U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Retirement
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 03-08-2015, 12:27 PM
 
71,520 posts, read 71,712,424 times
Reputation: 49105

Advertisements

while i am not a fan of reverse mortgages othewr than to purchase i think i would go that route rather than a refi and still have payments if i was running that tight of a budget that i needed to refi as a part of the plan.
Reply With Quote Quick reply to this message

 
Old 03-08-2015, 12:45 PM
 
2,620 posts, read 2,523,514 times
Reputation: 7231
Quote:
Originally Posted by Themanwithnoname View Post
Impossible to answer I intelligently without more information.


What is wise for a couple with no savings and a fixed pension is not necessarely the wisest course of action for the couple with $2 mil in the bank and no pension.

SS, health, life expectancy, etc etc etc
Let me rephrase the question:

> Couple is 64 years old and retiring next year.
> Between 401K, IRAs and cash investments, they have $850,000 saved
> They have a home valued at $500,000
> The home has a mortgage balance of $100,000
> Combined SS income will be about $4,500 a month
> Life expectancy....seriously? Okay, neither is facing imminent death at the moment
> Mortgage of $1,500 a month will be paid off in 10 years if they did nothing

Do you:

1) Take $100,000 from the $850,000 in cash to pay off the mortgage.
2) Continue paying the $1,500 payments for the first 10 years of retirement then zero after that
3) Refinance the $100,000 balance out 30 years reducing the payment to $500 a month

or, as one additional suggestion was made:

4) Take $100,000 of the cash, pay off the mortgage, then turn around and take a reverse mortgage that would offer guaranteed lifetime income.
Reply With Quote Quick reply to this message
 
Old 03-08-2015, 01:00 PM
 
71,520 posts, read 71,712,424 times
Reputation: 49105
can't say , the plan is missing way to much information .

i don't give one on one advice but if i did i certainly would need to know:]

your tolerance for volatility

how much a draw from savings are we talking and how much slack in that spending is descretionary spending.

if you tell me all that money is for needs and little wants my answer would be stay away from volatile investments since cutting back in an extended bear market is not possible when everything is a need ..

do you want to have greater draw early on or later ?


what does the tax situation look like , how much will go to taxes when rmd's and ss come into play .


there are so many questions to answer first.

you are trying to wag the dog .

you are trying to plan the income side without regard for the expenses and lifestyle side.

first you really need to break out the expense side in to descretionary and non descretionary expenses and see how that looks.


then see how much you need from savings , ss , pensions etc to pull it off.

once you get the amount you need i like to times that x 25. that tells me if my savings is in the ball park.


once i have the amount a good retirement planner like firecalc or fidelity's rip will tell you what allocations you need to achieve a better than 90% chance of not taking a pay cut over the next 30 years.


who knows ,you may have all the money you need without anything extra from the house..

do you follow my point ? it is like you are asking how long is a rope without telling us for what.

Last edited by mathjak107; 03-08-2015 at 01:09 PM..
Reply With Quote Quick reply to this message
 
Old 03-08-2015, 01:26 PM
 
2,620 posts, read 2,523,514 times
Reputation: 7231
Quote:
Originally Posted by mathjak107 View Post
can't say , the plan is missing way to much information .

i don't give one on one advice but if i did i certainly would need to know:]

your tolerance for volatility

how much a draw from savings are we talking and how much slack in that spending is descretionary spending.

if you tell me all that money is for needs and little wants my answer would be stay away from volatile investments since cutting back in an extended bear market is not possible when everything is a need ..

do you want to have greater draw early on or later ?


what does the tax situation look like , how much will go to taxes when rmd's and ss come into play .


there are so many questions to answer first.

you are trying to wag the dog .

you are trying to plan the income side without regard for the expenses and lifestyle side.

first you really need to break out the expense side in to descretionary and non descretionary expenses and see how that looks.


then see how much you need from savings , ss , pensions etc to pull it off.

once you get the amount you need i like to times that x 25. that tells me if my savings is in the ball park.


once i have the amount a good retirement planner like firecalc or fidelity's rip will tell you what allocations you need to achieve a better than 90% chance of not taking a pay cut over the next 30 years.


who knows ,you may have all the money you need without anything extra from the house..

do you follow my point ? it is like you are asking how long is a rope without telling us for what.
Yes, and thanks for the input. I was mostly chasing the philosophy of whether or not it's worth being house rich and cash poor, or visa versa. I recall when my parents were retiring 30 years ago, they'd bought their retirement home outright. The general consensus between their kids, financial adviser and friends was that it's better to have the liquidity of cash on hand and carry a small mortgage. They being children of the Depression preferred knowing their home was owned and paid for. But that was 30 years ago. I didn't know if that philosophy of being house rich and cash poor still held given so much has changed in the financial market and the demise of pensions, etc.
Reply With Quote Quick reply to this message
 
Old 03-08-2015, 01:41 PM
 
71,520 posts, read 71,712,424 times
Reputation: 49105
the problem is without first establishing the expense and lifestyle side with 850k you do not know if you are cash poor.

you certainly shouldn't make any allocation plans without seeing how much slack and descretionary spending you have in your budget.

then there is ss and when is that being taken and spousal benefits.


i can tell you how we came up with our plan.

i added up all our non descretionary bills. that is all the things that must be paid.

to make up some numbers lets say it is 20k

i doubled it so i have 2x that for descretionary spending , that is food , clothes ,travel gifts ,the gym ,etc etc .

so we have a 40k budget. that gives us enough slack to cut back quite a bit if emergencies or poor markets need us to.

lets say our hypothetical couple was taking early ss and both benefits are 30k.

we need 10k from our savings since the 10k plus ss equals the 40k budget.budget.

now 25 x 10k is 250k . so if we have 300k or so we are in the ballpark.


now we need to know how to allocate this money. well a quick look at the data from the trinity study says a 50 /50 mix should give us a 96% % chance of never having to take a pay cut if we draw 4% and inflation adjust .


now you see how all the pieces fit together to make a fully functional road map to at least get to the gate with.


Reply With Quote Quick reply to this message
 
Old 03-08-2015, 02:04 PM
 
2,620 posts, read 2,523,514 times
Reputation: 7231
Mathjak, thanks very much. The chart is interesting and very helpful. It's sooooo hard to calculate monthly expenses when we still have a teenager at home sucking the life blood from our savings. But I like the chart. I've never seen it before and it does help quite a bit in trying to figure how much of that nest egg can be distributed without disappearing too fast.
Reply With Quote Quick reply to this message
 
Old 03-08-2015, 03:21 PM
 
12,705 posts, read 9,967,478 times
Reputation: 9515
Quote:
Originally Posted by LoriBee62 View Post
Though if I were receiving 3.75% return on a risk free bond, I'd be paying tax on that return. On a mortgage, I'm writing it off as a tax deduction, so I don't think the net return is exactly 3.75% We are in a 35% tax bracket, possibly higher with no write-offs.
Wrong way of looking at it. If you pay down the mortgage you increase your taxable income by the amount of saved interest (assuming you itemize), because a reduction of a deduction is an increase.

If you invest in taxable bonds, you also increase taxable income.

So either way your taxes go up.
Reply With Quote Quick reply to this message
 
Old 03-08-2015, 03:24 PM
 
12,705 posts, read 9,967,478 times
Reputation: 9515
Quote:
Originally Posted by mathjak107 View Post
the problem is without first establishing the expense and lifestyle side with 850k you do not know if you are cash poor.

you certainly shouldn't make any allocation plans without seeing how much slack and descretionary spending you have in your budget.

then there is ss and when is that being taken and spousal benefits.


i can tell you how we came up with our plan.

i added up all our non descretionary bills. that is all the things that must be paid.

to make up some numbers lets say it is 20k

i doubled it so i have 2x that for descretionary spending , that is food , clothes ,travel gifts ,the gym ,etc etc .

so we have a 40k budget. that gives us enough slack to cut back quite a bit if emergencies or poor markets need us to.

lets say our hypothetical couple was taking early ss and both benefits are 30k.

we need 10k from our savings since the 10k plus ss equals the 40k budget.budget.

now 25 x 10k is 250k . so if we have 300k or so we are in the ballpark.


now we need to know how to allocate this money. well a quick look at the data from the trinity study says a 50 /50 mix should give us a 96% % chance of never having to take a pay cut if we draw 4% and inflation adjust .


now you see how all the pieces fit together to make a fully functional road map to at least get to the gate with.

The chart assumes your expenses go up with inflation and is therefore not applicable to anybody with a mortgage.
Reply With Quote Quick reply to this message
 
Old 03-08-2015, 03:36 PM
 
71,520 posts, read 71,712,424 times
Reputation: 49105
that could be a wrong assumption.

the chart rules out personal spending choices for comparison purposes for good reason..

as i stated in another thread the fact a mortgage is payed or even exists may not matter in the scheme of thiings.

why ?

because depending how long you have the house your mortgage may have been so tiny 30 years later as to be a drop in the ocean.

houses 30 years ago were 30-35k in long lsland with mortgages of less than 250 bucks a month.

today that is 1/2 a utility bill and real estate taxes and insurance are more than 20k.

i can rent a smaller place in retirement since the kids are out and be effected by increases much less .

the fact you have a mortgage or not can really not mean to much if other expenses totally eclipse it .

the other issue is we tend to spend less as we age greatly reducing the need for inflation adjusting as the stuff we no longer buy or do tends to more than cover the increases in what we do.

typically we spend smile shaped . more early in retirement , then a steep drop , then a rise as healthcare and gifting incresae.

but that is only true if your budget is not all needs . if there is not much descretionary income you have no where to cut from naturally and inflation can be a big factor


the greater the descretionary income the less inflation adjusting you typically need

since each one of us inflation wise will have a different situation the inflation adjusting is used to put slack in the plan for emergency and unexpected expenses . it really can't be used to judge what anyone will or will not actually need for inflation adjusting as it will vary by alot and not just because a house is paid or a mortgage exists. ..

how much descretionary income is being spent can trump all according to both the sun life and tybernke studies. .

Last edited by mathjak107; 03-08-2015 at 04:15 PM..
Reply With Quote Quick reply to this message
 
Old 03-08-2015, 04:17 PM
 
Location: Florida
4,361 posts, read 3,696,311 times
Reputation: 4095
Quote:
Originally Posted by LoriBee62 View Post
Scenario: A couple is 55 with the goal of retiring in 10 years at 65. Currently paying $1,500 a month mortgage on a single family home with no HOA. Interest rate is 3.75% They have excess cash to work with each year. Should they:

1) Put that cash toward their mortgage with the goal of paying it off completely by the time they retire.

2) Put that cash in investment accounts while making the regular mortgage payments and then, the year they are planning to retire, refinance the balance of the mortgage back out to 30 years (assume the same or better interest rate), reducing their mortgage from $1500 a month to $500 a month.

3) Put that cash in investment accounts, leave their mortgage alone and continue paying $1,500 a month mortgage for the first 10 years of their retirement. The house would be paid off when they turn 75.

My husband likes #1. But I think there are tax benefits to #2, particularly if the excess cash we would have spent paying down the mortgage went into a Roth IRA.

Thoughts?
#1 is ok if you have sufficient investments for unexpected expenses. I like not having a mortgage payment.
#2 Probably will not get a better deal. Interest will probably be higher.
#3 Yes, but decide what to do with the mortgage at the end of the 10 years. The Roth idea is good. You really need to consider a lot of factors so a visit to a financial planner might help.
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:


Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Retirement
Similar Threads
Follow City-Data.com founder on our Forum or

All times are GMT -6.

2005-2019, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top