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We have our money wasting away in savings account,to old now and to chicken to take any chances.Would be nice to get reasonable return.
Be patient. The market will tank soon, and offer great investment opportunities. Stocks crash all the time, which offers good opportunity to anyone sitting in cash. I doubled the size of my retirement account between 2007 and 2009.
Bond funds are also a good place to park money with low risk. Look for a short term high yield bond mutual fund. You can get burned if you buy bonds yourself, but a good mutual fund will have a varied portfolio that won't lose much if one or two companies go bankrupt and default. Short term industrial bonds yield higher and roll over pretty quickly, so they don't lose as much value when interest rates rise, which they are going to do.
If you hold cash for the entire 30 years, you will be paying for 2045 debt with 2015 dollars regardless. It's not as though sitting on cash is going to turn those 2015 dollars into anything other than 2015 dollars, perhaps with some interest. So you may as well save some excess interest.
If you think you cannot earn more with liquid assets over 30 years then sure pay off the mortgage. But if CD's etc. go to more "normal" rates....then you'll be happy paying 2020-2045 debt with 2020-2045 money. Bank CD Rates Graph Think time value of money and all.
Plus if you don't have LTCi all that equity will just end up in the nursing homes pocket. Maybe you'll get lucky and die only 15 years into the mortgage. I'd rather have the 15 years of enjoyment of the $200,000 than dying with a paid off house.
The difference is that real estate is not divisible and liquid. You can't draw X% of it each year, and can't rebalance with it (how do you sell 26% of a house?). But if your net worth is high enough, RE can absolutely have its place in a portfolio. It just requires you to be wealthy enough that the lack of divisibility can be worked around.
On the plus side, very few investments return as much as a paid off mortgage with as little risk. For a retired person, not having to pay a mortgage or rent often makes the difference between being able to make ends meet on SS and a pension. Depending on the housing market, that can be the equivalent of an extra $10,000 to $25,000 a year, tax free. For seniors facing taxation of their SS benefit, the tax free part can mean an additional several thousand dollars a year in their pocket.
I suppose it depends on OP's retirement income stream. If OP can qualify for a HELOC, then there is the option of paying the mortgage off in full and then opening (but not using) a HELOC. If liquidity is needed, it can be drawn. Yes, the interest rate might be higher; however the interest will only need to be paid for a short time after buying house #2 before house #1 sells. It is better to pay 7% interest for 6 months than to pay 4% interest for 5 years.
I could agree with this if it is 100% sure that there will be a change of properties but even then as others have pointed out it may facilitate the purchase of the new property more by having cash NOT trapped in the original house.
What about real estate? All I ever hear is "stocks and bonds"; what happened to the idea of real property being a sound investment? After all, you make money renting it out ("interest") while retaining the principal (property), which you can later sell, ideally for a profit. The only "risk" is crashing home values and, of course, the aggravation of dealing with the tenants...
A vacation/retirement home would be my favored investment, but I don't even dare do that in this market. Otherwise, I'll just leave my liquid on the bank.
Real estate is definitely the answer to a successful long term retirement. On just my Honolulu properties I have a 40 year history of rents increasing 6% and 9%+ appreciation rate. I'm in the process of pulling out $350,000 in equity that will be paid for by the increase in rents of these properties over just the last few years. What other investment can you pull out that kind of money and not affect the earning power of the asset?
On the plus side, very few investments return as much as a paid off mortgage with as little risk. For a retired person, not having to pay a mortgage or rent often makes the difference between being able to make ends meet on SS and a pension. Depending on the housing market, that can be the equivalent of an extra $10,000 to $25,000 a year, tax free. For seniors facing taxation of their SS benefit, the tax free part can mean an additional several thousand dollars a year in their pocket.
The math is not on your side. Let us look at the look at your theoretical retired individual or couple who can make ends meet without a mortgage. Now if they take a $200k mortgage at 3.75%, they will pay mortgage interest of $7500/year. Total payments will be about $11,000/year. They have $200k to invest and historically will make about 7.5% annual returns; i.e., $15,000/year. So they come out $4000/year ahead in the first year and over time that money just keeps compounding. In 10 years they will be making close to $30,000 returns on the investment and making a net of $19,000/year after paying the mortgage. In another 10 years that $30k amount will be nearly doubled again and the mortgage payment will be the same.
Of course calculations such as this are based on averages. A more sophisticated approach is to use Monte Carlo simulations to calculate a range of outcomes. We know every single simulation would show a substantial improvement for taking a mortgage and investing.
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