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.
( As a data analyst, I work with numbers all day long, and I've seen over and over again, that the numbers don't always mean what they appear to mean. Numbers don't lie, but they don't necessarily tell the whole truth either. )
blessings...Franco
I have to appreciate what NewAgeRedneck is saying here.
Question: I know a 72t allows early withdrawal without penalty but ...
How does that work, exactly?
It's my understanding that a 72T allows you to pull funds out but you are required to pull out the predetermined amount for 5 years or until your 59.5 which ever is longer.
Was explained to me, you take your age and life expectancy which in men is 77 so if you plan to take money at 54 your calculated funds have to last 23 years even though at 59.5 or the 5 year anniversary you can change it up if you want or take it out completely.
Like for us we are going transfer $250,000 to a 72T and pull $20,000 a year this amount will last us 23 years and with a 7% annual gain we will still have over $100,000 in the account after the 23 year period. However after the 5 years we will likely do something different.
This how my broker explanied it to me, I'm not an investment broker just a customer of theirs.
Additionaly it was explained that once you have the 72T in place making any adjustments at all during the 5 year period or 59.5 you will have to pay back the 10% penality back to the beginning of the 72T so oly put in there what you can't touch for that period of time. One couple was encouraged to put all their money into the 72T by their BIL and then two years later they stumbled and couldn't get any additional money out without penality a big penality
Status:
" Charleston South Carolina"
(set 9 days ago)
Location: home...finally, home .
8,816 posts, read 21,282,976 times
Reputation: 20102
I paid off my mortgage, but that is just because that is the boring way I do everything. I pay my credit cards off every month and prepay my property taxes and condo dues for sixth months in advance . I guess I just do not like to think about it. Very boring.
Other than paying off my mortgage I like the idea of being boring, I have a SIL that will pay her property taxes quarterly $125.00 and I'm like pay the hole dang bill why do I want to visit it again. If her husband didn't make $200,000 per year I would agree with her but she doesn't have a mortgage so get rid of those bills as soon as they come across my desk.
When I paid down my mortgage, I also maxed out the 401k contributions so I wasn't trading that away. Situations differ so doing the numbers may turn up a different result than my numbers did.
True ... we're also in an unusual situation. Both my husband and I are government employees so ...
We can have two 401K plans and two 457 plans. So instead of the $15K max, we can go up to $60K.
I notice a lot of people have paid off their mortgages ... and, normally I would think it would be a great thing since people say it's key for a comfortable retirement. But I have doubts about it and I would like some input to see if I'm missing something that I haven't thought of.
First of all ... our payment is pretty low, especially by Calfironia standards ... only $1200 a month including insurance and taxes (the mortgage payment itself is $900). And the interest rate is fixed so, no issues there. We only paid $155K for the house and, when we retire in 20 years at age 65 ... we'll owe about $60K on it at that point with our current 30 year amortization schedule.
The interest rate is only 5.875 percent so ... I'm not sure I'd save that much money by it paying down. Especially since here's the kicker ...
We're in a high tax bracket ... nearly 35 percent when you include state and federal taxes between the two of us. So I'm thinking we should be putting as much money as possible in our 401Ks. We are government employees with 457 plans also so, between the two of us we could put away up to $60K a year tax deferred between the two of us.
I'm thinking it would be much better to put that 35 percent of tax money into the retirement accounts and invest it over the next 20 years ... rather than paying down the mortgage after 35 percent is deducted for tax ... only to save 5.875 percent.
It's just that when I run different investment scenarios with the 401K plans, etc. ... even with conservative investments ... being able to invest the tax money over 20 years makes the retirement accounts grow so much faster ...
So I'm not inclined to pay down the mortgage but ... I'm wondering if there's something else I haven't thought of.
I know that paying down the mortgage brings a lot of peace of mind but, I also want to make the best financial decisions so ... any input would be appreciated.
I take a simple view on this....
1) Liquidity. Keep some reserves to some extent to protect against surprises before paying down your mortgage.
2) Investments. If your rate is 6% you can get a guaranteed return of 6% (before tax considerations) by paying down your mortgage. Depending on your other investments etc. this may or may not be an attactive option.
For example....pay down a mortgage 1000 means you save $60 over a year...but lose a tax deduction of say $25 so your net return is $35 or 3.5%.
Lets assume you could get 6% on another investment (risk free)....you'd get $60 less taxes of $25....so your net return is $35 or 3.5%
2b) How will your tax situation change (or not) over time. Basically a variation of #2 where you consider putting money into an IRA, 401k or Roth etc.
P.S. As you pay down the mortgage faster you may get a *surprise* when you do your taxes at year end and realize your deductions are smaller...you may find yourself owing the gov. more than you thought. Just a word of warning to plan ahead for tax time if you go this route.
Not really. Because I have to pay 35 percent of the money I earn on taxes first ... so ...
If I don't pay that money into the 401K instead ... I lose the opportunity to make money on 35 percent of my income that would ordinarily go to taxes ...
It's basically a lost opportunity cost that could far exceed the 5.8 percent I'd save on mortgage interest (which, again, is really only 5 percent after the mortgage interest deduction).
By my calulations I'd actually lose anywhere between 3 and 9 percent, depending on how well the stock market is doing.
Granted, you eventually have to pay taxes on any money you withdraw from the 401K once you retire but ... over 20 years ... 3-9 percent lost investment income could make a big difference in how much I end up with in that account over the long term.
The stock market is not a safe investment, it can go down too....it's riskier and therefore offers a higher return. Over the long run, you cannot reasonably expect to make anywhere near 9% more than your 5.8% in the stock market and in the short term you may acutally GAIN if the market tanks so your 3-9% range is pretty optimisitic.
However, my 2 cents is that if you have the extra cash....I'd put it somewhere liquid for a rainy day....at least 30-40k in stock market, money markets etc. then I'd probably make sure my 401k etc type stuff was getting maxed and THEN I'd look at paying down the mortgage depending on the mix of my investments.
Over the long run, you cannot reasonably expect to make anywhere near 9% more than your 5.8% in the stock market and in the short term you may acutally GAIN if the market tanks so your 3-9% range is pretty optimisitic.
Well ... it also depends on how you play it. I don't just put my money in the stock market and wait for the market to go down. I actually pulled my money out of stocks this summer because I figured we were heading for a recession.
Not that I'm an investing genius but, you didn't have to be a rocket scientist to figure that high oil prices and the inevitable housing crash was going to drag down the economy. Besides ... we were due for a downturn ... we usually have a recession every 7 years or so anyway.
It looks to me like we're going to have a replay of the 2001-2002 bear market so I probably won't get into stocks again for a least couple of years.
My investment strategy is pretty simple: when stock prices get really high I pull out. When there's a ton of bad news, everybody says the sky is falling and stocks are really cheap, that's when I get back in again. You can avoid major stock losses with this strategy and I think even average investors can do well in these situations.
I know what my strengths and weaknesses are. I don't have a talent for picking individual stocks but I am pretty good at picking overall market trends ... so, I pretty much limit my investments to low fee index funds that track with the overall market.
When it looks like the stock market is getting too overheated I go with bonds and other conservative index funds. When stocks tank and it looks like the bottom has hit ... I get much much more aggressive with stock index funds. So far, it's worked pretty well for me.
I believe in paying off the mortgage ASAP. The tax deduction that you get from the mortgage interest is one of the dumbest excuses I have ever heard. You give the bank $10,000 a year in interest so that you don't give the government $2,500 in taxes. 5.85% may sound low, but multiply it by 30 years and you get to pay the bank... here it comes... wait for it... 175.5% plus the original loan (100%) = 275.5% Go ahead, pay nearly 3X the house and see if you really get ahead. "I will gladly pay your $2,500 in taxes once your check for $10,000 clears in my account." - Dave Ramsey
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.
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.
)
