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Posting this in retirement instead of personal finance thread as it is a retirement strategy...............
I got bounced out of the housing market in the southwest florida meltdown - lost 30 plus years of equity and vowed to rent ever after.
However, after renting several years and dealing with the pros and cons of that, the specter of never-ending rent payments is weighing heavy. The old wisdom was by the time you were a certain age you did not have a mortgage and thus costs were reduced. Looking at my IRA's and the like, it crossed my mind that I could actually re-enter the housing market with private financing and pay off a house by liquidating IRA's over the next six years.
I ran a mock ammortization chart for a fifteen year note, paying both principle and interest, with an additional payment of approximately 10 thousand on the anniversary of the loan each year. The note would be cleared in that six year target, leaving me mortgage-free at approximately 65.
I've run several budgets based on income projections. Presently out on disability with social security and doubtful I will re-enter the job market on a full time basis unless a miracle of sorts takes place. (presently 58.5 so can access my IRA's come January of 2012 and likely even now with the disability issue). I can manage PITI that will be only slightly more than the rents I have been paying & am definitely considering issues of maintenance etc that are the plague of home-ownership.
I'm just curious if this idea seems plausible, oh retirement-gurus of this board. Like I said, when I left the housing market, I swore I would never own again. But I am not an apartment dweller and the cost of housing, rental or ownership, in the parts of the world where I have family and friends is just not cheap. Instead of forking over 800-1000 every month until i am 100,, this sounds like it might work out better.
Thanks for any input anyone might have (this would not totally eliminate my savings but would seriously dent what I have put aside - but I can live on what I have coming in monthly, rent-wise or mortgage wise. Rent would just go on forever, with likelihood of escalation. Ownership, without a mortgage, would be less for housing costs. (Females in my family live forever......when i can't handle the house, i will float away on an iceberg....)
Last edited by mzfroggez; 01-10-2011 at 04:00 PM..
Reason: spelling .............oh no!
It depends upon your plan but taxes on non-Roth withdrawals usually make this impractical. I looked at it briefly and then took out a mortgage. I can always make extra principal payments to try to work the balance between taxes and interest paid.
The first question is, is the IRA growing at a higher rate than the interest rate on the mortgage. If it is then paying off the mortgage may not be a good way to go financial speaking.
Is the money you take out of the IRA subject to Federal and State income tax? If it is then you might want to limit the amount you take out to minimize your taxes.
Why take the money from the IRA and not your non IRA savings. I think I would take the money from the IRA last. After Jan 2012 you can take out from the IRA what you would have taken from your non IRA money with no penalty.
I think you can start taking money from the IRA now without penalty if you start a series of about equal monthly withdraws and continue for five years. You should be able to call the IRS and get guidance on starting withdrawals now.
I do not see anything wrong with your basic plan. Your housing costs should be less than an apartment. However, you will have to do your own maintenance and repairs. This might include a new roof, replacing a sewer line, cutting grass etc. Be sure to consider these costs and your ability to maintain the property as you get older. Also consider the number of steps, if any, in the house and the ability to get around if you need a wheelchair.
Good luck
Maybe look at a place you might like to stay in for at least 7 years. Get the price and factor in all
the other costs. Then think of the penalty for taking money out of an IRA and taxes. Consult an
independent tax peson and if it works and makes you happy go for it. Housing is at its low and so is money in fixed accounts.
Good luck, and do what works to make you happy in a home. One last thought run your credit score and it is free then cheap when you do this
get your Fico score cost under 15.00.
Last edited by maggiekate; 01-10-2011 at 09:18 PM..
thanks to all for your thoughts on the IRA approach - some good comments and would love to get some more input on this - i would never have considered this until i looked into pledged certificate loans with Navy Federal Credit Union and the idea of "borrowing" from yourself essentially. I doubt I could qualify for a standard mortgage and definitely have no desire to take on a thirty year obligation. It appears you can't borrow in that manner by pledging IRAs but it allowed me to do some further brainstorming.
The question was asked about whether I am earning more on the IRAs than what I would pay on the mortgage and that's what got me going on this - the IRAs that are rolling at slightly over 1 percent - totally insane - it dawned on me that i have money that is essentially earning nothing - an annuity that literally gained not one dime for four years because it was tied to the S & P. All of this sits in accounts earning very little while I pay rent which would never be done. I'm thinking about twenty years plus of renting and saying "WHAT????"
I have a few IRAs that are earning a decent amount but they are small and those would be the last ones I would access. I figured I wouldn't touch any IRA money until after I was 59 1/2 (which will be around January /Feb of 2012) even though the disability does free up the funds now. My non-IRA dollars would be what I would use to make a good downpayment.
I spent so much time lamenting what happened with my house, second guessing decisions made under a great deal of duress which continues to this day. In reflecting on the future, I decided to look at my financial situation from a half-full approach instead of fixating on the half-empty. Figured if I had to check out at the crash, checking back in while it's wobbling might be in my best interest future-wise. I've definitely abandoned the mentality that housing is an investment. If it increases in value, great. If not, then that's ok. I want my little bungalow where I can walk in the door and breathe a sigh of relief that I am somewhere.
What I want is a home - some stability - a sense of place. I don't want to feel like my well-being is so in the hands of others/not a good feeling at all. Something about being a responsible person all your life and having to beg people to rent to you that doesn't sit well. While talking to a young property manager one day and realizing I wasn't fitting the standard "qualifications" to rent the property, I wryly observed that maybe I'd just buy the property from the owner and be done with it. I don't think that she realized just how serious I was.....(I had zillowed the property several times and it was obvious the owner of the rental is anxious to sell it and has constantly reduced the price to reflect that-) -
the more I look, the more properties I am seeing that are owned by people that need to get out. Having been there, I know what that feels like . I can guarantee them that selling low or even at a loss beats turning the keys and all your equity over to the bank and just saying good bye.
That is my strategy, figuring it to be completed about 3-5 years after retirement. However, my plan is to liquidate amounts above what will be needed for retirement. The idea is to liquidate an amount so I don't go into the next higher tax bracket while at the same time keeping income down for school financial aid (likely will have one in graduate school when we'll have to report income for him).
By paying off the mortgage, we'll have about 14 years before we need to tap into the IRA to meet retirement expenses (I'll still need to make withdrawals but they'll be rolled over to a Roth IRA or regular account). It can remain invested for the long-term, probably 50-60% equities and the remainder fixed income. One other restriction we'll have is that if we move, we can only buy another house if it's equivalent or lesser in cost (area cost of living will also play into it).
the more I look, the more properties I am seeing that are owned by people that need to get out. Having been there, I know what that feels like . I can guarantee them that selling low or even at a loss beats turning the keys and all your equity over to the bank and just saying good bye.
Maybe you can find someone who will 'tote the note' by owner financing. They can't draw a decent rate of interest on the equity they would get out of their homes, either. The trick is that it would need to be paid-off or a low balance on the home you purchase, unless they have other funds to float you.
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