Mortgage/Retirement question

[DeereClone]

There are still a ton of A share (i.e....front loaded) funds sold out there. This is how most commission based financial "advisors" get paid....and there are a lot of them out there selling to people that simply have no interest or desire to manage their own money.

I paid a 6% front load commission to open a non-retirement brokerage/mutual fund account with an "adviser” when I was fresh out of college. It was insanely stupid because I needed to earn a 6% ROI just to cover the commission paid. And the worst of it was all the guy did was pick a target date retirement fund. It was a great lesson learned, and I quickly did some learning on my own and opened an account with Vanguard.

No one will ever care about your money as much as you do.

 

[SayMyName]

What do you mean by "retirement loans"?

He's saying you can't walk down to the local bank and finance your retirement like you can for a house, car, etc. Which is to say, if you lock up your assets in non-liquid (or close to it) financial instruments, you can't easily access it without a lot of cost or collateral or headache or ...

 

[capitalcityguy]

He's saying you can't walk down to the local bank and finance your retirement like you can for a house, car, etc. Which is to say, if you lock up your assets in non-liquid (or close to it) financial instruments, you can't easily access it without a lot of cost or collateral or headache or ...

Oh...I see now. I was being thickheaded. Thx for the explanation.

I never meant to suggest paying off your mortgage early at the expense of saving for retirement. You need to do both. I'm more strongly suggesting that the old conventional "wisdom" (which I once held too) suggesting stretching out and leveraging yourself using cheaply borrowed money may not be a wise move heading into the future...for reasons I stated a page or two back.

 

[ArgentCy]

Write a fiction novel about how the stock market had a 20 year equities dip while commodities ruled the day.

Live off of the movie and TV rights. Retire in the Hollywood Hills.

Here is a long term chart of the Nikkei. Please note the high was in 1989. It did not hit a low until 2002 (13 years) but was only just above that low as late as 2011 (hmm my math indicates that is 22 years.

 

[Dopey]

What do you mean by "retirement loans"? Assuming you mean taking a loan from your 401k, the rates are set by the plan administrator and must be "reasonable". I think a lot of plans just use a simple formula like prime + 3% (or similar).

Regardless, I would never recommend someone take a loan from their retirement plan. Never. First off you are taking money out of the market. Secondly, you are going to be subject to double taxation on the interest you pay on the loan.

I was joking. Meaning retirement loans don’t exist. So even though I hate debt, it makes total sense to me to prioritize retirement saving over paying down a fixed, reasonable rate loan.

If you don’t save enough for retirement, you’re screwed. And that’s that.

 

[Bobber]

O.P. 2.875% is cheap money and statistically the stock market will beat that return hands down most years. Seems like a no brainer to me you should not pay off.

That said, bought my last house back in 2008 and I elected to pay my 30 year note down about $20,000 the first year which saved me a $100,000 in interest according to the amortization table I had. No regrets about doing that and still maxed out my 401 K that year which was a great move in hindsight. My rate was about 4% so most "experts" would have said don't do what I did.

All you doom and gloom people need to take a close look at history and realize problems have been around forever. As one Texas A & M economist I heard a few years ago said, the world economy is a mess, but the USA is still the prettiest pig in the pen!

 

[KnappShack]

Here is a long term chart of the Nikkei. Please note the high was in 1989. It did not hit a low until 2002 (13 years) but was only just above that low as late as 2011 (hmm my math indicates that is 22 years.

**** Japan.

America First

 

[capitalcityguy]

All you doom and gloom people need to take a close look at history and realize problems have been around forever. As one Texas A & M economist I heard a few years ago said, the world economy is a mess, but the USA is still the prettiest pig in the pen!

I'd respectfully suggest you take your own advice. We have no historical precedent to rely on when it comes to to debt obligations our country, states, and cities find themselves in today....let alone in the upcoming yrs. None.

While this doesn't predict anything for sure, it is ignorant to suggest we've been here before. We haven't. Period.

At least do some research and acknowledge this fact. If that doesn't scare you away, then continue carrying debt like our parents did....because it worked for them. At least you be making a decision with your eyes wide open vs too many on here are relying on the advice that good ole Uncle Bob keeps parroting.

 

[ArgentCy]

**** Japan.

America First

It will happen here after whatever the market peak's at this time. Book it.

 

[BCClone]

I'd respectfully suggest you take your own advice. We have no historical precedent to rely on when it comes to to debt obligations our country, states, and cities find themselves in today....let alone in the upcoming yrs. None.

While this doesn't predict anything for sure, it is ignorant to suggest we've been here before. We haven't. Period.

At least do some research and acknowledge this fact. If that doesn't scare you away, then continue carrying debt like our parents did....because it worked for them. At least you be making a decision with your eyes wide open vs too many on here are relying on the advice that good ole Uncle Bob keeps parroting.

The precedent we do have is the 80s farm crisis. A different sector but something to very much learn from.

 

[nfrine]

**** Japan.

America First

Donald? Is that you?

 

[capitalcityguy]

The precedent we do have is the 80s farm crisis. A different sector but something to very much learn from.

Way too narrow for the reason you just mentioned. It is one sector of the economy.

Pensions, infrastructure, promises made for entitlement programs, etc.....those are widespread obligations and potential breakdowns that are obligations that affect multiple levels of gov't...which then spills into the private sector.

 

[BCClone]

Way too narrow for the reason you just mentioned. It is one sector of the economy.

Pensions, infrastructure, promises made for entitlement programs, etc.....those are widespread obligations and potential breakdowns that are obligations that affect multiple levels of gov't...which then spills into the private sector.

Are you talking market issues or government issues? I think I may not have read enough. Basically what you are describing are reasons to be diversified, if not solely out, but even economically outside the US. My wife is a teacher, very few are 100% relying on their pensions. I’m 46, and most people I know my age believe SS will be a shell of what it is and whatever they get will just be extra.

The other thing I’m getting from you is that maybe large cities aren’t the greatest. The small towns around me that have decided that being a bedroom community is fine seem to be handling what they need. New sewers and water systems being installed, streets may be slightly behind but X amount being replaced annually. Guess I don’t so the hunger games hitting us in the more rural areas.

 

[capitalcityguy]

Are you talking market issues or government issues? I think I may not have read enough. Basically what you are describing are reasons to be diversified, if not solely out, but even economically outside the US. My wife is a teacher, very few are 100% relying on their pensions. I’m 46, and most people I know my age believe SS will be a shell of what it is and whatever they get will just be extra.

The other thing I’m getting from you is that maybe large cities aren’t the greatest. The small towns around me that have decided that being a bedroom community is fine seem to be handling what they need. New sewers and water systems being installed, streets may be slightly behind but X amount being replaced annually. Guess I don’t so the hunger games hitting us in the more rural areas.

Don’t sweat it …hardly anyone is talking about this stuff….which is the problem.

I’m talking government realities that can’t help but affect everything – home prices, equity/bond markets, inflation, etc. etc.

Pensions – I’m talking about realities that public pensions, thus funded by different levels of gov’t, are not funded adequately. There will be a day of reckoning.

Cities of all sizes are at risk…especially the bedroom communities as they tend to be built mostly in a post WWII development pattern – very spread out. This means more miles of streets, pipes, curbs, etc. etc. with fewer rooftop per mile to generate proper revenue as these things start to need to be replace in their 2nd and 3rd life cycles. A lot of what we look around today and view as shiny and new, is actually some of the most at risk in the future.

https://www.strongtowns.org/journal/2017/8/17/the-illusion-of-wealth

 

[AuH2O]

I'd respectfully suggest you take your own advice. We have no historical precedent to rely on when it comes to to debt obligations our country, states, and cities find themselves in today....let alone in the upcoming yrs. None.

While this doesn't predict anything for sure, it is ignorant to suggest we've been here before. We haven't. Period.

At least do some research and acknowledge this fact. If that doesn't scare you away, then continue carrying debt like our parents did....because it worked for them. At least you be making a decision with your eyes wide open vs too many on here are relying on the advice that good ole Uncle Bob keeps parroting.

First, I'd argue that there are too many dynamic factors in the US or world economy to ever have much precedent in the macro sense. Are we in unprecedented economic times, yes. But I'd argue we are ALWAYS in unprecedented times.

Second, if you look at usgovernmentdebt.us and look at state and local debt as a percent of state gross product, you'll see that on average it hasn't really changed much over decades. There are some states and cities with high profile failures, but those are a handful of exceptions. Data shows that the narrative that there is some widespread insolvency problem among states and cities is simply false. As a whole states and cities are in the same debt to revenue situation they have been in for decades.

Third, like always, economic data is largely a mixed bag. It's easy to focus on the negative and unknowns, but unemployment is super low and US households' debt burden is the lowest it has been since 2002. Those two factors provide a good buffer to a catastrophic economic downturn in the US. Yes, stocks are expensive per most pricing ratios. And, yes, trade war or Turkey issues could escalate beyond what's priced into the market. Still, we've been "due for a correction" since the DJIA climbed to 14,000.

With that said, after maxing out my 401k to the personal contribution I have shifted more toward paying off my mortgage and less toward after tax investments. I also like to keep a fair amount of cash on hand. So I can buy in increments of drops in the market.

 

[Beyerball]

It has been an unprecedented 10 year run..this market is over due for a serious correction. The housing crash and banking crash of 2007-08 is arguably even worse now. Nothing was fixed lol.

Best thing to do is diversify..

I’m 48 and can not afford another 40% correction..no way. I’ll take my 4-5% return and call it a day. Nobody can predict the market.

 

[ArgentCy]

I don't know but 48 is still pretty young unless you feel you have a good sized nest egg. A 40% correction doesn't mean much if you don't have to sell at the bottom. In fact, in can and usually is an excellent opportunity to profit if you have some extra cash.

 

[Bobber]

I don't know but 48 is still pretty young unless you feel you have a good sized nest egg. A 40% correction doesn't mean much if you don't have to sell at the bottom. In fact, in can and usually is an excellent opportunity to profit if you have some extra cash.

No doubt. If you use the rule of 72 and use a modest 8% return(what the stock market has averaged over the last 90 year with all it's ups and downs) at 48 $500,000 would turn into $2,000,000 by age 66.

4 to 5% return is okay, but you take out inflation, taxes not much gravy left there..

 

[capitalcityguy]

Second, if you look at usgovernmentdebt.us and look at state and local debt as a percent of state gross product, you'll see that on average it hasn't really changed much over decades. There are some states and cities with high profile failures, but those are a handful of exceptions. Data shows that the narrative that there is some widespread insolvency problem among states and cities is simply false. As a whole states and cities are in the same debt to revenue situation they have been in for decades.

I just grabbed your second point because that is the only one I'm really addressing in terms of why I've personally moved away from defaulting to "conventional wisdom" regarding some of my personal financial decisions. Namely, paying off my mortgage earlier and now, struggling to determine where to invest.

I don't believe you can rely on the data you are probably using to make your conclusion regarding the health of gov't bodies. There are simply too many ways they can and do hide debt and future obligations. Much of it because they can.

Look at Cobb Country, Georgia. They just built the brand new stadium for the Braves. They don't appear to be in financial straits because of how they (and most) report their financials. But peal back the curtains....

https://www.strongtowns.org/journal/2018/8/7/cobb-countys-triple-a-bond-rating-is-a-joke

 

[CascadeClone]

Way too narrow for the reason you just mentioned. It is one sector of the economy.
Pensions, infrastructure, promises made for entitlement programs, etc.....those are widespread obligations and potential breakdowns that are obligations that affect multiple levels of gov't...which then spills into the private sector.

OK, I agree with your concern about the risk of states/cities going bankrupt. Its happening in Illinois now, and if Illinois goes like Greece, I can only imagine what will happen. Maybe New York City in the 70s is a guideline, but I digress...

BUT... even if you don't have debt on your house, you are still not risk-free. You could still lose it if gvmts jack up property taxes a bunch to try and pay for all the problems. It won't all come from income tax, especially on a city/county level. Separately, there is a risk that your nest egg could be devalued down to nothing caused by inflation. In the end, there is only so much you can do to protect yourself from all risks.

And of course, in the long run, we are all dead.