Here’s What a $2 Million Retirement Looks Like in America - WSJ

[COcheesehead]

Debt is a tool. It creates leverage. Some attach emotion to it and then that complicates it’s use as a tool.
So never fear a hammer because it can hurt your thumb. Love a hammer because it can build you something.

 

[jazz4cash]

What I noticed when I came to the states is that mortgages were encouraged and paying them off was not as important to some folks as others. It was not uncommon for folks to go into retirement with the mortgage burden still hanging over them.

For many of us, it’s just the math.

 

[Huston55]

Debt is a tool. It creates leverage. Some attach emotion to it and then that complicates it’s use as a tool.
So never fear a hammer because it can hurt your thumb. Love a hammer because it can build you something.

+1

 

[MikeWillRetire]

Me too. I couldn’t find a definitive answer. Maryland has an IRS Section 218 agreement, which includes some (most?) of its government workers in SS. But, police, fire fighters & teachers often have special arrangements, and I couldn’t confirm if the retiree gets SS. But, his wife certainly will, and she will get his survivor’s pension, plus they both get retiree healthcare.

My brother retired from the MD State Police, and he gets a 70k pension and an additional 20k "annuity" as he calls it. He is not eligible for SS.
He now works for the Capitol Police, and he will be eligible for a federal pension in a couple of years.

 

[tmm99]

The people in the article may well reflect WSJ paid subscribers living NY, Chi, MD and with multiple homes...

+1

 

[karen1972]

The mortgage for me was a tool to use so I don't have to tap into my tax deferred accounts prior to 59.5. We upsized at 48 so instead of draining the brokerage account took out a sub 3% mortgage. In addition we don't plan to stay here the next 45 years so no reason to pay it off early (I don't get this forever home concept, its so not us, we like moving around the country ever 10-15 years), I suspect by the time we are 60 we will be in a different home and that home I'd expect to pay cash for.

 

[copyright1997reloaded]

Debt is a tool. It creates leverage. Some attach emotion to it and then that complicates it’s use as a tool.
So never fear a hammer because it can hurt your thumb. Love a hammer because it can build you something.

"When all you have is a hammer, every problem is a nail."

Regarding the article, I wish they were more consistent in how they presented the examples in terms of assets, pensions, liabilities, budget. I especially would like to better know budget breakdowns in terms of their spend.

 

[EarlyandLate]

Yes, mortgages are not universally bad. One of the factors that so far is not included in this discussion on mortgages for retirees is stage of life. For older retirees, which those in the article were, I would not advise having a mortgage for one big reason. It limits your financial flexibility to accommodate unexpected needs. If your retirement budget is maxed out due to a mortgage (i.e.you have to scale back spending on groceries when inflation hits), then if an expensive misfortune comes along, you will be in danger of losing your home. The older we become, the more likely it becomes that we or a loved one will need expensive care or services. How would you pay $2K or more a month for in home assistance, for instance?
If you're a young, healthy retiree, invincible in you own eyes, go for it! Otherwise, look around at your peers to see what life can bring and plan to change your priorities in an instant.

 

[tmm99]

Mortgages aren't bad at all if the interest you're paying is lower than what you can earn by putting your money in the market. Some people prefer to have no debts however for purely emotional reasons (they simply sleep better) and nothing is wrong with that either.

 

[daylatedollarshort]

Yes, mortgages are not universally bad. One of the factors that so far is not included in this discussion on mortgages for retirees is stage of life. For older retirees, which those in the article were, I would not advise having a mortgage for one big reason. It limits your financial flexibility to accommodate unexpected needs. If your retirement budget is maxed out due to a mortgage (i.e.you have to scale back spending on groceries when inflation hits), then if an expensive misfortune comes along, you will be in danger of losing your home. The older we become, the more likely it becomes that we or a loved one will need expensive care or services. How would you pay $2K or more a month for in home assistance, for instance?
If you're a young, healthy retiree, invincible in you own eyes, go for it! Otherwise, look around at your peers to see what life can bring and plan to change your priorities in an instant.

Let's look at the math one more time. The mortgage arbitrage can bring in an extra $18K a year on a $300K mortgage @ 3% with the money invested in I bonds and TIPS making 9%. The difference is an extra $18K a year, $300K X 6% (9% - 3%). Please show me the math on how the retiree making the extra $18K a year is in grave danger of losing their home. If I had a $2K extra expense a month, I can easily pay that from my investment income, and that extra $18K would cover the bulk of it.

The posters in this forum with the $300K or whatever mortgages are not people who have a mortgage because they don't have $300K in the bank to pay the mortgage. Most are likely to have portfolios many times over the $300K and have low interest rate mortgages so they can make even more money.

If someone says they don't want a mortgage because they feel better not having debt, that makes sense. I don't feel that way but I can see how others might. But if you think they are coming out ahead mathwise by not having a low interest rate mortgage in the current high inflation, rising interest rate environment, then I'd be very interested in seeing that actual math. Low interest rate mortgages offset with inflation adjusted investments are usually a great inflation hedge.

 

[Souschef]

I agree with Crewer about the demographics. But the crap about cutting his food bill when he has an $80K plus pension is just too much.

I buy the prepackaged salads (gasp) because I got tired of throwing out produce that went bad because there are only 2 of us. My generous pension is $14 K a year and is non COLA. DW has a 7K pension, also non COLA
Before you feel bad for us, SS brings us up to $77K, which we can live on.
As everyone in this forum has stated, it is the expenses that drive everything.

 

[jazz4cash]

I bet the subject regrets how the prepackaged salad info was included. Refusing to pay an 80% increase on an item doesn’t mean you can’t afford it. We pay $2 for a large prepackaged salad and it spoils before the two of is can eat it all.

 

[jollystomper]

... But, I’d underestimated how much “Maintenence” the old bod needs just to not lose mobility, retain muscle & avoid injuries. What’s been your experience?

My has not been to bad. I have been active all my life, and have been doing gym and exercise workouts since being on sports teams in high school. It waxed and waned over the years but on average I have not gone more than a few days without some type of workout. Right now I participate in at least 2 categories of exercise/recreational exercise activities every day for several hours. I am also more careful about watching what I eat - moderation works better for me than cold turkey. And I do not do things that I might get injured at take much longer time to recover from (e.g. contact/near contact sports, climbing on ladders).

Since retiring with this scheduling, I have knocked off (and kept off) about 30 pounds. The benefits I have seen that keep me motivated are (a) increased overall stamina, (b) compliments (vanity reigns supreme ) and (b) spousal appreciation (I'll say no more ).

 

[Andre1969]

I bet the subject regrets how the prepackaged salad info was included. Refusing to pay an 80% increase on an item doesn’t mean you can’t afford it. We pay $2 for a large prepackaged salad and it spoils before the two of is can eat it all.

We tend to get the prepackaged stuff, too. My house mate buys the groceries, so I don't know how much it is, but he's pretty good with money. If it was too expensive, he wouldn't get it. We've tried buying all the individual ingredients to make a salad, but the stuff goes bad before we end up using it all up. If we ate salad more often it might make sense, but as is, I just like the convenience of the prepackaged stuff.

Sometimes though, I'll get a bag of baby carrots, or radishes, and just use them for snacks. A helluva lot cheaper, on a per-pound basis, than chips and such I'm sure. And healthier.

 

[pb4uski]

Serious question, how does one calculate that? Same would apply I assume with SS.

The value of a fixed pension is pretty easy to calculate by reference to fixed annuity pricing. Let's say that a male is retiring now at 60 and will be receiving $2,000 per month and lives in NY.

Go to immediateannuities.com and input $120,000 to invest with payments beginning in one month for an age 60 male in NY and click on GET MY QUOTE!

The life benefit is $671/month. Since we used $120,000, the payout rate is 6.71%. $24,000/6.71% is $357,675. You can then go back and replace the $120,000 with $357,675 and you'll get a result that is $2,000/month.

SS is a different animal and is harder because SS benefits increase with inflation.

 

[tmm99]

I rarely buy those tiny prepackaged salads except for the cole slaw mix that's usually $1 a bag. I occasionally buy big pre-packaged salads in plastic containers at grocery stores marketed as Greek Salad (olives, feta cheese, tomatoes, purple onion, tomatoes, cuke, and romaine) kind of like the big Caesar Salad you can get at Costco, as those bigger ones seem much more cost-effective.

 

[ncbill]

I'm pretty sure most of us with under 2 - 3% fixed rate mortgages are happy we kept them right now, especially those with the equivalent in TIPS or I-bonds making 8 - 11%. Even 1 year Treasuries are at 3.49%. That is like free money on the difference.

A 6% mortgage / investment differential on $300K mortgage is an extra $18K per year, which can then be invested for even more income.

Yep, the 84-year-old should have refinanced his adjustable rate mortgage into a fixed rate mortgage @ <4% back when he still had the $150k/year income from serving on various boards.

 

[harllee]

The value of a fixed pension is pretty easy to calculate by reference to fixed annuity pricing. Let's say that a male is retiring now at 60 and will be receiving $2,000 per month and lives in NY.

Go to immediateannuities.com and input $120,000 to invest with payments beginning in one month for an age 60 male in NY and click on GET MY QUOTE!

The life benefit is $671/month. Since we used $120,000, the payout rate is 6.71%. $24,000/6.71% is $357,675. You can then go back and replace the $120,000 with $357,675 and you'll get a result that is $2,000/month.

SS is a different animal and is harder because SS benefits increase with inflation.

Thanks, interesting way to look at it. Looking at my SS, the present value is over 1,000,000 (did not start until age 70) and that does not include the annual increases. Nice to know.

 

[daylatedollarshort]

Thanks, interesting way to look at it. Looking at my SS, the present value is over 1,000,000 (did not start until age 70) and that does not include the annual increases. Nice to know.

SS benefits for many are really significant. I'm not sure what the point of the article was by not including them. It doesn't really give a whole picture of where any of them are at in total retirement income.

 

[ncbill]

My brother retired from the MD State Police, and he gets a 70k pension and an additional 20k "annuity" as he calls it. He is not eligible for SS.
He now works for the Capitol Police, and he will be eligible for a federal pension in a couple of years.

My youngest will be attending the police academy next year.

Then plans to move on to federal law enforcement.

Stay until eligible for pension (only 20 years for federal LEOs) then move back here and work in state/local law enforcement.

With service in the Reserves he could eventually be eligible for three COLA pensions...federal, military, & state.

 

[Huston55]

With service in the Reserves he could eventually be eligible for three COLA pensions...federal, military, & state.

And, he’ll be eligible for health benefits as an early retiree, without having to rely on ACA or whatever its equivalent is in 20+ yrs.

 

[ncbill]

And, he’ll be eligible for health benefits as an early retiree, without having to rely on ACA or whatever its equivalent is in 20+ yrs.

His health insurance is already a bargain...under $50/month with low OOP maximum for Tricare (Tricare Reserve Select) though with proposed legislation it may become premium-free in the future.

 

[Scuba]

I'm pretty sure most of us with under 2 - 3% fixed rate mortgages are happy we kept them right now, especially those with the equivalent in TIPS or I-bonds making 8 - 11%. Even 1 year Treasuries are at 3.49%. That is like free money on the difference.

A 6% mortgage / investment differential on $300K mortgage is an extra $18K per year, which can then be invested for even more income.

Yep, I agree 100%. And if one has no heirs, what is the incentive to pay off the mortgage? We have a lot of equity in both of our properties so if we were to pass away with outstanding mortgage debt, there would be plenty of assets to satisfy the debt. We’d rather have the liquidity. But clearly this is a YMMV topic.

 

[ShokWaveRider]

Yep, I agree 100%. And if one has no heirs, what is the incentive to pay off the mortgage?

Not having to Pay ~$2,000 a month in payments (Guess at 25% of our home value @~3.25%), satisfaction, more money to invest, No Debt, to name but a few.

 

[Andre1969]

Not having to Pay ~$2,000 a month in payments (Guess at 25% of our home value @~3.25%), satisfaction, more money to invest, No Debt, to name but a few.

This is one concept I have trouble wrapping my mind around. The principal/interest portion of my mortgage is about $1942/mo, so close to that. I can understand the concept of no debt, peace of mind, etc.

But where I tend to balk is the idea of more money to invest. While it would be nice to have that $1942/mo available to invest or do whatever, it would cost me about $448,000 of money that's already invested, to free up that money.

So the way I look at it, I'm trading $448K in money, that can be invested, just to free up $1942/mo? I could just take the $1942/mo out of the $448K.

I guess, once the mortgage is toward the end of its life, it might make more sense to just pay it off. So where you are, in the mortgage cycle might also play on your decision to pay off or not. And, naturally, the higher the interest rate, the more incentive I could see.