Home equity not a retirement solution?

[cute fuzzy bunny]

Only 13 more years before you can be an Opinionated Curmudgeon!

 

[justin]

Not living in a bubble area, I'd have to move to a pretty crappy "modest" home and area to reap much benefit from my equity. Of course, I have only around 30% equity, or say $35k (excluding the costs of selling, moving. etc.). I do consider it an asset, in that I own at least some of it, but other than having a relatively nice home in a reasonably nice "hood", and having a 5.5% fixed mrt that should keep my payment low relative to inflation, it's not really an "active" part of my investment portfolio, and surely won't facilitate any step function improvements in my retirement...

I think the whole discussion is almost moot for all the non-bubble dwellers where a reasonably nice house in a reasonably nice neighborhood is $100k-$150k. I figure my house might be 5-10% of my net worth by the time I ER. Not chump change, but not a huge source of funds either. I plan on considering the house as a "back up plan" - either selling it or getting a HELOC.

 

[ESRBob]

TH is too polite to dredge up old news, but "Ted" has a bad connotation around here...

And sorry TH/CFB about your and your wife's names in the book - picked by the editor to provide some sort of diversity in the story examples. I guess we can be grateful she didn't give you a sex change or something -- a few of my friends ended up with those in the book! There was talk about making you a lesbian couple at one point, as I remember...

 

[2B]

There was talk about making you a lesbian couple at one point,  as I remember... 

Maybe they are! CFB may really be a lesbian trapped in a man's body and Mrs. CFB may be a gay man trapped in a woman's body.

 

[Scrooge]

Maybe they are!   CFB may really be a lesbian trapped in a man's body and Mrs. CFB may be a gay man trapped in a woman's body.

Be thankful -- they could have called you guys Adolf and Eva... 

 

[Scrooge]

Unfortunately, when you ask questions of peoples intentions and motivations (prodding the hairball), many people react quite unpleasantly.  The rational, conscious portion of the mind really doesnt like having the subconscious disturbed. ... They usually call you fairly unpleasant names, presume you have some evil intent, or are trying to beat them up.

I am quite painfully familiar with the most basic of these hairballs, Mr. Self-Interest. As a roving consultant (more so in the past), half the time my first day on site looks something like:

"Executive at MidiCorp: Hello, Scrooge, I are very glad to see you! We have seen your resume and checked with MegaCorp Hexen and apparently you were instrumental in turning a similar project around. We can really use your help since our system is having performance, stability and scalability problems. And the worst thing is that we are not sure why. Oh, hi, Bob! Bob, meet Scrooge -- Scrooge, meet Bob. Bob is our project lead and Chief Architect. Scrooge is here to find out what's wrong with the project. If the two of you could get together and find the root cause of our problems, that would be great. Please keep me posted re: your progress."

Not surprisingly, I then have to spend the next 2 days convincing Bob that I am a cute fuzzy bunny at heart and don't threaten him in any way.

A big hairball is someone who "is" their idea.  You challenge the idea and you've challenged the person themselves.  I've run into plenty of those folks.  You become satan himself the moment you point out the gaps in their well thought out plans.

More often than not, the problem is something that we call "ideology" back home 

This is turning into a repeating/recycling discussion.  Many investments are non diversified, volatile and illiquid.  Yet they get no special treatment.

I suspect that we are saying essentially the same thing, i.e. that you primary residence is indeed an asset, but -- like all other assets -- you should carefully consider all implications of owning it: volatility, taxes and tax breaks, liquidity, diversification, etc. The difference is that you emphasize that "it is an asset, darn it!" while I emphasize the implications. Which isn't surprising considering that I am that uber-conservative paranoid type who sits on his pile of cash armed with 512,000 encryption and a flamethrower  Hm, perhaps I should have used Smaug as my user name 

 

[ESRBob]

Scrooge,
I've wanted to ask a self-proclaimed 'paranoid type': do you have online access to your financial accounts? If so, dDo you worry that they will somehow be able to be 'raided' by a phisher or somesuch? I have to admit, sometimes when I log on to Vanguard I wonder if someone will have moved things out from under me sometimes, but I wouldn't ever give up the convenience of online access. Just wondering what your feelings are about all this online banking/brokering stuff... Thx

 

[donheff]

Just wondering what your feelings are about all this online banking/brokering stuff... Thx

That worries me a lot too. I don't care about credit cards since the companies have to deal with that. Even conventional identity theft is just a PITA - they don't generally get anything out of your accounts. But getting hold of your online access -- scary. Other than checking I think my accounts are set to allow buying and selling within the institutions but no external transfers online. I will have to confirm this.

Talk about a black swan event - you wake up one morning and everything you have was transfered to that Prince in Nairobi who sent you the email about the gold he wanted to get out of he country.

 

[Scrooge]

Scrooge,
I've wanted to ask a self-proclaimed 'paranoid type':

Let me clarify that I am primarily "uber-conservative" and "paranoid" in two areas.

First, I am very reluctant to invest my money in anything that is not inflation protected and/or fully backed by the Treasury, i.e. FDIC insured accounts, 4 week bills and equivalents. Back when I was a kid in the 1970s, I was paying entirely too much attention to inflation numbers and I probably got scared for life watching double digit inflation in the US, not to mention the inflation nightmares that were Latin America and Israel. Reading history books (US in 1920, Germany and Russia in the early 1920s, etc) wasn't exactly reassuring either. CFB would call it a "hairball"  but it did prevent me from making the investment mistakes that many people that I know made in the 1990s. As a result, I am borderline FI and they are anything but. Sure, in retrospect I would have done better with a diversified portfolio, but I would have had trouble sleeping at night and you know what they say about that 

Second, I have been very conservative with my career choices, which is why I am making only $100K while my company makes a very handsome profit off me. Another hairball, if you wiil, but I also know people who were much more agressive with their career moves and it worked very well for some and quite poorly for others. Given my conservative predilections, I am fairly happy with having a bird in the hand.

I am not nearly as paranoid about online transactions as some folks out there. I use credit cards online, bank online, etc. Granted, my areas of IT expertise are not in online security, so I may well be underestimating the risks involved.

do you have online access to your financial accounts?

I have online access to TreasuryDirect as well as my online savings/MM accounts with Emigrant and such.

If so, dDo you worry that they will somehow be able to be 'raided' by a phisher or somesuch?

Apparently not enough to stop using them 

 

[TromboneAl]

I've talked about this with Vanguard. While online access to your account is only protected by your user name and password, for someone to transfer your money to different bank account than yours -- one that has a different registration and SSN -- is more difficult or impossible.

IOW, even if they had your user name and password, they could only move your money around, and not get it out. That's my story, and I'm sticking to it.

 

[Scrooge]

IOW, even if they had your user name and password, they could only move your money around, and not get it out.   That's my story, and I'm sticking to it.

It depends on how good they are at identity theft. Suppose they steal your SSN and online passwords, then make a fake ID for "Al Trombone". Then they open a new account at a brick and mortar branch of their local AnyBank in the name of Al Trombone. Then they sign on to your online Emigrant account, add the newly created AnyBank account to your Emigrant account and transfer all your money to it. Then they withdraw that money at the local branch of AnyBank and run for the border.

Difficult? Yes. Impossible? No. Likely? Well, you be the judge 

 

[cute fuzzy bunny]

I think vanguard requires a medallion signature to create a link between your vanguard acct and a bank account that is not in your name.

That should probably finish off most would be hackers

 

[TromboneAl]

And note this policy of Vanguard's:

Extra verification. If you change your address online, we'll send confirmation letters to your old and new address. Similarly, if you change your banking information online, we'll send a letter to your address of record confirming your request. We'll also place a temporary freeze on all redemptions from your account. If you receive a letter confirming a change you did not authorize, contact Vanguard immediately.

 

[REWahoo]

The latest from Money Magazine lists the most overpriced home markets in the US. Here are the top 25:

1. Santa Barbara-Santa Maria CA
2. Naples FL
3. Modesto CA
4. San Diego CA
5. Riverside-San Bernardino CA
6. Stockton CA
7. San Jose CA
8. Sacramento CA
9. Vallejo-Fairfield CA
10. Los Angeles-Anaheim CA
11. Miami-West Palm Beach FL
12. San Francisco-Oakland CA
13. Fresno CA
14. Port St. Lucie-Fort Pierce FL
15. Sarasota-Bradenton FL
16. New York-North New Jersey NY
17. Vero Beach FL
18. Atlantic City NJ
19. Panama City FL
20. Palm Bay-Melbourne FL
21. Bakersfield CA
22. Washington-Arlington DC
23. Reno NV
24. Cape Coral-Fort Myers FL
25. Las Vegas NV

Stating the obvious arguable, "...those [overpriced] markets have much more potential for the kind of steep decline that could be disastrous for homeowners - and the local economy."

 

[Nords]

Hey, Laurence, San Diego is #4 and Hawaii apparently didn't even make the list!

It must be all that extra real estate being created by Kilauea...

 

[runnerr]

Hello, I have saved my entire life living at a much lower standard of living than I had to but that was by choice. At 55, I had the opportunity to leave with a modest package. I built a new house and will be carrying a mortgage of 150,000 once my old house sells now I am at 196,000. I have the money to pay it off but with a low mortgage interest rate, I elect to keep the monies in investments. My figuring is this the house should appreciate and I consider it another way of diversify my assets. I need a place to live so why not a comfortable new home in the country to a less desirable situation. I am not rich but have about 750,000 in investments. Oh yea, I already have 850,000 in equity in the house. The total or value of the house is about 280,000. As mentioned, I figure it is another way of diversifying.

runnerr

 

[dumpster56]

Hello, I have saved my entire life living at a much lower standard of living than I had to but that was by choice. At 55, I had the opportunity to leave with a modest package. I built a new house and will be carrying a mortgage of 150,000 once my old house sells now I am at 196,000. I have the money to pay it off but with a low mortgage interest rate, I elect to keep the monies in investments. My figuring is this the house should appreciate and I consider it another way of diversify my assets. I need a place to live so why not a comfortable new home in the country to a less desirable situation. I am not rich but have about 750,000 in investments. Oh yea, I already have 850,000 in equity in the house. The total or value of the house is about 280,000. As mentioned, I figure it is another way of diversifying.

runnerr

We kinda did the same thing. I am going to be 51 and the state of NJ will give me a fair pension for almost 30 years of teaching.

We sold the big centerhall colonial in NJ in may for what was a ridiculus amount of money. we made over 300,000 in 10 years. We sold at the perfect time. Last week in april before a gazillion homes landed on the market. As I looked at realtor .com this morning and see the same houses still on the market and priced 40 to 70K LOWER than their initial listings I am SO glad we closed a month ago and moved to North Carolina and bought a great house for 300K and have a small 50K mortgage.

I will be retired as of Feb 1,07 and probably will have paid off almost 1/2 of the 50K by that time. Then some part time work and down time in life.

It really is all good.

 

[ESRBob]

Great timing, NewGuy! Congrats on working your plan and hope it all comes out well for you in NC.

TromboneAl - I appreciate your dredging up the fine print on Vanguard's policies about changing account info etc. It all makes sense and it is actually easier now to tick that off my checklist -- one less thing to worry about (not that I was particularly worried, but it did cross my mind more than once)

Now back to the hard stuff: is my kid getting spoiled or coming under the bad influence from other kids at camp who are? (He just hung up on us when we called him at camp and explained that, no, he couldn't stay another 2 weeks because we are all going to see Granny in Fla...) Oh well, this too shall pass, and we'll probably miss it when it does...

 

[dumpster56]

Great timing, NewGuy! Congrats on working your plan and hope it all comes out well for you in NC.

TromboneAl - I appreciate your dredging up the fine print on Vanguard's policies about changing account info etc. It all makes sense and it is actually easier now to tick that off my checklist -- one less thing to worry about (not that I was particularly worried, but it did cross my mind more than once)

Now back to the hard stuff: is my kid getting spoiled or coming under the bad influence from other kids at camp who are? (He just hung up on us when we called him at camp and explained that, no, he couldn't stay another 2 weeks because we are all going to see Granny in Fla...) Oh well, this too shall pass, and we'll probably miss it when it does...

He wants to stay another 2 weeks? LET HIM!!

Enjoy your free time!

Then again, Hummm, who are those friends he has made?

 

[Nords]

Now back to the hard stuff:  is my kid getting spoiled or coming under the bad influence from other kids at camp who are?  (He just hung up on us when we called him at camp and explained that, no, he couldn't stay another 2 weeks because we are all going to see Granny in Fla...)  Oh well, this too shall pass, and we'll probably miss it when it does...

Eh, if Granny is OK about not seeing him for a while then let her devote all her spoiling attention to your other kid.  The camper will really regret "his" decision when he sees what he's missed...

 

[2B]

I think vanguard requires a medallion signature to create a link between your vanguard acct and a bank account that is not in your name.

Vanguard accepted a medallion signature/POA for my DW to open a brokerage / mutual fund account.  This was a life saver for my inlaws finances.  I had approached several financial insitutions but they had said they wouldn't open a new account with a POA.  They might be sorry when my IL's house sells.

The financial institutions that my FIL had already opened accounts with that would accept the POA were a "full service" brokerage and annuity companies.

I want to thank Nords for the suggestion to try Vanguard.  I was becoming extremely frustrated.

 

[ESRBob]

2B,
Vanguard seems to have good DNA when it comes to thinking of clients not only for their own money and accounts, but also for their role in accounts of other family members. We've had a host of good experiences with Vanguard helping me supervise my Mom and Dad's funds-- moving them over in various stages initially, then whenever we make trades, getting access to statements etc. All very smooth. Not sure how other companies are on this type of thing.

Speaking of Granny -- I know she wants to see both kids, so our camper is coming home more or less on schedule. He was incredibly well-behaved on the phone last night, so it looks like the temper-episode was an isolated incident. No worries now, and assuming he doesn't start borrowing the keys to the car or somesuch, he'll get to go the full 4 weeks next summer... Between school, soccer, tennis, camp etc there seem to be only a few windows each year to actually go visit grandparents.