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Old 07-18-2007, 05:30 PM
42 posts, read 125,381 times
Reputation: 29


My husband and I have just relocated at 40 years old, and are basically starting over- Left NY state due to high taxes/ no jobs/ very bad economy. He has a job with benefits and descent retirement, I have to find employment and we have to get reestablished from our relocating before we can actually start putting anything away.
Our mortgage payment is 300% higher here, but the lower taxes and cost of living will offest that quite a bit. In a year we can refinance, we are now at fixed rate 7% for thirty years. Once that brings our payment down, we'll apply all the extra (about $200.00/mo.) to our principle.
I know we are coming in late in life to do that, but we really have no regrets, as we spent the last 15 years in small business, where the living was good, but we couldn't get ahead, the opposite of most people, I suppose. The kids are growing, my daughter is renting our old home and we will give her option to buy within a year or two, all of which will also go back into our current mortgage- Unless there's a better option?
We are very serious about saving for retirement, but we do also want to enjoy life as well. I'm looking for advice on how we can do this, and appreciate any ideas anyone may have to help. I believe his employer is the best option, as they offer diversification in their packages, but the whole concept is very new to both of us.
For a year or so we'll have to keep our belt tight and in the meantime I'll be working, and we'll get through it. Then it'll be time to get real with it- How much, at 41, do we really have to put away if we face the fact that the life we have lived means working into our early 70"s?
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Old 07-18-2007, 06:44 PM
Location: WA
5,395 posts, read 21,395,985 times
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You are not too late and should be able to develop a nest egg to supplement what you get from pension and/or SS. There are many decent retirement savings calculators available so a quick search will be you some tools. Don't be alarmed at the high numbers some recommend... use them as a guideline and develop an aggressive savings/investment plan and stick with it.
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Old 07-26-2007, 01:49 AM
Location: California
510 posts, read 3,009,581 times
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You don't have a horrible rate at 7%, however you may want to watch rates and refinance into a lower 30 year fixed if you can do so without too high of costs.

You mentioned paying an additional $200 towards principal each month. Without knowing your original loan balance, I can't estimate how much more quickly you would pay your house off. However I think that is a moot point, and you may too after you hear what I have to say.

The first thing you want to look at is if you're both maxing out your IRA each year. I believe they allow a 100% deduction from gross income taxes up to $4000 per person now. Not positive on that. Even if you just place it into an IRA account using an online trading company and keep it in cash. They are paying 5%+ now in these online trading accounts. I will leave it up to you as to if you invest in stocks or not.

So lets look at the simple interest numbers on a yearly basis. Ignoring your mortgage payment, because it has to be made regardless. $200 X 12 = $2,400 per year either invested, or put towards the principal of your house.

If you are not maxing out your IRA, then putting it towards your house is a no no for sure. Here's the benefit of paying the $2400 towards your IRA, and placing the cash into a 5% yeild account.

5% interest on $2400 is $120. 7% mortgage interest on $2400 is $168 per year. You initially lose $48 in the first year of interest. However you get to write off that $48 on your income taxes, and assuming a 25% bracket you get back $12. That puts you at a loss of $36 for the year. Then factor in the 25% income tax savings on the $2400 you put into an IRA (I'd put it into the person with the higher of the two tax brackets if you happen to file seperate). This gets you an additional $600 back on your tax return, and after the loss of $36 you have $564. You now invest that $564 into your IRA for the next year, this will give you a balance of $3,084. You again lose $168 more for the year on mortgage, but you make $154 in interest on your cash IRA account. Then take the mortgage and IRA income tax write off and you get $813 back in taxes. You just keep doing this over and over, and at some point you will max out the IRA for one person, at which point you just open up the spouses.

I know this was probably sounded really complicated, but the simple description is this. Money you're gaining interest on will compound yearly. It will just keep growing.

Another HUGE factor in my mind has to do with your savings account in general. If you don't have 6 months of income stashed somewhere, you shouldn't even consider paying extra money towards principal. If your money is buried in your house, it's not liquid. There's only two ways to get to it, either sell the house, or borrow against it. You can almost always get a loan when you don't need it... but if both of you are unable to work for a time, no bank will loan you money. Then what? Well, you can live off of that 6+ months of liquid cash you have stashed...

Hope this gives some insight into my opinion on investing and general mortgage.

**side note... That whole thing was based on the $200 extra you want to put towards mortgage. The more you can save in addition, the better of course you'll be.

Good luck!
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Old 07-26-2007, 05:24 AM
2,775 posts, read 2,843,170 times
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#1 - you need to put a % of your husband's income into his company 401k - whatever they match so that you can get that "free money". Recommendations for how much total % should go into that vary from 10% on up to the maximum allowed by the Fed. If the employer doesn't match retirement savings, then he needs to open an IRA and put in 10% up to the maximum allowed.

#2 - you need to find a job and once you do, you should use ~90% of your income to start paying down your mortage principle (put the other ~10% into an IRA or 401k - just like the recommendation for your husband). You've indicated it as your primary debt, hence this recommendation. If you carry credit card bills month to month that has to stop and you should put your income directly into paying them off completely. Basically, attack your debt highest interest rate first and work your way until you are debt free.

Unfortunately you indicated that your new mortgage is both 30 years in term and whopping 300% higher than your last. In retrospect (and hindsight is always 20/20) I suspect you realize that your new mortgage payment is impacting your ability to save for retirement. A new 30 year term mortgage is very difficult to pay down as most of your money is going out the window to the lender each month rather than to the principle balance of the loan. 10-15 year term mortgages are much better as significant principle is paid each month with the basic payment. When you go to refinance you should have 2 goals ... first, have at least 20% of your house already paid off so you can get a great interest rate and get rid of PMI or a piggy-back loan if you have it, and second to shorten the term of the mortgage if you can afford it (not for everyone, I would still recommend this so you're giving less money to your lender and putting more of your income into your net worth each month).

At 40 years old you are still very young which is why I am making these recommendations. Realistically, you need to save as much for retirement as possible - but I think you might be mortgage heavy. In my opinion, there is no sense in saving massively for retirement but having a huge mortgage debt over your head (otherwise I'd be sitting here writing about how you need to invest in stocks, IRAs, and basically penny pinch so that you can do massive catchup on your savings). Additionally, any principle you've paid off for your house is money you may later want or need to tap into for the future... retirement accounts aren't very good for doing this (before age 59.5 you get financially penalized for withdrawing from them).

Consider this advice complementary to the previous poster's... while they focused upon the reasoning behind getting you to invest in an IRA, even if it "hurts" - I also feel like you need to work on decreasing your mortgage debt or else it will all be for naught. You haven't provided any real numbers for your financial situation - but I think all this advice is pretty sound. Good luck with your endeavors and already I'd say you're on the right track seeking investment advice/input. I would suggest hiring a good CPA who would be willing to sit down with you and share further advice (smaller companies will have CPAs that can/will do this).
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Old 07-26-2007, 10:57 AM
Location: California
510 posts, read 3,009,581 times
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Teaches me to post when I'm half sleepy, should have mentioned a 401K. Company matching is of course the best thing for any investment.

I don't think investing is good if it hurts, you can't sacrifice your current life to prepare for your future life. It's that old balancing act where you need to be sure and enjoy today, but still prepare for tomorrow.

I guess it really comes down to what you're most comfortable with. Most people do not pay off their mortgages, and most people are not in a loan for 30 years.

My example is explained much better in this article. I've given this article to many clients when they bring up paying extra towards principal. It's never bad to pay down debt, but it is bad if you're doing it just because you trust what someone is telling you without fully understanding why, and learning about all options available to you.

This is a long article, and may take a little while to download depending on connection speed. It's a 3 megabyte Adobe PDF file. http://www.realgroup.com/Asset_Manag...g-Mortgage.pdf

I definitely agree with mbuszu on investing, and speaking to a "good" CPA, or financial planner is also a good idea. Many commercial banks these days have investment planners who will go over things with you typically free, which they hope will get you to invest with them.

I still stand firm on making sure you are cash heavy vs. equity heavy. When I say cash heavy, I mean anything you can get at, even if it's with a penalty. 6 months of mortgage payments is a nice safe number, even if it's in retirement. You just never know what's going to happen, and never know if you'll have zero income for a period of time.
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Old 07-27-2007, 09:58 AM
Location: Maple Valley, WA
980 posts, read 3,008,602 times
Reputation: 418
I agree with the other posters - you need to sit down with a good CPA AND a financial planner. I'm a fan of the Roth IRA, and your husband should check and see if his company offers a newer product called a Roth 401K.

The tax structures on all the vehicles mentioned in previous posts vary, and it's very important to understand the differences between each one. Other posters here have mentioned IRA's, but they have a caveat: you cannot deduct them if your combined income is over a certain amount (85K, I think) - under that figure , the amount you can deduct is staggered, depending on how much you make. The IRS will also penalize you if your employer offers some kind of retirement package, and you elect not to participate.

Personal Finance for Dummies is a good book to get started with - I think it breaks everything down pretty well.

As other have said, however, pay down any high interest debt you have first.
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