debt in retirement

[BeachOrCity]

Quote:

Originally Posted by l8_apex 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.

Leverage on an investment property is really a different category than personal debt, even if you are personally liable. Buying income real estate with sensible debt juices returns with minimal additional risk.

[flyingaway]

Quote:

Originally Posted by rodi 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.

I didn't want to spend time on paying a monthly bill, even the interest is zero.

[Meadbh]

Quote:

Originally Posted by BeachOrCity Leverage on an investment property is really a different category than personal debt, even if you are personally liable. Buying income real estate with sensible debt juices returns with minimal additional risk.

.......assuming it’s a good investment in the first place!

[MarieIG]

I just prefer not to have debt going into retirement. Basically, debt makes me uncomfortable, like an itch that needs to be scratched. I pay off my credit card immediately, in that I get impatient for the change to post so that I can pay it. So, while I can understand intellectually that a zero interest rate can allow investments to grow, emotionally, it doesn't work for me. Well, I am also not lusting after a new car either. DH on the other hand

[Katsmeow]

Quote:

Originally Posted by flyingaway I didn't want to spend time on paying a monthly bill, even the interest is zero.

We have a mortgage at a low rate and there is no time spent on paying it. It is automatically paid on the first of the month. We don't currently have a car loan. But the last care we got, if we paid cash for it we had to take money out of the IRA and that year we were in a higher tax bracket than we would be in future years. So, it just didn't make sense to pay cash for the car (almost all of our money is in tax deferred accounts). We paid on the very low cost loan for a couple of years and then paid off the loan. We ended up being ahead due to the lower income taxes we paid doing it that way. Again, there was no time involved in doing this. The transaction was set up to automatically make the payment each month.

[jollystomper]

I can manage debt at low interest rates as a low percentage of my assets. 4 years ago we replaced our cars with newer used cars and financed them at 1.95% The amount borrowed was less that 1.5% of cash+investments and The total interest cost was well below the return I could get on the money, even if I used the full term of the loans. One is already paid off early and the other will be soon.

We still have a mortgage but at 2.875% with a very low monthly payment and a balance that I could pay instantly if we needed to, I am fine with it.

Credit card debt is a different matter, at those rates we always pay them off every month.

Generally speaking, the more assets you have, usually you can handle debt... of course, you probably built up those assets by avoiding debt in the first place, so it is kind of a catch-22.

[Texas Proud]

Quote:

Originally Posted by flyingaway I didn't want to spend time on paying a monthly bill, even the interest is zero.

Neither do I....

Which is why I set autopay for 179 payments for my mortgage and 60 payments for my car... took me a few minutes one month and I am done....

[Scuba]

Quote:

Originally Posted by jollystomper I can manage debt at low interest rates as a low percentage of my assets. 4 years ago we replaced our cars with newer used cars and financed them at 1.95% The amount borrowed was less that 1.5% of cash+investments and The total interest cost was well below the return I could get on the money, even if I used the full term of the loans. One is already paid off early and the other will be soon. We still have a mortgage but at 2.875% with a very low monthly payment and a balance that I could pay instantly if we needed to, I am fine with it. Credit card debt is a different matter, at those rates we always pay them off every month. Generally speaking, the more assets you have, usually you can handle debt... of course, you probably built up those assets by avoiding debt in the first place, so it is kind of a catch-22.

+1
I like using OPM at attractive rates. We have a 3.375% fixed rate mortgage, a variable rate HELOC currently at 3.99%, and one zero % credit card with a balance on it. The sum of all debt is about 10% of our financial asset value (i.e. excluding home equity). We have over 50% of our assets in a taxable portfolio so all of our debt could be paid off in full within a few days if need be. I sleep just fine at night and have no intention of paying off the mortgage early. If the HELOC rate goes up a point or two, we probably will pay that off. As for the zero % card, it will be paid in full well before the expiration of the promotional period, but another will probably follow. If I can use OPM at zero cost to me, it's not logical to me to turn that down. I'm not one to buy any more than I otherwise would just because I have a 0% card; I just appreciate using OPM so I can keep a little more cash invested.

YMMV. No one size fits all answer.

[DrRoy]

Quote:

Originally Posted by rodi 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.

0% for a car and past mortgages are the only debt I have ever had. None now.

[traineeinvestor]

Still carrying mortgages on our home and our investment properties + recently took out a margin facility to finance some new investments. Interest rates are below the yields on available investments so I'm happy with a positive carry. Total debt is less than 10% of total household assets.

[pj.mask]

Quote:

Originally Posted by Meadbh 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...

100k/2%=$5billion dollars NW!

It’s hard to accumulate debt if you don’t spend much. For major purchases - car and house - I am in favor of financing when it makes sense. Finances 18k on my car for 0%/36mo stock market went up quite well those years. As mentioned just set auto pay to number of payments but even if I cut a check - as I’m going to monthly statements, adding one more only adds 1-2 minutes a month.

[iloveyoga]

Quote:

Originally Posted by MarieIG I just prefer not to have debt going into retirement. Basically, debt makes me uncomfortable, like an itch that needs to be scratched. I pay off my credit card immediately, in that I get impatient for the change to post so that I can pay it. So, while I can understand intellectually that a zero interest rate can allow investments to grow, emotionally, it doesn't work for me. Well, I am also not lusting after a new car either. DH on the other hand

Well said +1. No debt for me either, keeps things simple. Plus even at 0% you still owe the principal amount.

[audreyh1]

I live in a 55+ community. Most folks here are 65+ and retired. Many, if not most new houses built close with a mortgage. I know because there are often closing delays due to bank financing.

It surprised me at first.

Sure, if someone offered me very cheap financing for something I was planning to buy anyway and it didn't increase the price, I'd take it. If your NW far exceeds your loans I don't see the big deal.

[pb4uski]

Quote:

Originally Posted by pj.mask 100k/2%=$5billion dollars NW!...

Need to replace your calculator.

$100,000 * 50 = $5,000,000.... that is $5 million, not $5 billion.

[Andre1969]

Quote:

Originally Posted by audreyh1 I live in a 55+ community. Most folks here are 65+ and retired. Many, if not most new houses built close with a mortgage. I know because there are often closing delays due to bank financing. It surprised me at first. Sure, if someone offered me very cheap financing for something I was planning to buy anyway and it didn't increase the price, I'd take it. If your NW far exceeds your loans I don't see the big deal.

I have a friend whose Mom retired from the federal government a few years ago, and moved to a 55+ community. The only problem is, she moved into somewhat ritzy one, and actually upsized in price! She had been living in a nice 4br colonial on about a quarter acre, and she was of the perception that it was getting to be too much house for her. But, she sold it for $535K, and the one she bought was something like $620K! And overall,it's probably not all that much smaller. it's all on one level, but it has a huge footprint, and a finished basement, so it's not exactly cozy. I have a feeling her utilities were a lot more than she bargained for. And then to top it off, the HOA fee doubled in 2017, from something like $100/mo to $200. And that, apparently, was the straw that broke the camel's back. She's had to go back to work part time, and still having trouble making ends meet. And now, she's thinking of selling, even at a loss, to get into something cheaper.

The sad thing is, she only paid $255K for the previous house back in 1997, so you'd think she'd be in good financial shape by now. But, she did go through a bad divorce in that timeframe, and, since she had possession of the house, I'm guessing she had to buy out the ex-husband's half?

Interestingly, about 2 years ago, I looked at homes in this same 55+ community, just out of curiosity. I was only 45 at the time, but the agent told me there were ways I could get into that community, if I wanted. All I'd have to do is get someone listed as a resident, who was at least 55 years of age. So, I could buy the thing, move my uncle in, who's 65, have it listed as his residence (but not as an owner) and I'd still be able to live in it.

And, I'll admit, the houses were really nice. Right now, I really want something with a big yard that's quiet and secluded, with enough room to play with my antique cars. But, when I get to the point that I'm too old to keep up with all that, I could see the appeal of one of these 55+ homes. But, I'm looking at my friend's Mom as a cautionary tale...not just on the 55+ homes, but on making financial mistakes, retiring before I'm really ready, etc. FWIW, she wasn't an early retiree; I think she was around 65 when she did retire...but she really wasn't ready, financially. Although maybe, if she had stayed in her existing home a bit longer, she would have been.

[pb4uski]

Quote:

Originally Posted by Texas Proud Neither do I.... Which is why I set autopay for 179 payments for my mortgage and 60 payments for my car... took me a few minutes one month and I am done....

+1 And an automatic recurring entry in Quicken records it for me wit no effort on my part.

And it has been quite lucrative. Took out mortgage in January 2012 for $215k and it is now $145k, so average balance has been $180k. Since January 2012, my portfolio return has been ~6.6% and my mortgage cost is 3.375% so the spread is 3.23% so I'm ahead by ~$5,800/year.... $34,000 since inception. Not chump change!

[Mdlerth]

Not RE yet, but in retirement I expect to use credit cards for everything (food, gas, Vim) just like I do today. Technically that's debt, but since I pay the balance off each month no finance charges ever apply. On the average I am getting an interest-free loan for two-three weeks all the time.

Also, shortly before I hand in my pass we expect to purchase our retirement house, so we'll suffer a mortgage for some period until we sell the current house. How long that lasts - two months or two years - I can't know yet. Probably it will be clearer in a year.

We don't anticipate carrying any long-term debt for any extended period once we RE...

...however, we do plan to refresh our HELOC as an emergency cash option. Not actual debt, but certainly potential debt. Some years ago we got one with zero fees and it's been more than helpful. I hope never to need to draw on it again, but nature favors the prepared.

[Danmar]

Quote:

Originally Posted by pb4uski And it has been quite lucrative. Took out mortgage in January 2012 for $215k and it is now $145k, so average balance has been $180k. Since January 2012, my portfolio return has been ~6.6% and my mortgage cost is 3.375% so the spread is 3.23% so I'm ahead by ~$5,800/year.... $34,000 since inception. Not chump change!

Yes, it’s quite clear that debt has paid off in the last few years if you invested the proceeds in the market. But keep in mind the comparison of returns is a little suspect given the “risk profile “ of each item. Borrowing to invest in the stock market compares long term fixed rate of interest with market returns in the relatively short term. This is known as a “mismatch” in banking. As a banker, we worked very hard to reduce mismatches.

[pb4uski]

But as a banker, you had a fiduciary duty to your depositors and shareholders, rules to follow and abide by and regulators monitoring what you did.

Having worked in finance in the life insurance industry I'm quite familiar with all of that and with asset-liability matching and disintermediatiion risk.

Since I'm managing this money for me rather than as a fiduciary, I can decide to take risks with my personal finances that would be foolhardy as a fiduciary. I recognize that I am taking some risk and it is a risk I am willing to take as the rewards have been good... but it could go sideways and reduce or wipe out my gains or even turn to losses.

I didn't borrow to invest in the stock market.... I took out the mortgage when we bought the property and refinanced to lower the interest rate in January 2012 rather than pay it off with taxable account funds which is a similar decision.... I kept the debt rather than paid it off. Also, since my AA is unchanged from before I took the mortgage, I didn't really invest the proceeds in the stock market but more in a 60/40 portfolio (and that is what the 6.6% is based on).

That said, our total debt is less than 10% of our net worth so it isn't a big bet in the whole scheme of things but the results hve been rewarding.

[Texas Proud]

Quote:

Originally Posted by Danmar Yes, it’s quite clear that debt has paid off in the last few years if you invested the proceeds in the market. But keep in mind the comparison of returns is a little suspect given the “risk profile “ of each item. Borrowing to invest in the stock market compares long term fixed rate of interest with market returns in the relatively short term. This is known as a “mismatch” in banking. As a banker, we worked very hard to reduce mismatches.

But you do not have to invest in the stock market... I have bought a number of pref shares that pay steady dividends and am making north of 7% with very little principal change either way.... so, I do not consider myself mismatched....


Edit to add since I just read pb4uski's reply.... I have very little 'cash'.... I would have to sell something to pay off my debt... my assets have about a 50% basis so that is a good amount of cap gains.... It would harm me financially to pay off my debt.... I do not want to spend my ROTH money to do it either... I am happy with my debt level and monthly payments....