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.
I should have elaborated a bit but didn’t have time when I posted that. The assumption I make is that the money going toward the mortgage is mostly invested after the mortgage is paid off. That changes the ROI dramatically, or as Ramsey says, “Moves the needle” mathematically.
If you just pay off the mortgage and then increase lifestyle with the money, yeah. You’re correct.
It’s an opportunity cost thing.
There’s also, as I eluded to, especially for “nesters” an ROI that isn’t measurable mathematically. The “peace of mind” thing for them that the lower rung of Maslow’s hierarchy is handled, barring a huge storm destroying the place. And even that can be mitigated relatively cheaply with homeowner’s insurance with full replacement value, if they’re really concerned about it.
My plan is to have my funeral and retirement party on the same day.
I wish you good luck on that. Truly. With my medical changes my chances of being able to do that are now exceedingly low. Grrr.
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.
I’m generally anti-debt but if someone really really must do this sort of loan I always counsel them to think hard about their specific industry and job. The chances I would ever work more than seven years at a company in tech are abysmal in real world numbers. The chances I would find another job are fairly good however.
For anyone in an unstable job or industry, 401K loans with their forced payment upon job loss, are a really big risk, and worse when you add on the tax penalty.
Younger folks I’ve seen use them who lost jobs then WAY too often decide that cash is tight while looking for the new job, so just let the thing pay itself off from retirement money and go ahead and withhold the taxes, and they don’t notice until tax time that they lost 40-50% of what they earned and put in there.
It’s set up to be way too easy to be distracted by the immediate cash flow “emergency”, especially for lower salary workers, and just accept the penalty and not think about how freaking much money just got flushed.
I love getting financial advice from SGOTI....
Some here are likely millionaires. I had an Edward Jones guy come to my door at the city house, and I doubt he was one. I think I’ll take advice from rich people, not broke people. But you do have to decide if they’re blowing smoke up your ass, either way. Ha.
I know who I won’t take financial advice from over ANYONE on PoA. My family. Good lord. I’ve tried to help. Really I have. It doesn’t even register.
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....
They’re not totally gone. I have a railroad buddy who’s going to make BANK in retirement on his pension. Also know multiple double dippers who did military or civil service long enough to qualify for a pension and then took new civil service jobs to do another 20 years. They had to plan it right and be a tiny bit lucky that their specialities were in demand, and I suppose trust that the taxpayers will bail out the failing pensions. But they have a promise on paper anyway. Whether it’s made good, remains to be seen.
I like the bragging that's going on. Look how much moneeeeeeeeeeeeeeey I have.
I haven’t seen anyone obnoxiously bragging here. Have seen it on FIRE and other financial forums. If what you’re seeing here looks like bragging, you’d really hate those places.
But again, see above for commentary on listening to rich people and not broke people for advice. Someone can offer information on a forum that hints they know what they’re talking about without posting their net worth. It’s helpful when figuring out who’s advice is wheat and whose is chaff.
What I find interesting, is most people do not know to the nickel how much they live on per year. Most will just quote what's on the pay stub. For me, once I tracked those costs over the years it was part of the reason I elected to keep my mortgage at retirement.
I always assume HERE that folks do at least basic budgeting or they wouldn’t be able to afford our silly hobby. But yeah, budget is WAY before planning. If you don’t know what the incoming numbers are and the outgoing numbers, it’s impossible to plan anything.
Personally I’m lazier than I used to be. I used to do it all in Excel, but in recent years I’ve moved the budget tool to YNAB. It’s zero based, allows plenty of customization, and the only thing in Excel now are “what if’s” and other weird occasional analysis.
The main benefits to YNAB when working is the automatic import of data from every account, and the mobile visibility to the budget on smartphones. This doesn’t help me as much as it makes the budget completely accessible to my wife. Simple, even GOOD user interface, always in our pockets.
“Can we buy that?” Open phone... “Well there’s $2000 saved for that goal and that thing is $2500, so what do you want to give up or steal from?”
Super duper easy and does that goal of good tech or getting details I don’t need to know right now, out of my head, making room to do other things like live life. Ha.
To the younger demographic here. I recall the time in my early 20's some of the 'old timer's' and I would discuss the power of compound interest. They were excited for me and what the future could hold 35 years later. This was of course after the obligatory new guys speech of how you 'get ahead' around here by doing unspeakable sexual acts with management lol..
I always joke that the real world way to get ahead is to cheat, but if you have morals, here’s the long slow boring path to wealth, even generational wealth, if you get on with it early. Investing shouldn’t be optional in your 20s, if you want to make things much easier on yourself. We invested back then but didn’t know the budget or the math and got ourselves into massive consumer debt. Utterly stupid but neither of us was ever taught finance in a simple way. We taught ourselves in our 30s. Many many mistakes. No debt and paid off home at 42 and that was accelerated by a small inheritance we’d rather not have had. Planning showed we would have done it without that by 46 or 47. Dad had retired early and was squeaking by on a tight budget until Social Security, so the inheritance wasn’t that significant in our numbers because he was essentially doing what the FIRE crowd would call LeanFIRE or maybe BaristaFIRE. He had a little part time retail job that he did barely enough hours at to buy medical insurance, which as others have mentioned, is the hardest part about any early retirement.
i'm just SGOTI, 46, hope to retire by 55. I have everything in VTSMX or equivalent (doesn't try to outsmart the market, just a super cheap index fund with very low fees that follows the stock market). when I get to my last 3 years or so, I might put 20% in bonds, but I think they're a sucker bet
Fees are lower on VTSAX and Fidelity is supposed to move you from VTSMX to it automatically once your account balance is above $10,000. Just mentioning it in case they screwed up on yours. VTSMX is usually how folks get started in that type of investment because it has a $3000 minimum, last I checked. Quick Google appears to confirm this is still the case. Just some Fidelity insider baseball for everyone reading along.
What makes someone ineligible for a Roth? I thought that at least some of a 401k could be in a Roth, but I know little about it.
Income level. The government won’t give you the free taxes if you make more than a certain amount.
Thing is, the backdoor Roth “loophole” exists as well as there used to be the ability to “recharacterize” into Roths, so there’s really no real barrier to investing in a Roth if one wants to. The only serious pain in the ass for those is if you already have significant investments in taxable accounts, Roth deposits CAN trigger tax problems for people who miss that the law and the loophole say that ALL invested money is part of the tax bill.
YMMV so a good accountant is needed if there’s already a huge chunk of money in a regular IRA.
For most folks, if they can max whatever has a match first, Roth second, and then anything tax deferred third, they’re going to be doing great. Especially if they can afford to max all of those.
Small business owners and self employed have all sorts of other options and weirdness. Again, good accountant is worth whatever they can find that you’re doing sub-optimally for your specific tax circumstances.
Or as I always joke... the only guy at my airport who can afford TWO WWII warbirds, is a tax attorney. LOL.
More and more I'm thanking myself for joining the military with plans to finish my 20 years.
Pension. Health care (not that it's great, but it's cheap). VFWs...
If you liked the job, and stuck it out, it’s really a decent deal. Stacking on a defense contractor gig with a pension or solid 401K in “retirement” from the military is also quite common. A great way to solidly retire with serious cash flow. As long as the country honors all of it. Which, we should.
