Retiring now

There are so many variables. And, I'm already very close to retirement. It won't take much more for me. But, if you don't have a sizable defined benefit pension or a 401k worth well north of $1M, be ready to give up flying.
 
455 Bravo Uniform said:
About paying off that mortgage - the delta between mortgage interest and investment interest is small enough to where the “mental” benefit of being totally debt free allows you to do “investy” things with the extra money that can far out-earn that delta. Those who haven’t lived mortgage (and rent) free just don’t know.
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What's best for each individual is best for them.

Financially, there are circumstances where it makes sense to keep the mortgage rather than selling a bunch of investments, reaping the gains and paying taxes on the gains. But that also assumes that the person has enough in investments to pay it off any time, and those investments provide a return higher than the mortgage (say the person got one of the 3% mortgages and is seeing returns of 6-8% on the investments with the money in 401K/IRA/Tax Deferred accounts that will be taxable as income - the equation changes if it's in a Roth or ordinary investments). Likewise, given the tax situation, higher wealth folks may find it better to keep the investments and "live" on the borrowed money, which gets paid off at death.

For most folks, it makes sense to pay off the mortgage, especially as we look at higher taxes down the road and a possible recession that will eat into gains/returns. But that doesn't apply to everyone.

There is no "one size fits all" situation with respect to this. Take the time to do the analysis, or talk with a qualified independent financial advisor.
 
EdFred said:
$3M in the bank and I'd retire now.


Only need 15-20k a year flying a Cherokee.

Even at $3M invested, you can easily afford that. Of course, I am not a neutron star orbiting a black hole.
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Yea but as I get older I would also like to own and fly something with a chute and a T next to the mode number ..
 
The concept of not contributing/giving back is foreign to me.

I foresee a time when I may not work as much as I do now so I can give back more, but so long as I’m physically/mentally capable, I will probably be contributing in some manner.

F-U money would only serve the change the manner in which I contribute.
 
I think I might start BASE jumping at 60, if I last that long in the hope that I am off before my meager savings runs out on me.
 
WannFly said:
I think I might start BASE jumping at 60, if I last that long in the hope that I am off before my meager savings runs out on me.
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Those wing suits look like a LOT of fun, right until impact. AND, you get to pull a ripcord too. Every time but once, anyway.
 
Bell206 said:
Curious. Define "small."
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If you do the math, over 30 years, it’s not small. It’s not really a math equation. I lose the argument on a math basis (big time). It’s a mental one. That’s why I say it makes sense only if you’ve done it. The relief from debt is powerful.

Consider a mortgage rate of 3.5%. And an investment at 7%. Both over 30 years. A $200k mortgage not paid off with cash, but that cash instead invested is big. Over $1MM big. If you have $200k cash, great. But if you don’t, you’re shelling out $900 per month for the mortgage and have to also put money monthly into an investment account ($100/mo at 7% for 30 years) to break even.

An investment at 12%, unrealistic to some, would be even greater; In fact, Dave Ramsey (whom I don’t follow) suggests 12% is possible, yet he advocates paying off debt.

I got a chunk of my paycheck banked when I no longer had a mortgage payment. It made me much bolder at work and I excelled. It made me less risk averse and I started investing beyond my 401k - real estate, exotic auto parts resale, stock options, etc. Started learning to fly. Bought a plane (cash).

Now I have 1 kid that started college this week and one who will in 2 years, so some of my savings will end up there. But my goal for them is to not need any of my nest egg. If I die sooner, they get a lot; If I die later, they get less or none. But they will have the education and tools to do 10x better than me, without any funding beyond college tuition assistance.

At least that’s the plan. There may be a bus vs me meeting in the morning. One never knows.
 
Bell206 said:
Why?
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By retiring with a mortgage and investments, you are essentially taking a margin loan. Buying investments on margin is high risk, and retirement is the wrong time for high risk (unless you're very young and retired early).

My investments have been earning considerably more than what my mortgage interest costs have been since I retired. Once I lose this financial benefit I will pay off the mortgage at that time.
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That sounds like a margin call. You'll essentially "sell low", by allowing a market downturn to drive you to sell, and in your case, you'll use the proceeds to pay your loan.
 
MIFlyer said:
Use the 4% rule as a rule of thumb. You can spend about 4% of your investments each year. So, if you need 120k a year then you need around 3 million


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I hate the 4% rule. Its terrible as retirement advice. And, even though its been completely refuted, people are still throwing it around like a hot stock tip.

Here's a little something that can give you a more realistic idea for very little effort: https://www.marketwatch.com/calculator/retirement/retirement-planning-calculator?showsmscrim=true
 
Kenny Phillips said:
My social security wouldn't pay the mortgage.
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EdFred said:
If you have a mortgage you shouldn't be retiring.
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Well, I retired a couple years before the mortgage was paid off. I had planned on retiring sometime between that happening and turning 66, but the company had other ideas. They put the facility on the market and told us that we had until date of sale + 6 months to move (in my case, Oregon or Arizona). They offered an excellent relocation package. The day they announced the facility was for sale I happened to have an on-site appointment with our Fidelity rep (they handled our 401K accounts). They had previously run the numbers for age 65 and we were in good shape. I had him re-run the numbers for April 2015 as that was the earliest I would have to move (the company said it would take at least a year to sell). He re-ran the numbers and said we were still good. Ah ha! After all the dust had cleared and my 3rd level manager insisted that I move and not stay where I was I wound up retiring on June 1, 2015. I was 63. Retirement is wonderful, I can't recommend it highly enough. Of course, I've got so many activities that I don't know when I had time to go to work. :D

When you think you are ready, do it. It's so great not having to get up at 6:30 every morning to drive into work. I see job openings that would be great, but then I remember that they would expect me to show up for work. Not happening, WORK is a 4 letter word. :p
 
wilkersk said:
I hate the 4% rule. Its terrible as retirement advice. And, even though its been completely refuted, people are still throwing it around like a hot stock tip.

Here's a little something that can give you a more realistic idea for very little effort: https://www.marketwatch.com/calculator/retirement/retirement-planning-calculator?showsmscrim=true
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Debunked where? Ps the calculator doesn’t work on iPad. I’ve been focused on retirement since I was in college so I’ve done more analysis than stick my finger in my ear and murmur “4%”


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MIFlyer said:
Debunked where? Ps the calculator doesn’t work on iPad. I’ve been focused on retirement since I was in college so I’ve done more analysis than stick my finger in my ear and murmur “4%"


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I don't have it handy right now. But, one example is Michael McClung's book, "Living Off Your Money." In it he cites several studies that discredit the 4% rule. The basic problem is that, combined with other conventional "wisdoms" handed down through the generations, it leads retirees to think that by just spending 4% of your nest egg each year, you'll not run out of money in retirement. It turns out that is both at the same time too conservative, and too risky.
 
kyleb said:
Those wing suits look like a LOT of fun, right until impact. AND, you get to pull a ripcord too. Every time but once, anyway.
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Add the little jet engines and fuel and little tiny fuel tubes all over your body and heat resistant stuff to keep from burning your feet off, and now we’re having some fun! LOL.

NoHeat said:
By retiring with a mortgage and investments, you are essentially taking a margin loan. Buying investments on margin is high risk, and retirement is the wrong time for high risk (unless you're very young and retired early).



That sounds like a margin call. You'll essentially "sell low", by allowing a market downturn to drive you to sell, and in your case, you'll use the proceeds to pay your loan.
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It is a margin call. Doesn’t just sound like one. :)

It’s the old question, if you had the house paid off, would you take out a $200,000 home equity loan to make this stock market investment?

Same risk mathematically as keeping the mortgage and the investment.
 
DaleB said:
Quite true in a good economy. All it takes, though, is 5-8 years of investments returning negative numbers to low 1-2 percent range, and you'll feel very differently about that. Remembering the last couple of brutal downturns and being within spitting distance of retirement (well under the 10 year mark), I'm very leery of getting anywhere near retirement with a shred of debt. If you have no debt payment, you minimize your monthly spend and therefore the amount you're forced to pull out of your retirement accounts when they're in pain.

One of my shorter term goals is to pay off the house ASAP. Yes, I know the mortgage interest is less (or was, until a few months ago) than my investments were earning. That can change quickly, as we're about to see once again. Once that's done, the house payment money goes into the retirement kitty and drastically improves our retirement plan. In this case, the timing is good. I should be able to buy up securities during the really crappy recession we're about to have (and I'll buy you lunch in 5 years if I'm wrong), and the market should be recovering right about the time I need to start pulling money back out.
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Funny thing is, there's never been a 5 consecutive year streak of "negative to low 1-2 percent" market returns. The closest to that was the 4 year period from 1929 to 1933. And, even then, the S&P500 was up more than 49% for the 12 month period ending 12/31/1933.

I'm using a 3 year cash reserve figure to keep from selling into a down market. If things get worse than that, we'll all have much bigger problems than our stock portfolios.
 
wilkersk said:
I don't have it handy right now. But, one example is Michael McClung's book, "Living Off Your Money." In it he cites several studies that discredit the 4% rule. The basic problem is that, combined with other conventional "wisdoms" handed down through the generations, it leads retirees to think that by just spending 4% of your nest egg each year, you'll not run out of money in retirement. It turns out that is both at the same time too conservative, and too risky.
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I think it is obvious that the "4% rule" is a "rule of thumb", not a rule of "law" or "certainty.

Personally, I spend quite a bit more than 4% in good years and less in not-so-good, or even uncertain years with a lot of uncertainty. I have cut back spending a little in the past year because of all the stock market fluctuation, but I still have substantially more than when I retired. And the Bo hasn't had a chance to rust (or would that be corrode) yet either.
 
As many have said, "it depends".

The biggest you have control over is lifestyle. Your life expectancy may be bigger, but there's only so much one can do about that; other than shortening it. :eek::eek: As my father likes to joke, "Genetics is the biggest determinate in one's lifespan, so pick your parents well." ;)

My wife and I could retire now, even though our youngest is in her senior year at college (we've paid for their college). It just wouldn't be the lifestyle that we want. It would probably still be a much better lifestyle than the average/median retired couple in the US, but not what we want. I want to continue flying. We both want to travel internationally, and while we won't be at the posh five star hotels we most certainly won't be staying at Motel 8 either.

My wife will retire in under two years. I've told her if she wants to retire in May when the youngest graduates, that's fine with me. Heck, if she wants to retire earlier next year I'm good with that too. I'm younger than her, and I plan on working at least 6 more years, but probably not longer than 8 years. I figure that should cover our living/lifestyle expenses with no kid expenses and no mortgage, and allow our investments to continue to grow. In conversations with my "coming-up/planning on retirement" co-workers (in our 50's and 60's), I give that 6-8 year time range which surprises some of them as I'm one of the younger of that group. I also say that I'm likely to retire when working gets in the way of my wife and I traveling. ;) If I do work 8 more years our investments should come close to doubling in that time. That's the plan at least.

No, I didn't throw out our numbers. They won't help you unless you want to live exactly like we do. Figure out what you need/want to live on, then budget for that.

One big thing to remember. Statistically people are living longer now. At age 65 the average person lives to their mid 80's now; a little longer for women, but only a couple of years. You will need to plan for 20 years or more of expenses. That's a long time, and it could be longer if you want to retire early and/or you have a long lifespan. So long that you will need to incorporate inflation into your numbers. That means you will need growth in your investments. No longer can you sell all of your equities at retirement and move 100% into bonds/CDs/Savings. You will need stocks, which can be done via mutual funds/ETFs, to keep your portfolio growing after you retire.
 
Mortgage interest is paid up front so if you have are half way through your mortgage, the interest on the remaining is very low. If you use investment money to pay it off you are losing money.
 
I'm assuming mortgage interest is still tax deductable federally although I'm not positive as we paid ours off prior to the tax reform implementation. That's another part of the pay-it-off-or-invest puzzle. We paid ours off anyway, and invested other earnings at the same time. The peace of mind was more than worth it to us. Having said that, our mortgage interest rates were ALWAYS lower than the return we got on our investments, and sometimes by VERY wide margins. Some years, the tax deduction may have offset that, but in general, if I had the intestinal fortitude to refinance the full value of our home and put that money into our investment portfolio as currently allocated, we'd most likely do VERY well. h
However, we have enough money, and the slight risk and stress isn't worth it to us.
 
NoHeat said:
By retiring with a mortgage and investments, you are essentially taking a margin loan. Buying investments on margin is high risk, and retirement is the wrong time for high risk (unless you're very young and retired early).
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Bingo!
 
PaulS said:
RudyP said:
Somewhere along the lines of x=80-[current age] in millions. So now, at age 40 I'd need $40M. By the time I'm 65 it would be $15M. I intend to retire before I'm 65 and unless a major recession wipes me out, I will be fine on that front.
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That's the put it in ma' mattress and spend as I need formula. It's much less if invested correctly.
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Maybe I'm misunderstanding your comment, but I wasn't commenting on investment strategy at all. My point was that my "number" that would be necessary to retire decreases as I age. Today, at a relatively young and healthy 40 years of age with lots of life ahead of me and some expensive hobbies and interests, I wouldn't retire without a significant net worth number (i.e. ~$40M might do it). Could I retire on $20M today? Of course, but I'd be somewhat constrained in what I can spend and so for me the mental calculus at this age says I'm happier grinding it out at work and saving more money than retiring early but having to watch my spending. As I get older, the balance of years ahead shrinks and my ability to spend will also eventually reduce, therefore, for every year that passes, my "number" at which I'd retire, reduces a bit. Eventually, the number that I have (actual net worth) and the number that I need (desired "number" to retire) shall meet as the former increases every year and the latter decreases. The year those two lines cross, I retire...

And the good news is that I already have enough saved up (and growing to get back to the mattress vs investment point you made) that I know I don't have to run out the clock to 65 unless some major financial disaster happens.
 
MuseChaser said:
I'm assuming mortgage interest is still tax deductable federally although I'm not positive as we paid ours off prior to the tax reform implementation.
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In theory, yes. In practice, not for most people. Tax deductability has become a total non-issue for me (as well as millions of others). When I was itemizing deductions, we were seeing a few thousand more than the standard deduction. Now that the standard deduction has doubled, we wouldn't even come close. So, charitable donations? Mortgage interest? Home office? Anything else deductible? Totally immaterial. It's one more reason I've doubled down on paying off my mortgage early -- I just lost a 16-18 percent discount on my mortgage interest, so it is now much more expensive than it was.
 
The jury is still out in regard to the amount of exposure (risk) one's portfolio should be post retirement. Another rule of thumb- 100-(age)= X% invested in stocks. I am less aggressive in retirement. Last thing I want to do is chase yields. I still have a mortgage and am considering using 401K to pay off the home especially if the market tanks. Real-Estate is more predictable and less stressful than the DOW.
 
Mooney Fan said:
I still have a mortgage and am considering using 401K to pay off the home especially if the market tanks.
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Every piece of advice you will find will tell you that a 401(k) loan is the worst idea ever, and will surely lead to financial ruin. This is not universally true, though. Under certain conditions, it can work out to your advantage. I did it once, and it saved me a lot of money.
 
Mooney Fan said:
The jury is still out in regard to the amount of exposure (risk) one's portfolio should be post retirement. Another rule of thumb- 100-(age)= X% invested in stocks. I am less aggressive in retirement. Last thing I want to do is chase yields. I still have a mortgage and am considering using 401K to pay off the home especially if the market tanks. Real-Estate is more predictable and less stressful than the DOW.
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Please don’t sell stocks when they’re down. That’s a really really bad strategy.




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DaleB said:
Every piece of advice you will find will tell you that a 401(k) loan is the worst idea ever, and will surely lead to financial ruin. This is not universally true, though. Under certain conditions, it can work out to your advantage. I did it once, and it saved me a lot of money.
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Same here. Took out a 401k loan and survived. Its a tool that has benefits and drawbacks that need to be understood.
 
denverpilot said:
This argument always leaves out the ROI on paying the mortgage off significantly faster.

And the feeling of waking up in your tickey tacky box on the hillside that you own, with a title in hand.

Only way you’re kicked out, even in job loss, or illness, is by not paying the government ground rent on ground you supposedly own.

Also doesn’t factor in risk. Paying the mortgage in a roller coaster or down market is smarter. Market right now wants to convince it’s way into recession with technicals instead of listening to earnings releases, so that’s always a fun risk... LOL.
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Nate, I agree with most of your points. However that DOES factor in the monetary ROI if paying off your mortgage sooner. 3% mortgage (assumed), 5% ROI with investments (also assumed, but reasonable), means you're netting 2% with investments vs. paying off the mortgage. Obviously if you have 25% credit card debt then the best ROI you can possibly get is paying that off.

All that said, I personally subscribe to the "pay off your debt" and "keep as little debt as possible" philosophies, hence why our only debt is the house and the truck, and we're nowhere close to upsidedown on those. I am 100% in agreement with the lack of stress that comes from knowing that my wife and I can lose our jobs (one or both) without worry of losing our home, vehicles, etc. It would be way too stressful to me to be upsidedown like so many are.
 
All this debt talk...I keep hearing the guy on the radio commercial say I can run up $10k on my credit cards and not have to pay it off.o_O
 
RudyP said:
Somewhere along the lines of x=80-[current age] in millions. So now, at age 40 I'd need $40M. By the time I'm 65 it would be $15M. I intend to retire before I'm 65 and unless a major recession wipes me out, I will be fine on that front.
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@RudyP - do you want to handle my investments :)
 
charheep said:
Same here. Took out a 401k loan and survived. Its a tool that has benefits and drawbacks that need to be understood.
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In some cases, the only drawback is the risk that if you lose your job, you'll either need to pay it all back quickly, or take a big tax hit. Financially, it worked out much better for us than not taking the loan.

The "never take a 401(k) loan" advice all seems to assume that 1.) you will stop making 401(k) contributions while you have the loan, and 2.) your 401(k) investments are actually producing a positive return. If neither of those conditions apply, then it can be a different ball game.
 
455 Bravo Uniform said:
It’s a mental one. That’s why I say it makes sense only if you’ve done it. The relief from debt is powerful.
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I agree 100%. Definitely mental. But for me, the mental angst of planning for a "perfect" retirement at an older age only to have my better half or me get sick and unable to enjoy it was 10 fold worse than any debt relief issues. Hence the mortgage/investment risk was acceptable to me when I retired early.
 
Bell206 said:
I agree 100%. Definitely mental. But for me, the mental angst of planning for a "perfect" retirement at an older age only to have my better half or me get sick and unable to enjoy it was 10 fold worse than any debt relief issues. Hence the mortgage/investment risk was acceptable to me when I retired early.
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You have to enjoy life. It's too short not to. Some folks have no kids, therefore leaving the Scrooge McDuck cave of money at retirement and sacrificing the ability to enjoy life is probably not a goal. Heck, even if you have kids what are they going to do with it?

Back in the days of defined-benefit pensions, the equation was a lot different. Those days are gone (well, except Social Security, which "who know" what will happen there, and it doesn't fund much anyway). Defined contribution means the risk is on you....
 
wsuffa said:
I love getting financial advice from SGOTI.... ;)
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I’ve gotta be honest, it’s actually been helpful reading through the thread. I’m far enough from retirement that I don’t think about it much beyond maxing the 401k, so it’s interesting to hear from folks that are getting close, or have done it.
 
I like the bragging that's going on. Look how much moneeeeeeeeeeeeeeey I have.
 
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