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Re: Expenses, SWR, and Holy Sh&%#t
Old 05-17-2006, 10:48 AM   #41
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Re: Expenses, SWR, and Holy Sh&%#t

Hmmm - one has to expect a few minor surprises in retirement and adjust accordingly.

Sump pump failed last night after relocating washer/dryer to the basement from upstairs.

Let's see - in the last year: wiped out by Katrina/relocated 1000 North, bought a house/mortgage instead renting(1st preference), bought an SUV with payments, two unexpected deaths(SO and Mom) and remodeling is turning into a self eating watermelon.

Did take a cruise in Feb.

Have yet to gain a mental sense of control over expenses up here - but that will happen.

'Agile, mobile, and hostile' - Bear Bryant.

Holy What! - heh heh heh heh heh - Rock up and party on - have a plan and adjust as reguired. 13 year of ER was different than I originally scoped out - but life happens.
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Re: Expenses, SWR, and Holy Sh&%#t
Old 05-17-2006, 11:19 AM   #42
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Re: Expenses, SWR, and Holy Sh&%#t

Quote:
Originally Posted by tryan
This is the heart ache I have with all the retirement calculators. *Hurts because we're ~75% investment property. *Makes the SWR game a little harder.
Just put the real positive cash flow in FIRECalc like you would a pension until you are ready to get out of the real estate business and then add the after tax equity figure to your portfolio (there is also a place to do that in FIRECalc).
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Re: Expenses, SWR, and Holy Sh&%#t
Old 05-17-2006, 11:23 AM   #43
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Re: Expenses, SWR, and Holy Sh&%#t

Quote:
Originally Posted by doushioukanaa
To be more specific, it may make sense to keep the loan if the "spread" between the return you get putting the money to work versus the after tax cost of the loan is high enough *
"The return you get putting the money to work" also needs to be after tax.
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Re: Expenses, SWR, and Holy Sh&%#t
Old 05-17-2006, 11:43 AM   #44
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Re: Expenses, SWR, and Holy Sh&%#t

Yep a lot of people miss that too, and its different for an accumulator than for an ER.

To get the tax break, you first have to withdraw the money from your investments, and pay taxes on that.

Nice if you're getting a deduction on your 33% taxed income while paying 15% capital gains.

Kinda worthless if you're taking a withdrawal as ordinary income to pay the mortgage, that puts you in a higher tax bracket, then you get the tax break to bring the scenario to neutral.

If you're still working, accumulating, and paying a third or more of your income in taxes...then you're already creating the money...deploying it to a mortgage and getting the tax break is a good thing. Makes sense.

Lighting something on fire, then putting it out, and then praising your firefighting skills is an interesting activity...
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Re: Expenses, SWR, and Holy Sh&%#t
Old 05-17-2006, 12:44 PM   #45
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Re: Expenses, SWR, and Holy Sh&%#t

For the most part I think having a mortgage (or any leverage) in ER is a bad idea. As CFB says, it's not just a matter of subtracting the interest you can get from the interest you pay. You have to look long and hard at how the leverage can bust you when the going gets tough. That's the real cost, and it is steep.

I have a mortgage in ER because I don't consider myself really in ER There is a relatively high likelihood that I'll go back to work full time or part time in a year or two, and the income can then pay the mortgage. If I'm still ER in 2008 when my ARM adjusts up from the 3.75% I'm now paying, I'll probably pay the loan off.
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Re: Expenses, SWR, and Holy Sh&%#t
Old 05-17-2006, 12:59 PM   #46
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Re: Expenses, SWR, and Holy Sh&%#t

Quote:
Originally Posted by free4now
For the most part I think having a mortgage (or any leverage) in ER is a bad idea. As CFB says, it's not just a matter of subtracting the interest you can get from the interest you pay. You have to look long and hard at how the leverage can bust you when the going gets tough. That's the real cost, and it is steep.
My DW pointed out something else: we intend to sock away the prior mtg payments into our savings. However, we now have the ability to skip that for a given time if higher priorities or necessities arise. With the mortgage payment, that was not an option -- it was like paying the rent, or get into a HELOC which defeats the whole pupose. Newfound flexibility.
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Re: Expenses, SWR, and Holy Sh&%#t
Old 05-17-2006, 03:02 PM   #47
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Re: Expenses, SWR, and Holy Sh&%#t

Fun with a paid-off house plus hindsight:

Let's suppose that I retired in the year 2000, just in time to enjoy a decline in the S&P 500 from about 1400 down to ~900 by 2003. Very scary, but I'm not worried because (hypothetically) I have a paid off house plus the benefit of hindsight!

In the bleakest days of January 2003, I decide that its time to take action. I take out a $100k mortgage on my house, and go get a part-time job paying $7.50 per hour for 17 hours a week. Meanwhile, I invest my $100k into an S&P500 index fund (valued at 900).

Two years later, Jan 2005, I decide I've had enough of my part-time gig. I sell my S&P 500 index fund (now valued at 1200) and pay off the mortgage. After paying long-term capital gains, I get to keep $31k.

...so I got paid about $17 per hour to work at the quik-e-mart!
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Re: Expenses, SWR, and Holy Sh&%#t
Old 05-17-2006, 03:39 PM   #48
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Re: Expenses, SWR, and Holy Sh&%#t

sorry, slepyhed, I don't see why you would want to add two years at 7-11 to your resume to come out with 31k, when you could sit home and still come out with about 24k.

Only invest 90k of the 100k mortgage in the index fund, and just pay the monthly payments out of the extra 10 grand, plus a little early selling off in the second year.

Get paid $13.57 per hour to not work at the qwik-e-mart!

There's probably some money to be made somewhere selling people on your Hindsight Investing Seminars, as long as you keep that talk about min. wage employment out of it...
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