if I had to, I could take a severe paycut and just coast to retirement at 65-67 or so.
Inflation is the elephant in the room that no one wants to talk about. What will it cost 30 years from now? At least 2x if you ask me, and that's only 30 years from now, when I'm just getting retired! Many don't believe SS will still be around; I think it will, and it's supposed to be inflation adjusted: but will it really be?
I'm not sure what my vehicle cost would be in retirement; I commute about 21k/year but our vehicles get 50k+/year anyhow. My housing costs run 20% of my income--but my vehicles are running 21% at the moment. Two loans, ouch, I hope to not do that again (but probably will); even still, it's all the costs that add up (insurance, repairs, you name it). Getting rid of the mortgage will be of no help, not when it's less than 10% of my income. Which is why I wouldn't want to retire on less than 75% of my salary.
I figure I can't retire on less than $2M, not once I take into account inflation over the next 30 years -- which is basically today's $1M. And more would be better, of course. 4% of that, plus SS, should about do the trick, I think, in tomorrow's economy. Assuming no massive inflation.
I've heard that property is where to put one's money, but right now, having bought in 2005, I'm still too jaded to look into that option. Houses fall apart too, and I'm useless with my hands, and even worse with people, so buying rental properties and getting someone to manage them seems like a poor option for me also.
Inflation is the elephant in the room that no one wants to talk about. What will it cost 30 years from now? At least 2x if you ask me, and that's only 30 years from now, when I'm just getting retired! Many don't believe SS will still be around; I think it will, and it's supposed to be inflation adjusted: but will it really be?
I'm not sure what my vehicle cost would be in retirement; I commute about 21k/year but our vehicles get 50k+/year anyhow. My housing costs run 20% of my income--but my vehicles are running 21% at the moment. Two loans, ouch, I hope to not do that again (but probably will); even still, it's all the costs that add up (insurance, repairs, you name it). Getting rid of the mortgage will be of no help, not when it's less than 10% of my income. Which is why I wouldn't want to retire on less than 75% of my salary.
I figure I can't retire on less than $2M, not once I take into account inflation over the next 30 years -- which is basically today's $1M. And more would be better, of course. 4% of that, plus SS, should about do the trick, I think, in tomorrow's economy. Assuming no massive inflation.
I've heard that property is where to put one's money, but right now, having bought in 2005, I'm still too jaded to look into that option. Houses fall apart too, and I'm useless with my hands, and even worse with people, so buying rental properties and getting someone to manage them seems like a poor option for me also.
Originally Posted By: grampi
I see most everyone seems to be answering the OP's question with a dollar amount for a lump sum. There is another way to look at this and it's how much MONTHLY income will you need to retire comfortably. In my case, I will have a lump sum of only between $100K-$200K, but my monthly income that will come from my military pension, my civil service pension, social security, VA disability, and the interest I'll be drawing from the above mentioned lump sum will give me approx. 75-80% of the income I make working. So it's quite possible to be able to live quite comfortably in retirement without having a huge lump sum tucked away somewhere....the other thing is getting rid of all of your debt before retiring...the less debt you have the more net income you have...
You do understand that most people get zero defined benefit pensions and maybe will only have one defined benefit pension (SS).
I see most everyone seems to be answering the OP's question with a dollar amount for a lump sum. There is another way to look at this and it's how much MONTHLY income will you need to retire comfortably. In my case, I will have a lump sum of only between $100K-$200K, but my monthly income that will come from my military pension, my civil service pension, social security, VA disability, and the interest I'll be drawing from the above mentioned lump sum will give me approx. 75-80% of the income I make working. So it's quite possible to be able to live quite comfortably in retirement without having a huge lump sum tucked away somewhere....the other thing is getting rid of all of your debt before retiring...the less debt you have the more net income you have...
You do understand that most people get zero defined benefit pensions and maybe will only have one defined benefit pension (SS).
Originally Posted By: supton
Inflation is the elephant in the room that no one wants to talk about. What will it cost 30 years from now? At least 2x if you ask me, and that's only 30 years from now, when I'm just getting retired! Many don't believe SS will still be around; I think it will, and it's supposed to be inflation adjusted: but will it really be?
It's not adjusted for real inflation. It's adjusted for the underreported inflation numbers (which are still higher then today's non-existant wage increases though).
Inflation is the elephant in the room that no one wants to talk about. What will it cost 30 years from now? At least 2x if you ask me, and that's only 30 years from now, when I'm just getting retired! Many don't believe SS will still be around; I think it will, and it's supposed to be inflation adjusted: but will it really be?
It's not adjusted for real inflation. It's adjusted for the underreported inflation numbers (which are still higher then today's non-existant wage increases though).
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25-30x your annual salary.
3-4% SWR (safe withdrawal rate) and you could retire tomorrow.
I'm shooting for early to mid 50s
Live BELOW your means.
Look at REAL returns (after inflation) and you'll see a diversified portfolio only returns a few % - its all about saving early and often.
Over the decades, real estate isn't much different in returns vs the market. You must factor in your labor if you're an active landlord/manager or pay for that service. Either way (RE / market) will work, though.
3-4% SWR (safe withdrawal rate) and you could retire tomorrow.
I'm shooting for early to mid 50s
Live BELOW your means.
Look at REAL returns (after inflation) and you'll see a diversified portfolio only returns a few % - its all about saving early and often.
Over the decades, real estate isn't much different in returns vs the market. You must factor in your labor if you're an active landlord/manager or pay for that service. Either way (RE / market) will work, though.
Depends upon how they do it. They could do it in like 30-40 years by putting 10+% into 401k/something similar, making 8% per year. They could "gamble" on real estate. Could hit lotto too. Have to have some numbers, really.
A quick spin in Excel, let's say someone puts in $5k/year into something that makes 8% APR. That's 10% of say $50k income, albeit if it goes into a 401k it is untaxed (and reduces your taxable amount by that $5k--what is that, adjusted income or modified gross? whatever) meaning you get to "keep" a bit more money than you'd think. If they start that at age 25, and then keep dumping in the same $5k/year, they will have 1.5M around age 66.
For fun, I then changed it slightly: at age 25 they put in $5k. Then the following year they added 2% extra, for $5.1k. Then $5.202k the following, and so forth. Same 8% APR yields $1.5M around age 63 ($10.6k contribution for the last one).
Many employers will do a partial match on 401k contributions, kicking in upwards of 1.5% of your salary (they will match some portion, so you get zero if you put in zero). For instance, mine does 25% matching, but up to the first 6% of my contribution. So, if I put in 6% of my income I get the max from my employer, at 1.5%, for a total of 7.5%. If I were to do a "proper" 10% of my salary I'd get in reality 11.5%, a pretty substational amount of money.
The trick of course is getting by on 90% or less of your actual income. It is really hard to do this after "living it up" for a while. It also requires a few decades to pull off, hence it's something hard to do as life goes on and you want to reap the rewards...
One last quick spin at the numbers: $5k in per year, 8% APR, starting at age 25 and stopping at age 40. At age 40 you'd have $152k saved, which would still hit $1M by the age 65 if allowed to grow on its own.
A quick spin in Excel, let's say someone puts in $5k/year into something that makes 8% APR. That's 10% of say $50k income, albeit if it goes into a 401k it is untaxed (and reduces your taxable amount by that $5k--what is that, adjusted income or modified gross? whatever) meaning you get to "keep" a bit more money than you'd think. If they start that at age 25, and then keep dumping in the same $5k/year, they will have 1.5M around age 66.
For fun, I then changed it slightly: at age 25 they put in $5k. Then the following year they added 2% extra, for $5.1k. Then $5.202k the following, and so forth. Same 8% APR yields $1.5M around age 63 ($10.6k contribution for the last one).
Many employers will do a partial match on 401k contributions, kicking in upwards of 1.5% of your salary (they will match some portion, so you get zero if you put in zero). For instance, mine does 25% matching, but up to the first 6% of my contribution. So, if I put in 6% of my income I get the max from my employer, at 1.5%, for a total of 7.5%. If I were to do a "proper" 10% of my salary I'd get in reality 11.5%, a pretty substational amount of money.
The trick of course is getting by on 90% or less of your actual income. It is really hard to do this after "living it up" for a while. It also requires a few decades to pull off, hence it's something hard to do as life goes on and you want to reap the rewards...
One last quick spin at the numbers: $5k in per year, 8% APR, starting at age 25 and stopping at age 40. At age 40 you'd have $152k saved, which would still hit $1M by the age 65 if allowed to grow on its own.
Its all about what you want and the sacrifices you want to make. I sold my nice cars and now just have a work truck so I can live way below my means, which enables me to put every cent possible into the business.
It comes down to this for example, do I want a luxury car this year or another piece of dirt which down the road will buy lots of nice things? When I sell something and have say $50k sitting their, do I want the nice car now or would I rather go buy another property? Right now I want the next property.
Some people decide they want the nice car and stuff today, that's fine just don't go crying 30 years from now when it catch's up to you. Most of my renters/subs have way nicer vehicles than me.
Its about the long term goals for me and a lot of other people I talk to in this business. Because you only get so much time, so I rather be able to when I'm quite young still enjoy it. VS having the nice things young and being forced to work longer in life. Very few people plan or seem to be capable of planning past the next paycheck or two.
At the rate I'm going, and depending on how the next couple of projects go I plan on slowing down work wise in my late 30's. Than I can start working for fun, instead of because I have to. That's a powerful thing. For example you can get a fun job (I'm thinking for my next career restoring and working on wooden sailing ships might be fun) or have a couple of kids and just stay at home with them and get involved in their lives, whatever.
It comes down to this for example, do I want a luxury car this year or another piece of dirt which down the road will buy lots of nice things? When I sell something and have say $50k sitting their, do I want the nice car now or would I rather go buy another property? Right now I want the next property.
Some people decide they want the nice car and stuff today, that's fine just don't go crying 30 years from now when it catch's up to you. Most of my renters/subs have way nicer vehicles than me.
Its about the long term goals for me and a lot of other people I talk to in this business. Because you only get so much time, so I rather be able to when I'm quite young still enjoy it. VS having the nice things young and being forced to work longer in life. Very few people plan or seem to be capable of planning past the next paycheck or two.
At the rate I'm going, and depending on how the next couple of projects go I plan on slowing down work wise in my late 30's. Than I can start working for fun, instead of because I have to. That's a powerful thing. For example you can get a fun job (I'm thinking for my next career restoring and working on wooden sailing ships might be fun) or have a couple of kids and just stay at home with them and get involved in their lives, whatever.
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10% savings rate will get you A retirement. 25%+ will get you EARLY retirement. Live smart. Needs vs wants. Not that hard to do.
edit: oh and OP and others interested - bogleheads.org is great for more info. Early retirement extreme and mr. money mustache are a bit 'extreme' in their ways, but provide some insight as to how far you could go.
edit: oh and OP and others interested - bogleheads.org is great for more info. Early retirement extreme and mr. money mustache are a bit 'extreme' in their ways, but provide some insight as to how far you could go.
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JHZR2
Staff member
Originally Posted By: Pop_Rivit
Originally Posted By: JHZR2
Originally Posted By: Pop_Rivit
At the very minimum, I suggest $1,000,000 in savings/investment that can supply you with a return of about 10%. More is always better.
Not sure that's reasonable, primarily because 10% return isn't ensured year by year. Sure over the long run it may average out that way, but over the long run there are also no dividend payers that will remain that high (there are currently), and a year with a big drop will equate to highly irregular distributions or excessive removal of principal.
IMO it needs to be sufficiently high that in a major down year, if principal must be removed, its a very small amount. I think one ought to be 2-5x that amount to ensure a 100k-ish pull out without a big issue of principal.
The alternate risk is insufficient return in later years. With people living longer and by extension staying active longer, this becomes a bigger and bigger concern given market irregularities and dips and rises.
If that's all I would have said you might be right. But you cherry picked a only part of what I said, and didn't quote the part that contained "It depends on your age and retirement plans".
The original poster didn't give us any information to work with, we don't know his standard of living, his age, if he's a hermit or world traveler, married or single. For anyone, the bare minimum would be $1,000,000. For someone who is younger, plans to spend more money or doesn't have a plan to supplement their income then indeed, they'll need additional savings and investments.
Of course it depends. Anyone with half a brain would understand and recognize that. But the question is "how much $", not "what is the correlation between age, lifestyle and funds needed for retirement?". So they're looking for a number and IMO that number is misleading for any sort of reasonable lifestyle in an increasing taxation, healthcare, utilities, inflation, etc. environment.
Originally Posted By: JHZR2
Originally Posted By: Pop_Rivit
At the very minimum, I suggest $1,000,000 in savings/investment that can supply you with a return of about 10%. More is always better.
Not sure that's reasonable, primarily because 10% return isn't ensured year by year. Sure over the long run it may average out that way, but over the long run there are also no dividend payers that will remain that high (there are currently), and a year with a big drop will equate to highly irregular distributions or excessive removal of principal.
IMO it needs to be sufficiently high that in a major down year, if principal must be removed, its a very small amount. I think one ought to be 2-5x that amount to ensure a 100k-ish pull out without a big issue of principal.
The alternate risk is insufficient return in later years. With people living longer and by extension staying active longer, this becomes a bigger and bigger concern given market irregularities and dips and rises.
If that's all I would have said you might be right. But you cherry picked a only part of what I said, and didn't quote the part that contained "It depends on your age and retirement plans".
The original poster didn't give us any information to work with, we don't know his standard of living, his age, if he's a hermit or world traveler, married or single. For anyone, the bare minimum would be $1,000,000. For someone who is younger, plans to spend more money or doesn't have a plan to supplement their income then indeed, they'll need additional savings and investments.
Of course it depends. Anyone with half a brain would understand and recognize that. But the question is "how much $", not "what is the correlation between age, lifestyle and funds needed for retirement?". So they're looking for a number and IMO that number is misleading for any sort of reasonable lifestyle in an increasing taxation, healthcare, utilities, inflation, etc. environment.
I could maintain my current standard of living on about $30,000 a year, but I'd likely relocate to an area that was a little easier on property taxes so I could improve that number.
Since I still have access to a traditional pension plan and I got started early, I could probably pull off an early retirement.
I'm planning on retiring at no later than 60, although earlier if I can swing it. My house will be paid off at about 45 years old, but I'll still have high school age kids in my house until about 55-58, so the actual age I quit working will be in flux.
The age I retire will also be determined by how much college assistance I decide to offer my kids. I was thinking about going the "you can stay in my home and eat my food" route with minimal out of pocket for tuition, but we'll see, a lot can change between here and there.
Since I still have access to a traditional pension plan and I got started early, I could probably pull off an early retirement.
I'm planning on retiring at no later than 60, although earlier if I can swing it. My house will be paid off at about 45 years old, but I'll still have high school age kids in my house until about 55-58, so the actual age I quit working will be in flux.
The age I retire will also be determined by how much college assistance I decide to offer my kids. I was thinking about going the "you can stay in my home and eat my food" route with minimal out of pocket for tuition, but we'll see, a lot can change between here and there.
...and I caught a comment earlier concerning the decision to invest versus pay off your house.
It is true that there is the possibility of getting better returns on an investment, however, that's a risky proposition. Even if your investments appreciate at the same rate as the market after the tax man takes his cut, and whatever fees you've paid, at best you might be a point or three above the interest rate on your mortgage (not insignificant, however...). Then all it takes is a mistake or two or just a little bad luck and you're well under the savings you'd have achieved with paying off your house.
There's no risk to paying extra towards your house, it's all benefit.
I understand that if you have the knowledge and the skill you can most definitely do better than the interest on your mortgage. But at the same time, there are intangible benefits to knowing that your home is free and clear that do not directly convert to a number.
Personally, I am very risk averse. I'm trying to build wealth, not get rich quickly, so I'm spreading my money out between long term retirement investments and paying off the house early.
It is true that there is the possibility of getting better returns on an investment, however, that's a risky proposition. Even if your investments appreciate at the same rate as the market after the tax man takes his cut, and whatever fees you've paid, at best you might be a point or three above the interest rate on your mortgage (not insignificant, however...). Then all it takes is a mistake or two or just a little bad luck and you're well under the savings you'd have achieved with paying off your house.
There's no risk to paying extra towards your house, it's all benefit.
I understand that if you have the knowledge and the skill you can most definitely do better than the interest on your mortgage. But at the same time, there are intangible benefits to knowing that your home is free and clear that do not directly convert to a number.
Personally, I am very risk averse. I'm trying to build wealth, not get rich quickly, so I'm spreading my money out between long term retirement investments and paying off the house early.
JHZR2
Staff member
Originally Posted By: Mykl
...and I caught a comment earlier concerning the decision to invest versus pay off your house.
It is true that there is the possibility of getting better returns on an investment, however, that's a risky proposition. Even if your investments appreciate at the same rate as the market after the tax man takes his cut, and whatever fees you've paid, at best you might be a point or three above the interest rate on your mortgage (not insignificant, however...). Then all it takes is a mistake or two or just a little bad luck and you're well under the savings you'd have achieved with paying off your house.
There's no risk to paying extra towards your house, it's all benefit.
I understand that if you have the knowledge and the skill you can most definitely do better than the interest on your mortgage. But at the same time, there are intangible benefits to knowing that your home is free and clear that do not directly convert to a number.
Personally, I am very risk averse. I'm trying to build wealth, not get rich quickly, so I'm spreading my money out between long term retirement investments and paying off the house early.
That's always an interesting argument. Ive had that with some friends recently, because Im on the path for paid off real estate while they want the free cash, citing better returns.
Problem is, let's say you have a few thousand dollars a month to put into an investment, versus a few hundred thousand sitting in the mortgage. Sure you might get 12% on a few thousand, but youre still paying 3-4% on hundreds of thousands. It doesnt add up, IMO. id rather be rid of the hundreds of thousands of dollars in liability that is constantly accruing interest, rather than the bumpy ride that may have good return but also has constant risk, on a far smaller amount of money.
Ditto for the so-called tax advantage. Sure its nice when you have no choice but to have a mortgage to get a little back on taxes... But no way do I want to pay the banker $1 to get 32c back on my taxes.
...and I caught a comment earlier concerning the decision to invest versus pay off your house.
It is true that there is the possibility of getting better returns on an investment, however, that's a risky proposition. Even if your investments appreciate at the same rate as the market after the tax man takes his cut, and whatever fees you've paid, at best you might be a point or three above the interest rate on your mortgage (not insignificant, however...). Then all it takes is a mistake or two or just a little bad luck and you're well under the savings you'd have achieved with paying off your house.
There's no risk to paying extra towards your house, it's all benefit.
I understand that if you have the knowledge and the skill you can most definitely do better than the interest on your mortgage. But at the same time, there are intangible benefits to knowing that your home is free and clear that do not directly convert to a number.
Personally, I am very risk averse. I'm trying to build wealth, not get rich quickly, so I'm spreading my money out between long term retirement investments and paying off the house early.
That's always an interesting argument. Ive had that with some friends recently, because Im on the path for paid off real estate while they want the free cash, citing better returns.
Problem is, let's say you have a few thousand dollars a month to put into an investment, versus a few hundred thousand sitting in the mortgage. Sure you might get 12% on a few thousand, but youre still paying 3-4% on hundreds of thousands. It doesnt add up, IMO. id rather be rid of the hundreds of thousands of dollars in liability that is constantly accruing interest, rather than the bumpy ride that may have good return but also has constant risk, on a far smaller amount of money.
Ditto for the so-called tax advantage. Sure its nice when you have no choice but to have a mortgage to get a little back on taxes... But no way do I want to pay the banker $1 to get 32c back on my taxes.
Originally Posted By: Vikas
How realistic is 8% annual gains over 30-40 year period? Are there any 30 year periods in the last 75 years where this may not be correct?
That's a reasonable expectation. But again, risk. After the tax man takes his cut that number is no longer 8% anyway, probably closer to 6%.
Anyway, what happens if the market tanks and your investment(s) lose their value the day before you intend to retire and start living off of those holdings? Do you put off your retirement for a number of years until those holdings go back up in value?
Maybe you started selling the riskier investments for more stable ones that are less impacted by dips in the market... but that means your return is lower, as in no longer 8%.
If you know what you're doing you most certainly can come out ahead going with investments versus throwing money at your house.
But most of us have other skills to invest time in (primary employment), when I get home from work every day I'm not interested in spending hours trying to create and monitor an investment strategy that will find me a few extra thousand dollars after 30 years of effort when I know I have a sure thing in paying down my mortgage at an advanced rate.
There is no single right answer here. It comes down to a number of variables. But before you choose the investment route, be very sure you've done your research first and always remember... past performance is not a guarantee of future returns.
How realistic is 8% annual gains over 30-40 year period? Are there any 30 year periods in the last 75 years where this may not be correct?
That's a reasonable expectation. But again, risk. After the tax man takes his cut that number is no longer 8% anyway, probably closer to 6%.
Anyway, what happens if the market tanks and your investment(s) lose their value the day before you intend to retire and start living off of those holdings? Do you put off your retirement for a number of years until those holdings go back up in value?
Maybe you started selling the riskier investments for more stable ones that are less impacted by dips in the market... but that means your return is lower, as in no longer 8%.
If you know what you're doing you most certainly can come out ahead going with investments versus throwing money at your house.
But most of us have other skills to invest time in (primary employment), when I get home from work every day I'm not interested in spending hours trying to create and monitor an investment strategy that will find me a few extra thousand dollars after 30 years of effort when I know I have a sure thing in paying down my mortgage at an advanced rate.
There is no single right answer here. It comes down to a number of variables. But before you choose the investment route, be very sure you've done your research first and always remember... past performance is not a guarantee of future returns.
JHZR2
Staff member
Originally Posted By: Vikas
How realistic is 8% annual gains over 30-40 year period? Are there any 30 year periods in the last 75 years where this may not be correct?
A cursory search will show you the various equity indicies and how they have performed over the long run.
The problem is that even a well-diversified portfolio will have bad years and the draw down can be severe. Let's say that you have $1M and are planning to pull down $80k. In a year where equity valuation and dividends provide good returns, you may be able to pull out and retain principal. But on a year where the market returns a big negative, like say down 20%, the principal that you pull can be very damaging.
And generally early retirement when still lively and active and full of interests and aspirations means that sitting it out isnt going to be much of a plan. Getting a temp job may or may not be lucrative.
So you need to think through the results of a 2007-2008 or other downturn as well as other scenarios. Ditto for "safer" bond type income in this interest rate environment, if your money is in funds.
How realistic is 8% annual gains over 30-40 year period? Are there any 30 year periods in the last 75 years where this may not be correct?
A cursory search will show you the various equity indicies and how they have performed over the long run.
The problem is that even a well-diversified portfolio will have bad years and the draw down can be severe. Let's say that you have $1M and are planning to pull down $80k. In a year where equity valuation and dividends provide good returns, you may be able to pull out and retain principal. But on a year where the market returns a big negative, like say down 20%, the principal that you pull can be very damaging.
And generally early retirement when still lively and active and full of interests and aspirations means that sitting it out isnt going to be much of a plan. Getting a temp job may or may not be lucrative.
So you need to think through the results of a 2007-2008 or other downturn as well as other scenarios. Ditto for "safer" bond type income in this interest rate environment, if your money is in funds.
Originally Posted By: JHZR2
Originally Posted By: Mykl
...and I caught a comment earlier concerning the decision to invest versus pay off your house.
It is true that there is the possibility of getting better returns on an investment, however, that's a risky proposition. Even if your investments appreciate at the same rate as the market after the tax man takes his cut, and whatever fees you've paid, at best you might be a point or three above the interest rate on your mortgage (not insignificant, however...). Then all it takes is a mistake or two or just a little bad luck and you're well under the savings you'd have achieved with paying off your house.
There's no risk to paying extra towards your house, it's all benefit.
I understand that if you have the knowledge and the skill you can most definitely do better than the interest on your mortgage. But at the same time, there are intangible benefits to knowing that your home is free and clear that do not directly convert to a number.
Personally, I am very risk averse. I'm trying to build wealth, not get rich quickly, so I'm spreading my money out between long term retirement investments and paying off the house early.
That's always an interesting argument. Ive had that with some friends recently, because Im on the path for paid off real estate while they want the free cash, citing better returns.
Problem is, let's say you have a few thousand dollars a month to put into an investment, versus a few hundred thousand sitting in the mortgage. Sure you might get 12% on a few thousand, but youre still paying 3-4% on hundreds of thousands. It doesnt add up, IMO. id rather be rid of the hundreds of thousands of dollars in liability that is constantly accruing interest, rather than the bumpy ride that may have good return but also has constant risk, on a far smaller amount of money.
Ditto for the so-called tax advantage. Sure its nice when you have no choice but to have a mortgage to get a little back on taxes... But no way do I want to pay the banker $1 to get 32c back on my taxes.
Maybe a hybrid system of paying off mortgage debt when markets are near the top and then investing when markets are low would be best? In 2009 I jumped into the stock market with everything I could, today when we have extra money, it goes against the mortgage as I'm guessing there aren't huge gains to be had anymore. Could be wrong of course but that's my feeling.
Also I want to eliminate debt so if interest rates go crazy at some point, I'm not paying high interest rates on debt, and can buy real estate when the bubble bursts up here.
Originally Posted By: Mykl
...and I caught a comment earlier concerning the decision to invest versus pay off your house.
It is true that there is the possibility of getting better returns on an investment, however, that's a risky proposition. Even if your investments appreciate at the same rate as the market after the tax man takes his cut, and whatever fees you've paid, at best you might be a point or three above the interest rate on your mortgage (not insignificant, however...). Then all it takes is a mistake or two or just a little bad luck and you're well under the savings you'd have achieved with paying off your house.
There's no risk to paying extra towards your house, it's all benefit.
I understand that if you have the knowledge and the skill you can most definitely do better than the interest on your mortgage. But at the same time, there are intangible benefits to knowing that your home is free and clear that do not directly convert to a number.
Personally, I am very risk averse. I'm trying to build wealth, not get rich quickly, so I'm spreading my money out between long term retirement investments and paying off the house early.
That's always an interesting argument. Ive had that with some friends recently, because Im on the path for paid off real estate while they want the free cash, citing better returns.
Problem is, let's say you have a few thousand dollars a month to put into an investment, versus a few hundred thousand sitting in the mortgage. Sure you might get 12% on a few thousand, but youre still paying 3-4% on hundreds of thousands. It doesnt add up, IMO. id rather be rid of the hundreds of thousands of dollars in liability that is constantly accruing interest, rather than the bumpy ride that may have good return but also has constant risk, on a far smaller amount of money.
Ditto for the so-called tax advantage. Sure its nice when you have no choice but to have a mortgage to get a little back on taxes... But no way do I want to pay the banker $1 to get 32c back on my taxes.
Maybe a hybrid system of paying off mortgage debt when markets are near the top and then investing when markets are low would be best? In 2009 I jumped into the stock market with everything I could, today when we have extra money, it goes against the mortgage as I'm guessing there aren't huge gains to be had anymore. Could be wrong of course but that's my feeling.
Also I want to eliminate debt so if interest rates go crazy at some point, I'm not paying high interest rates on debt, and can buy real estate when the bubble bursts up here.
Originally Posted By: Vikas
How realistic is 8% annual gains over 30-40 year period? Are there any 30 year periods in the last 75 years where this may not be correct?
Regarding the 8% annual gain, if you google historic annual stock market returns, there are countless different percentages presented slightly differently.
Here's one dataset on annual return on investment.
Annual Returns on Stock, T.Bonds and T.Bills: 1928 - Current
If you were to calculate the Geometric Average over a 30 year period based on this data the lowest return I see is 1957 and 1958 - 7.97%. Based on a 40 year geometric average, 1968 and 1969, 8.45%.
Not saying by any means this is the authority dataset wise since a lot will have to do with asset allocation and risk in the investment just one example of how to slice the numbers.
How realistic is 8% annual gains over 30-40 year period? Are there any 30 year periods in the last 75 years where this may not be correct?
Regarding the 8% annual gain, if you google historic annual stock market returns, there are countless different percentages presented slightly differently.
Here's one dataset on annual return on investment.
Annual Returns on Stock, T.Bonds and T.Bills: 1928 - Current
If you were to calculate the Geometric Average over a 30 year period based on this data the lowest return I see is 1957 and 1958 - 7.97%. Based on a 40 year geometric average, 1968 and 1969, 8.45%.
Not saying by any means this is the authority dataset wise since a lot will have to do with asset allocation and risk in the investment just one example of how to slice the numbers.
Originally Posted By: IndyIan
Also I want to eliminate debt so if interest rates go crazy at some point, I'm not paying high interest rates on debt, and can buy real estate when the bubble bursts up here.
That's a good point that I hadn't thought of. This is a very real possibility for me as there's always the chance that I'll have to move to follow my job. I got an ok interest rate on my current house, but if I have to sell it in five years and interest rates are through the roof when I need another home, I'd be hurting.
Also I want to eliminate debt so if interest rates go crazy at some point, I'm not paying high interest rates on debt, and can buy real estate when the bubble bursts up here.
That's a good point that I hadn't thought of. This is a very real possibility for me as there's always the chance that I'll have to move to follow my job. I got an ok interest rate on my current house, but if I have to sell it in five years and interest rates are through the roof when I need another home, I'd be hurting.
I fully expect interest rates to be 10%-15% or maybe even a bit more by 2020. The fed will hold them down as long as possible, but they will go up at some point.
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