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debt in retirement
Old 11-16-2017, 11:35 AM   #1
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debt in retirement

The Graying of American Debt¬*¬* Liberty Street Economics

"The U.S. population is aging and so are its debts. In this post, we use the New York Fed Consumer Credit Panel, which is based on Equifax credit data, to look at how debt is changing as baby boomers reach retirement age and millennials find their footing. "
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Old 11-16-2017, 12:03 PM   #2
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With low interest rates, it's understandable that folks would increase their debt.

Maybe debt is not the demon of the old days, or people forgot what 18% interest rates looked like.
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Old 11-16-2017, 12:21 PM   #3
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For the first time in several years I have debt.... We bought a new Subaru a few months ago and they offered zero percent financing. How could I turn that down.
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Old 11-16-2017, 12:22 PM   #4
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With low interest rates, it's understandable that folks would increase their debt.

Maybe debt is not the demon of the old days, or people forgot what 18% interest rates looked like.
Debt is leverage, especially at today's rates. I have a car note at 0% interest. Makes no sense to pay that off early. I have a mortgage that I'll probably pay off in a couple years, depending upon TrumpTaxô. I'm mainly holding on to that as a hedge against sequence of returns risk.
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Old 11-16-2017, 12:29 PM   #5
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We've kept a 15 year mortgage that I refinanced into in anticipation of retirement. Principal is slightly less than one year's retirement spending, and fixed rate of 2.75%. (total monthly costs of home, including mtg, are less than 10% of spending this first year out)

Will likely pay it off after we both attain age 59.5, but keeping that "cash" in hand as a safety cushion for the years before was attractive.
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Old 11-16-2017, 12:47 PM   #6
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Nope. No plans to return to the "Debt Side". Before or during retirement.

I don't want to make payments. Even at 0%.

At some point you no longer have to squeeze every drop out of a dollar. I can turn down a 0% car loan quite easily. Same for a 0% furniture loan and paying for my cell phone for 3 years. Or making payments on my new refrigerator. Thanks, but no thanks.
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Old 11-16-2017, 12:49 PM   #7
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I've got 1.4 mil in mortgage debt (loans on my 6 rentals and on my residence). The low rates helped me to ER ahead of when I'd have been able to otherwise.

Could it all go belly up? Sure.
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Old 11-16-2017, 01:30 PM   #8
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For the first time in several years I have debt.... We bought a new Subaru a few months ago and they offered zero percent financing. How could I turn that down.
My Dad bought a late-model used car earlier this year and paid cash. The sales guy moaned that they weren't making any money on the deal; they wanted him to finance it. This same dealership has been running ads where the price of each car isn't even mentioned - only the monthly cost. So ... is 0% financing such a great deal? One way to find out is to first negotiate a cash deal and then compare with a financed deal. My Dad and I are debt-adverse so we probably wouldn't even bother.
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Old 11-16-2017, 01:42 PM   #9
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My Dad bought a late-model used car earlier this year and paid cash. The sales guy moaned that they weren't making any money on the deal; they wanted him to finance it. This same dealership has been running ads where the price of each car isn't even mentioned - only the monthly cost.
One of the things I learned during my (very brief) stint as a car salesman was that the folks who pay cash for cars, especially new ones, are a relative rarity, at least around here. The typical buyer only considers the monthly payment and even the interest rate and term of the loan are minor considerations.

When DW's brother paid off his pickup truck he and "Spendarina" (as I call her here) went out and bought a new car they didn't need and rarely use simply because they can make the payment. So they get a five-figure loan to buy a rapidly depreciating asset that they don't need or use.

I will never understand those types of people.

The folks on this board are definitely outliers when it comes to cars.
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Old 11-16-2017, 01:47 PM   #10
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One of the things I learned during my (very brief) stint as a car salesman was that the folks who pay cash for cars, especially new ones, are a relative rarity, at least around here. The typical buyer only considers the monthly payment and even the interest rate and term of the loan are minor considerations.

When DW's brother paid off his pickup truck he and "Spendarina" (as I call her here) went out and bought a new car they didn't need and rarely use simply because they can make the payment. So they get a five-figure loan to buy a rapidly depreciating asset that they don't need or use.

I will never understand those types of people.

The folks on this board are definitely outliers when it comes to cars.
Wife bought a new car two years ago and I negotiated the best cash deal I could. At the end the dealer offered 0% financing anyway and we said ok, why not? Still couldn't sleep well at night owing money on it and paid it off this fall.
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Old 11-16-2017, 02:05 PM   #11
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Wife and I bought a new car recently for the first time in many decades. I want to go into retirement without having to shop for a car for a long time. 0% financing, and I plan to pay it off in the next 2 years before retiring.
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Old 11-16-2017, 02:10 PM   #12
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I currently have debt in the low six figure range, consisting of three mortgages on professionally managed rental properties. It’s less than 2% of my NW, and falling, as OPM (other people’s money) pays it off. As each mortgage is retired, cash flow is freed up to increase mortgage payments on the next. I have three other properties paid off already. When all the mortgages are paid off, I will have about half a million dollars in equity and a reliable monthly income stream.
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Old 11-16-2017, 02:16 PM   #13
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Wife bought a new car two years ago and I negotiated the best cash deal I could. At the end the dealer offered 0% financing anyway and we said ok, why not? Still couldn't sleep well at night owing money on it and paid it off this fall.
+1 except the last part.... negotiated a good cash out-the-door deal in competition with two other dealers and ordered car.... then dealer offered 1.9% financing and I took it as I'm confident that I'll earn more... still on autopay... sleep like a baby... I think I'm over 15% ahead so far.

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My Dad bought a late-model used car earlier this year and paid cash. The sales guy moaned that they weren't making any money on the deal; they wanted him to finance it. This same dealership has been running ads where the price of each car isn't even mentioned - only the monthly cost. So ... is 0% financing such a great deal? One way to find out is to first negotiate a cash deal and then compare with a financed deal. My Dad and I are debt-adverse so we probably wouldn't even bother.
Sometimes financing can get you a better deal... twice now for me I have reduce my cash out-the-door price by $500 for financing... last one was 5%/year... I made 2 monthly payments and then paid it off. As long as they continue to be stupid about it I'll take advantage of them.

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One of the things I learned during my (very brief) stint as a car salesman was that the folks who pay cash for cars, especially new ones, are a relative rarity, at least around here. ...
About 20 years ago I negotiated a cash deal and we were all agreed and when they went to do the paperwork they were at their wits end as to how to process the deal on their system... I guess that they had not had one of those for a while.
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Old 11-16-2017, 02:33 PM   #14
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We purchased a new car 2 mos. ago and received a $750 incentive for financing it. No minimum monthly payments. The Finance Mgr gave us the number to call to pay it off and we did a couple of days later incurring approx. $50 in finance charges. The easiest $750 I ever made .
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Old 11-16-2017, 02:43 PM   #15
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Wife bought a new car two years ago and I negotiated the best cash deal I could. At the end the dealer offered 0% financing anyway and we said ok, why not? Still couldn't sleep well at night owing money on it and paid it off this fall.



REALLY You cannot stand having free money where you can keep yours in an account and earn interest?

I really cannot understand this aversion to debt that actually cost you money....

I have a mortgage at a bit over 3% and a car loan just under 2% and do not plan on paying off either of them early... that is cheap money.... I can make more than that on my investments and be ahead of the game...
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Old 11-16-2017, 04:16 PM   #16
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Wife bought a new car two years ago and I negotiated the best cash deal I could. At the end the dealer offered 0% financing anyway and we said ok, why not? Still couldn't sleep well at night owing money on it and paid it off this fall.
I can relate to that.

I don't like debt because I feel like that industry causes so much heartache and misery for so many (including my younger self). I know, they are just doing their jobs and hatred is a self destructive emotion. On the other hand, whether or not to go into debt is my choice at this point and not a necessity.

A couple of years ago I did get my first credit card in almost 20 years - - the Amazon Visa card, which I admit that I do enjoy having due to the rewards. I pay it off (in full) on the 15th of every month automatically. But, I suppose if they checked my debt level on the 1st, there would be some there waiting to be paid on the 15th.
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Old 11-16-2017, 04:36 PM   #17
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We purchased a new car 2 mos. ago and received a $750 incentive for financing it. No minimum monthly payments. The Finance Mgr gave us the number to call to pay it off and we did a couple of days later incurring approx. $50 in finance charges. The easiest $750 I ever made .
Since you paid $50 in finance charges, I guess your net profit was $700. Still worth it!
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Old 11-16-2017, 04:41 PM   #18
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Nope. No plans to return to the "Debt Side". Before or during retirement.

I don't want to make payments. Even at 0%.

At some point you no longer have to squeeze every drop out of a dollar. I can turn down a 0% car loan quite easily. Same for a 0% furniture loan and paying for my cell phone for 3 years. Or making payments on my new refrigerator. Thanks, but no thanks.
To me, a 0% car loan is a convenient cash management system. Instead of withdrawing $$$$ from my corporation, increasing my personal income into the next tax bracket, and paying more tax than necessary, I can easily accommodate monthly payments within my existing budget. Seems like sound financial management to me.
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Old 11-16-2017, 04:45 PM   #19
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I had plenty of debt, all deductible, before I retired. On retirement paid it all off. Debt increases your risk and seems to me you should try to reduce your risk in retirement. But if you want to play banker, go for it. Just understand your risks.

Car debt would be insignificant probably.
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Old 11-16-2017, 04:58 PM   #20
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I had plenty of debt, all deductible, before I retired. On retirement paid it all off. Debt increases your risk and seems to me you should try to reduce your risk in retirement. But if you want to play banker, go for it. Just understand your risks.

Car debt would be insignificant probably.
I quite agree. Other than credit card debt, which is always inadvisable, the major risk is that the debt might be called. Thatís why I think itís important to keep debt manageable, as in ďif I had to pay this off in full tomorrow, could I do it without compromising my security?Ē One of the indicators that I measure every year when I do my NW spreadsheet is debt to NW ratio. The highest itís ever been was ~10%. Now itís down to 0.0275 (2.75%). My goal is to decrease it to 0 within 10 years, more likely 6-7 years if interest rates cooperate and rents go up.
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