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Old 03-21-2010, 10:14 AM   #121
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if you can claim ss and still have a note/mortgage, than you have more problems than i'm willing to talk about!...



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Old 03-21-2010, 10:29 AM   #122
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OK, then I won't ask if any remaining monies should be invested passively or actively...........
I'm of SS age (even though I choose not to collect at this time), but I can give you my opinion on your question.

Don't invest at all. At that age, it's spend it on "wine, women, and song" (not necessarily in that order, according to my DW )...
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Old 03-21-2010, 12:00 PM   #123
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There may be more people winding up with early retirement than we realize. There are millions unemployed and many of these jobs may never come back.This could turn into a lifetime annuity as congress will keep extending benefits. If you had a part time job under the table you wouln't have a luxurious lifestyle but it could be a slackers dream. This could explain why they couldn't fill23 dollar an hour census jobs in Boston.
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Old 03-21-2010, 12:32 PM   #124
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Not for me (and my DW). Our home (in retirement) is a lifestyle which we have chosen. Do we need as large a place as we have for just the two of us? Of course not.

But to rent an equal place (2,400sq ft/over an acre of land, an hour west of NYC) would cost us much more in rent, and would be a major impact to our retirement expenses/lifestyle.

Our home is not an investment. It's as simple as that. When we pass, it will have some value and will be liquidated as part of our estate. As to its value at that time? Who cares?
Actually you are making my point. It only cost you "much more" in rent because you don't see what you pay in opportunity costs. Think of owning a million dollar gold brick. It costs you the foregone interest on a million dollars every year. A million dollar house costs your the same thing and you have to pay taxes and upkeep. You also have no liquidity, which can cost you money.

In a more or less efficient marketplace the long term costs of owning and renting property are the same. We do distort the marketplace with tax benefits for home loans, but few retired people get that benefit.

A home is ALWAYS an investment, income and consumption all at one time so calculations are complicated. In general however the lower your tax bracket the less value there is in the various tax benefits and the lower total return you get on owning a home.
Spending 25% of your total income on housing is reasonable, whether you own or rent your home.

All that being said, I own my home. I've done the calculations and its total cost is 26% of my expected retirement income. (My wife is still working) I have sufficient liquidity without the home. So its rational for me. But that does nto make it automatically rational for everyone.
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Old 03-22-2010, 06:52 PM   #125
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VB:

While you are strictly correct, many take the position that a paid off house gives great peace of mind and hence keep it paid off rather than borrow against the equity.

A year or two back we there was quite a bit of discussion about a paid off house versus investing the money in equities. The gist was that long term equity gains beat out mortgage rates.

What many fail to appreciate is the risk normalized returns on either a paid off house or in equity investments. The house being the low risk approach and equities being considerably higher. That concept was lost on many a few years ago. It should be painfully obvious to most people now.

You mention foregone opportunity cost interest. Where in the world can you get rates of return anywhere near what your mortgage rate is by drawing interest ?
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Old 03-22-2010, 07:09 PM   #126
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VB:
..... Where in the world can you get rates of return anywhere near what your mortgage rate is by drawing interest ?
*cough*PenFed*cough* Three years ago PenFed CDs were paying 6.25% and I was paying them 4.99% on our house. Now paying them 3.875% on the house while the CDs signed up for in December pay 3.99%. Advantage is the cash is sitting there ready for our use in case of dire immediate need or great investment opportunity. But yes, that's rare, PenFed, and pure luck here.
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Old 03-22-2010, 07:27 PM   #127
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I'm a firm believer in the maxim "Retirement and debt don't mix". This would be the accepted wisdom where I come from.
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Old 03-22-2010, 07:36 PM   #128
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I'm a firm believer in the maxim "Retirement and debt don't mix". This would be the accepted wisdom where I come from.
I was brought up on "Neither a borrower nor a lender be", but had to borrow anyway. Never liked it, and now that I am debt free I really appreciate the simplicity of my personal finances.
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Old 03-22-2010, 07:38 PM   #129
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VB:
...

What many fail to appreciate is the risk normalized returns on either a paid off house or in equity investments. The house being the low risk approach and equities being considerably higher. That concept was lost on many a few years ago. It should be painfully obvious to most people now.

You mention foregone opportunity cost interest. Where in the world can you get rates of return anywhere near what your mortgage rate is by drawing interest ?
I'll sidestep the pay it off or not debate, but - if one really believes that long term investment returns will not exceed current mortgage rates, they might want to do some adjustments to their WR. 5% minus 3% inflation leaves only 2% WR, less after accounting some for for the volatility.

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Old 03-22-2010, 07:41 PM   #130
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Ok...now I've got it....PenFed (cough)...Wellesley (Pssst).....
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Old 03-22-2010, 07:53 PM   #131
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I'll sidestep the pay it off or not debate, but - if one really believes that long term investment returns will not exceed current mortgage rates, they might want to do some adjustments to their WR. 5% minus 3% inflation leaves only 2% WR, less after accounting some for for the volatility.

-ERD50
I didn't say what you posted - you have twisted my words.

What I said was that paying off the mortgage is low risk. Investing in equities is considerably higher risk. Therefore to compare results (long term, short term or otherwise) one need adjust the returns by the risk factor. That should be painfully obvious post bubble.
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Old 03-22-2010, 08:01 PM   #132
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I didn't say what you posted - you have twisted my words.

What I said was that paying off the mortgage is low risk. Investing in equities is considerably higher risk. Therefore to compare results (long term, short term or otherwise) one need adjust the returns by the risk factor. That should be painfully obvious post bubble.
sorry - didn't mean to twist your words. I was just using that comment as a springboard to what I posted.


Maybe we are just looking at different angles of the thing. All I said was that *if* one is thinking that long term returns are going to be very low, they probably want to cut back their spending, independent of a mortgage, no mortgage, half a mortgage or anything else.

I don't know for sure, but I think that those long runs of inflation and flat markets int he 70's were worse for a retirement portfolio than the recent bubbles, but I could be wrong about that.


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Old 03-22-2010, 08:34 PM   #133
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Gosh its a long time ago but I actually wrote an article on this subject

.Housing for Moderate Income Households. Authors.Brannigan, Vincent M.; Meeks, Carol B. Descriptors:T.Consumer Economics; Homeowners; Investment; Maintenance; Middle Income Housing

Abstract:A brief narrative description of the journal article, document, or resource.Describes equity leasing, a program that enables people to acquire housing without an up-front investment but with an incentive to maintain and improve the property. Under this proposal, lessees would acquire a leasehold interest in a house and own the right to use the property for a continuously extended lease term. (JOW)

The entity from which ERIC acquires the content, including journal, organization, and conference names, or by means of online submission from the author.
Advancing the Consumer Interest, v3 n1 p5-9 1991
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Old 03-23-2010, 09:17 AM   #134
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She's going to direct her own investments at 8? Brew, you're really slacking. I was thinking 7 and the CFA by 6.
She is distracted by her art career.
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Old 03-23-2010, 12:01 PM   #135
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Another perspective on "the number."

Even brings up the dreaded "annuity" word.
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Old 03-23-2010, 12:08 PM   #136
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Why is "annuity" dreaded? Social security and all defined benefit pensions are annuities.
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Old 03-23-2010, 12:35 PM   #137
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Maybe "dreaded" isn't the best word but annuities have been the subject of some contentious discussions here.

The Forbes column says to annuitize $2 million and then buy life insurance with the excess payments above a typical 4-5% withdraw on a $2 million portfolio to leave money to heirs. That suggestion may raise hackles.
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Old 03-23-2010, 12:36 PM   #138
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Why is "annuity" dreaded? Social security and all defined benefit pensions are annuities.
Yes, works for me (I've had an SPIA for the past three years, in retirement).

Disclaimer: Not all annuities are the same, nor even the "good one's" should be used without proper planning...
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