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I don't have any advice for you, but I'm in a similar situation - 2 years from retirement with a 3.99% mortgage and we just received a $200K windfall, enough to pay off our current mortgage. I am curious to see what others have to say.
We had that happen a couple of years ago. We gave it long consideration. We thought about buying a business where we knew the owner wanted to get out. But decided that wasn't for us and paid off the mortgage. We're happy with that.
The money we would have been using to pay the mortgage is paying for renovations to our rental home. We are risk-averse people who already have ample funds in TIAA-CREF annuities, 401(k)s, our employer's stock, stock from former employers, etc. We have no urge to pick mutual funds or play the stock market. Been there, done that, have the scars to prove it.
I am absolutely amazed at the common attitude towards investing. First there seems to be the idea that investing means buying stocks. And then we hear about the horrors of the stock market. I cannot imagine what most people do with their money. I suppose that would be CDs that pay nothing or bonds that right now are a much higher risk than stocks.
Investing does not have to be at all complicated. In fact you can look at your assets, determine how much money you should keep in cash to cover expenses for several months or even a few years. The rest can go into a balanced mutual fund. And then you leave it alone. Sounds risky? Not at all. Look what happened with the "Great Recession." Some fools panicked and sold their stocks at the bottom of the market and never reinvested. Those of us who followed a simple strategy have done very well. My net worth is up 2.5X what it was before the recession. That increase did not come from salary since I have been retired for 4 or the past 5 years. I may have done a bit better than most investors but not by much. Of course, the argument can be made that the past few years have been special. Well I don't see anything special about including the effects of a nasty recession. You can instead look at Monte Carlo simulations or you can look at historical data. Long term a diversified portfolio has returned about 7% minus average inflation of about 3.5%. Currently we are doing much better.
People complain that the rich are getting richer and the average person is losing. One reason is investing.
There's a lot to be said about having some of everything. When we sold our home and paid cash for a retirement home, we did invest the remaining funds in the market. We already had a lot in the market, so eliminating a mortgage was not an "either or" situation. We have some in mutual funds, but we have individual equities too, and they have done great. We had CD's when they were paying well. We also have rental property worth 2X what we paid for it and the rent has easily covered the mortgage and insurance on it. For us and many others its not a matter of being afraid of the stock market but just not putting every bit of cash you have into it.
This concerns a large cash inheritance that is now just sitting in a savings account. Before continuing, just a bit of personal info:
We are 60-ish and planning to retire in four years (five at most). Our dream is to buy a smaller home in another state. We have always been fairly average as far as savings and spending; and before receiving the inheritance, we had no debts except for our car loan and our 3.75% interest mortgage; and we were looking to basically trade one mortgage for another when we retired. (With my pension and our combined social security, we would have enough to live on, even with our current mortgage payment.)
Now with the inheritance, we are able to pay off the mortgage in full and start retirement entirely debt free (paying "cash" for the new home after our current home sells). However, the "fee-only" CFP we just consulted has advised us that we should continue with a mortgage, even into retirement, and except for paying off the car ($16K remaining on a 3.75% interest loan), that we should invest the inheritance money in stocks and bonds. However, we (and especially I) are very uncomfortable doing so, as we have always been "bird in the hand" type people and are definitely not risk takers.
Does anyone have any personal experience with this kind of situation? And/or what would you advise?
YOU need to do what makes you and your wife more comfortable, but I am of the same "persuasion that you are being a "bird in the hand" type. Limited risk is ok for us, but with what you have going on right now, to get things paid off in full and be able to possibly retire even EARLIER using the money saved NOW to fund better retirement is the route we would take if in your shoes. I think I would just sleep a whole lot better knowing whatever the market does, our investment in OUR future retirement is not at risk.
I'm 52 and we paid off our mortgage, accelerated the payoff on our 1.9% car loan and maxed out our 401k/403b accounts. Not having a mortgage still allows us to save and invest additional money. We are able to go out to eat and enjoy life without a high monthly payment. Right now we are saving an additional amount to pay for the youngest child's college costs. In two years when our youngest enters college we will be moving to a less expensive house and using the additional equity to retire early. It is much easier to save than to pay off debt.
Hello this is my personal preferences. Hoping that I can help you decide in any ways. I am younger yes I know that. But like you I am not a risk taker either. I have a rent to own flat that I need to pay for 10 years. I didn't rent an apartment because I want my own property that I can call mine in the future. My mentality is this, if in the future I don't have a job and money at least I will have a home where I can sleep. But that's over rated. Here's a thing, I summarized what are the things that is important, for me to live conveniently in the future. I decided that I need my own home and a savings to sustain my self when I no longer have the capability to work. So the home is on going as I have a mortgaged already. The savings, I opened last year a UITF account. (Unit Investment Trust fund) It's earnings is much higher than ordinary savings account. I was so happy because I already saw my money's earnings on the 3rd day. I also opened a Mutual fund account. It's not as stable as UITF but I don't want to put all my eggs in one basket. So 10 years from now I got my own home and a plenty of savings. I can invest it in a new property for example a condominium and lease it for me to earn more or I can invest it to other bank products. Maybe you should consider your goal. As my approach is slow but sure. Because I am not a risk taker just like you
actually no , if you are not buying individual issues but using funds nothing could be easier today.
my 80 year old aunts are totally clueless. but all they do is subscribe to the same fidelity insight newsletter I do . once a week they read a 10 second update and make a fund swap on occasion.
the internet is filled with are 2 or 3 fund couch potato portfolio's anyone can use and get excellent results with just yearly rebalancing.
tax planning can be complex and retirement planning can require lots of knowledge and guidance but today investing in simple couch potato portfolio's couldn't be easier.
Yup, even a three index fund portfolio or a quality low cost balanced fund
Responding to the OP's original question: We may also be in that same boat. I desperately do not want a house payment. We hope to build our own.
But I wonder what you're doing about your future healthcare needs? If one of you needs assisted living or rehab or long term care?
I'd want enough liquidity so I don't have to sell the damn house to pay for it.
They seem to be able to afford insurance. There is insurance for long term care, rehab, etc., to the extent that Medicare doesnt' cover it. It's probably pricey, but they can afford it, sounds like.
No, you don't. You need some basic knowledge of general investment concepts so that you understand that the best way for the novice investor to have success is to have a diversified portfolio using mutual funds. Then you need to do some "research" (C-D Economics forum offers some good advice) to decide on which ones to invest in. If you want some "hands on" guidance, hire a fee for service investment adviser.
Millions of people who have 401k and 403b retirement accounts have been doing this for decades, and most of us don't know all that much about individual stocks or bonds -- or are that interested in investing to build any great knowledge "bank".
This is true, Linda. With basic knowledge, and some good advice from someone knowledgeable (whether a fee-based consultation or a friend who is known to be a successful investor), the OP could buy 2 to 4 mutual funds and let 'em ride for years.
Mutual funds changed the investment world, IMO. Lay persons can invest small sums of money into a cheap fund (low expense ratio), and thereby buy into multiple stocks that that fund owns. Less risky than buying individual stocks.
The OP might be well served by a conservative allocation fund, for example. It seeks to preserve capital, and it has half of its holdngs in fixed income like bonds, and the other half in blue chip stocks. So whether the market is bull or bear, the fund should chug along, relatively safe, but make money over the long haul, and most importantly, keep your initial investment relatively intact.
The sorts of funds where you can buy them and sleep at night.
Stocks are sky high right now, so if you invest in stocks you might get stuck buying high and selling low. If you can plan 20 years out, buying value stocks (good dividends) that allow you to reinvest dividends broker-free, they will build good value over time.
Long term US bonds are a guaranteed loser right now. First, they aren't paying much. When the Fed raises interest rates, which they are virtually guaranteed to do in the next year, the resale value of the bonds will drop. You will be stuck with either very low return or selling for a loss. Short term, high interest rate industrial bonds will give a better return. If you invest in a short term bond fund, your risk will be minimal.
Another option is offshore funds. The dollar is sailing high right now, which means that offshore investments are a bargain. Don't be spooked by 6 month and 1 year returns; their dollar value has taken a bath because of currency exchange rates. When the dollar drops again (and it will) the returns will recover. There are both international stock and bond funds. International bonds generally pay higher interest rates than US bonds.
Real estate remains a very solid investment in most US markets. If you will be able to handle a mortgage on your retirement income, imagine what your lifestyle will be without one. I have been living mortgage-free since 2008, which is about a 10%/year return on my original investment, or 5%/year on the current value. That's worth about $18,000/year tax free. At some point my wife and I will sell and move into assisted living, so the appreciation will provide another big return at that time.
In any case, talk to at least three different investment advisors before you start throwing your money in the street. In my whole life, the only times I ever took a real bath on investments was when I took the advice of "professionals".
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