Retirement Income

[mathjak107]

Quote:

Originally Posted by daylatedollarshort I think there is a case for considering home appreciation as real estate investment income, especially in high rent areas. If a retiree has $500K in stocks or a $500K mortgage free house, would you count the unrealized capital gains in stocks as income but not the house appreciation?

you can't have both appreciation and cost cutting . you have to give up one in order to get the other . you can't sell your living room when you are living in it . you do not consume a stock and can rebalance or sell to create cash flow , .

a heloc or reverse mortgage is just taking loans. a reverse mortgage is really a loan with a balloon payment due when you no longer meet the terms . you can give them the asset in lieu .

there really is no way to access home equity while living in the house . you can only borrow additional money against it .

[Cobra9777]

My inner accountant is getting a kick out of this thread...

Quote:

Originally Posted by mathjak107 the costs of a home is on the expense side of a balance sheet . income is on the other side

Same as NW-Bound, I answered the poll based on expenses. I create whatever cash inflows I need to cover the outflows. Periodically, I check the sustainability of those inflows and outflows with FIRECalc and other tools. FWIW, FIRECalc says I could go 35% higher.

I sort-of understand OP's intent, but I just can't bring myself to count reinvested dividends in a tax-deferred account which I have no access to. Nor some imputed amount of avoided rent, which last time I checked, they don't accept for payment at the grocery store.

Perhaps we should have stuck to AGI with a few adjustments for things like Roth conversions, SS, municipal bond interest, etc.

[mathjak107]

just wait until you pull those dividends out of that retirement account , you will see just how much income they created by adding to the balance , ha ha ha .

in or out of a deferred account they are income , whether you choose to spend it yet or not .

income is income and expenses are expenses .

[RobbieB]

Yeah, apples, oranges and pineapples is pretty good.

You can't spend a house, but you can spend what you're not paying for it eh?

That's all this was, an effort to get a more "fair" comparison between incomes for those who rent and those who don't or who are still paying mortgages.

No biggie just a little "equalizer"

[daylatedollarshort]

Quote:

Originally Posted by mathjak107 you can't have both appreciation and cost cutting . you have to give up one in order to get the other . you can't sell your living room when you are living in it . you do not consume a stock and can rebalance or sell to create cash flow , . a heloc or reverse mortgage is just taking loans. a reverse mortgage is really a loan with a balloon payment due when you no longer meet the terms . you can give them the asset in lieu . there really is no way to access home equity while living in the house . you can only borrow additional money against it .

On a more extreme scale, to illustrate a point, I think there is difference between having $40K in retirement income and being a renter and having $40K in retirement income and owning a $10M house. The person with the $10M house has a lot of options including downsizing, moving to a lower cost of living area, or renting out the house and living some place cheaper.

[mathjak107]

whether a house is a million bucks or 100k as long as you consume it the value does not count .

until you turn it in to cash there is not much you can do with that equity living there without just borrowing an equivalent amount the same as any other loan.

in fact if you could get the bank to give you the money on your looks at the same terms you wouldn't need the house . .

[mathjak107]

Quote:

Originally Posted by RobbieB Yeah, apples, oranges and pineapples is pretty good. You can't spend a house, but you can spend what you're not paying for it eh? That's all this was, an effort to get a more "fair" comparison between incomes for those who rent and those who don't or who are still paying mortgages. No biggie just a little "equalizer"

it is just about cash flow and expenses , not income . don't forget a renter who gets rid of that 3 bedroom house and takes a 1 bedroom apartment ojnce the kids are out may have better cash flow then that homeowner still living in that house .

[daylatedollarshort]

Quote:

Originally Posted by mathjak107 whether a house is a million bucks or 100k as long as you consume it the value does not count . until you turn it in to cash there is not much you can do with that equity living there without just borrowing an equivalent amount the same as any other loan. in fact if you could get the bank to give you the money on your looks at the same terms you wouldn't need the house . .

I am not sure what you mean by "does not count". It may not count for this particular poll in your personal opinion, though RobbieB, the poll creator did say to consider home ownership. Given the choices in the above example, I would strongly prefer the $10M house option. I am not sure what the difference is between unrealized stock capital gains and unrealized capital gains on home appreciation if the retire does not intend to live in their current house forever. There is a big retirement community in our area and many retirees, if they live long enough, eventually sell their homes and move there.

Income has many different meanings so I agree no matter what people put it is probably comparing apples to oranges to pineapples.

[mathjak107]

when the day comes that house is no longer being consumed it can count towards income . no problem .

but until then you are using it and can't sell it until you stop using it .

no one uses a stock and the stock is not consumed . it can be liquidated in seconds . if you need more cash you can rebalance . you can't sell the living room .

it is like i own some very expensive original paintings . we would never count them as part of our income generating money since i have no interest in selling them . i am consuming them and they are an expense .

perhaps one day i will sell them and at that point the money will go in to the income generating pot but for now it is a consumption item

[Meadbh]

Quote:

Originally Posted by daylatedollarshort I am not sure what you mean by "does not count". It may not count for this particular poll in your personal opinion, though RobbieB, the poll creator did say to consider home ownership. Given the choices in the above example, I would strongly prefer the $10M house option. I am not sure what the difference is between unrealized stock capital gains and unrealized capital gains on home appreciation if the retire does not intend to live in their current house forever. There is a big retirement community in our area and many retirees, if they live long enough, eventually sell their homes and move there.

The difference is liquidity.

It's easy to realize a portion of the unrealized stock gains. Just sell some stock, only what you need, and keep the remainder. Unless the stock is rarely traded, it is a relatively liquid asset.

To realize home appreciation, you have to sell the entire house, with all the costs, hassle and delays that entails. You then have to find another place to live, and pay for it. Housing is an illiquid asset.

[daylatedollarshort]

Quote:

Originally Posted by Meadbh The difference is liquidity. It's easy to realize a portion of the unrealized stock gains. Just sell some stock, only what you need, and keep the remainder. Unless the stock is rarely traded, it is a relatively liquid asset. To realize home appreciation, you have to sell the entire house, with all the costs, hassle and delays that entails. You then have to find another place to live, and pay for it. Housing is an illiquid asset.

Okay, I think most posters here all understand that it would take longer to sell real estate than stocks. I was referring to counting capital appreciation as income, not referring to liquidity. And houses can be rented out rather quickly, so in the example above I'd still take the $40K income and paid off $10M house.

[Meadbh]

Quote:

Originally Posted by daylatedollarshort Okay, I think most posters here all understand that it would take longer to sell real estate than stocks. I was referring to counting capital appreciation as income, not referring to liquidity. I'd still take the $40K income and $10M house in the above example.

I don't think capital appreciation is income, either. The statement which I bolded addressed a different concept.

Unfortunately, many of us have only an imperfect knowledge of accounting principles and terms. Too many threads and polls are meaningless because many people want to choose their own definitions. Standardization would be required to make these surveys scientifically reliable.

[aja8888]

Quote:

Originally Posted by W2R 10% for upkeep? Wow.

Last year we spent 6% (new roof, new A/C, screened in patio, cut some trees down). But that was a one time year. Going forward, we are expecting <1% per year.

[mathjak107]

while capital appreciation isn't income " yet " the fact is a safe withdrawal rate assumes if needed principal can go to zero if need be at the end of 30 years . in down years you liquidate unrealized appreciation or principal and you can't figure that when you are living in that house .

[daylatedollarshort]

Quote:

Originally Posted by mathjak107 while capital appreciation isn't income " yet " the fact is a safe withdrawal rate assumes if needed principal can go to zero if need be at the end of 30 years . in down years you liquidate unrealized appreciation or principal and you can't figure that when you are living in that house .

Many in our area either have or have plans to "cash out" the house once they quit working and move some place cheaper.

[mathjak107]

like i said , that is great , but in the mean time if need be they can't hit the pent up value in down years if principal has to be hit or rebalanced to refill cash .

it is bad practice in my opinion to count things as able to be spent as income if need be until that day actually comes . .

we own two investment co-ops which we would love to sell once the tenants die or take a buyout offer since they are rent stabilized . but until that day we do not count that money at all and we are talking multiple 7 figures since they over look central park . rents are near break even so cash flow is really nil .

[REWahoo]

Quote:

Originally Posted by daylatedollarshort Many in our area either have or have plans to "cash out" the house once they quit working and move some place cheaper.

This was once a frequently discussed topic and was a key element of the retirement plans of many posters. The subject disappeared in 2008 but it looks like the strategy may be gaining popularity again. Hope it turns out better this time...

[daylatedollarshort]

Quote:

Originally Posted by mathjak107 it is bad practice in my opinion to count

I'm not saying it is a diversified plan, but many people here do say "my house is my retirement plan" and either do cash out or have plans to do so and move to a lower cost of living area. In most cases it has worked out, at least for really long time owners, who survive the boom and bust housing markets, especially this guy:

Hoarder House In Palo Alto Is On the Market for $1.8 Million

[RobbieB]

If you have so little income that you are financially "stretched" then it would be a good idea to sell & rent (small) or sell and move or you could even do a reverse mortgage if you qualify. Expensive for sure, but hey if you need the dough...

The house really works the best if it is not the largest part of your "bag". You have plenty of income from other sources so that you don't have to worry. Now you can really enjoy spending the dough that you don't have to pay rent or mortgage with.

Or not, you can just let it stack up as you wish.

[mathjak107]

Quote:

Originally Posted by daylatedollarshort Many in our area either have or have plans to "cash out" the house once they quit working and move some place cheaper.

400,000 long islanders said in a survey they intend to sell . leave long island and move to cheapsville .

that sure works well but until the house is sold there is no income yet .
one of the benefits of living in a high cost of living area is because areas like the tristate area are not expensive in a vacuum . they are expensive because they are desirable and that is where the higher paying jobs are .

transplants usually do better then locals do since a 650- 800k house that appreciates 3% vs a 150- 200k house that appreciates the same will compound at a far greater rate . the higher incomes lead to higher social security too so relocating from a higher to lower cost area usually works out better then locals .

when we had the 2nd home in the pocono's most of the transplants had far more wealth then the locals did .