Are you on track for retirement? MONEY Article

[disneysteve]

Originally Posted by Scanner

I guess he'd rather see you borrow 80% against your home, invest it in the market long term and then pay it all off at once, rather than inching your way down.

This is what a lot of us always advise. Take your spare cash and invest it until you have enough to pay off the house, then do so if you wish. You'll come out ahead in the long run doing that as compared to paying extra on the loan each month.

Personally, I have more than enough money to pay off my mortgage tomorrow if I wanted to, but my investments are averaging a far better return than the interest I'm paying on the mortgage, so why would I want to pay it off?

That said, once my HEL is repaid (by the end of 2008 hopefully), I may start putting a little extra money toward the mortgage. We've got about 20 years left on the loan and I hope to retire in about 19 years, so I'd like to accelerate the repayment a bit just to be sure it is paid off by retirement.

[humandraydel]

Originally Posted by Scanner

I read a commentary today that said there are only two ways your home is valuable to you:

1. Completely leveraged (and hopefully building equity in the market cause gee, I'd hate to consider the opposite)

2. Or completely paid off

Sorry, but that commentary is completely useless and untrue. If completely leveraged (and increasing at a rate greater than interest rates) is great, why wouldn't 50% leveraged (and increasing at a rate greater than interest rates) be good? You still have the assets to pay off the house if you want to.

I'm obviously in the "take your time" camp when it comes to paying a mortgage off. One thing I think people fail to account for is inflation! Do you realize how much your mortgage payment of $1000 is going to be in 30 years? Chump change! Don't forget, bond owners HATE, HATE, HATE inflation - and what do you think your mortgage is? A bond! But when you are on the PAYING side of the bond, inflation actually helps! IMHO, a fixed rate mortgage is a great inflation hedge.

[aurielle]

Originally Posted by disneysteve

I don't have a pension, but Social Security is basically a similar system. It isn't based on contributions and pays a fixed benefit. When I do my retirement planning, I don't include SS benefits. I strive to save enough to live on my savings alone and figure anything I get from SS will be a bonus. You could do the same with your pension. Of course, if it will truly pay you 70% of income (much more than what SS pays), you don't need to save nearly enough, but you can't be 100% sure that the pension won't change between now and retirement, even though it is a government plan, not a private one.

*sigh*
I'm 43 y.o. and just barely got started saving for retirement. Its frustrating to hear "don't count on Social Security, don't count on your gov't pension b/c you don't know if those things will be there when you retire." I AM counting on those as a source of income unfortunately. Those are 2 out of 3 of my retirement money sources. There is no way I can save enough on my own to fully fund my retirement at my age. Next year I will finally be in a place where I can get sort of close to fully funding my Roth IRA for the first time.

Nothing against you Steve, I like you and you always have good suggestions. Just mad at the system I guess. And FWIW, I think S.S. will still be around in some form when I retire.

[disneysteve]

Originally Posted by aurielle

And FWIW, I think S.S. will still be around in some form when I retire.

I totally agree. I believe SS will still exist, just not in it's current form. I think we are likely to see some combination of higher ages for benefits, reduced payments and, possibly, some type of means testing so that folks earning millions on their own don't also collect full SS benefits.

Based on all of that, however, I find it impossible to use potential SS income in my planning since I don't have a clue how much to expect to receive. I get my annual statement just like everyone else, so I could base my projections on those numbers, but if those numbers don't turn out to be true, I'd be in a lot of trouble. I'd rather just plan based on my own resources with the knowledge that some level of SS payments will be supplementing what I'm able to come up with on my own.

I'm the same age as you (I'll be 43 in 2 weeks), so that's how I look at it right now. When we are closer to retirement age, we'll probably have a better idea of what to expect from SS and can adjust accordingly. Believe me, I hope I'm wrong and SS will be there as it is today and we'll all collect every penny we've been promised. I just don't know how realistic that is.

[Aleta]

Steve: I have read that when you are within 5 years of so of your retirement to take a fake trial run to see if you could live off of what you have at the time. At that time, you can get a pretty good idea of where you are barring any upturns or downturns of the market. The idea is to pretend you're retired to see how your finances can support you and for how long.

[Scanner]

sigh*
I'm 43 y.o. and just barely got started saving for retirement. Its frustrating to hear "don't count on Social Security, don't count on your gov't pension b/c you don't know if those things will be there when you retire." I AM counting on those as a source of income unfortunately. Those are 2 out of 3 of my retirement money sources. There is no way I can save enough on my own to fully fund my retirement at my age. Next year I will finally be in a place where I can get sort of close to fully funding my Roth IRA for the first time.

Nothing against you Steve, I like you and you always have good suggestions. Just mad at the system I guess. And FWIW, I think S.S. will still be around in some form when I retire.

This is exactly what I mean that the "average" person is going to have to figure their home worth into their retirement. Aurielle is a testament to what I am saying.

I applaud the DisneySteves', JimiOhio's, KV's and others here who I have come to respect who their home will be a "side asset" upon retirement - you are an example to all.

I'll probably finish somewhere in between this group and Aurielle. It won't be my main asset but it will be enough in the equation that I couldn't discount it.

[Scanner]

Sorry, but that commentary is completely useless and untrue. If completely leveraged (and increasing at a rate greater than interest rates) is great, why wouldn't 50% leveraged (and increasing at a rate greater than interest rates) be good? You still have the assets to pay off the house if you want to.

I'm obviously in the "take your time" camp when it comes to paying a mortgage off. One thing I think people fail to account for is inflation! Do you realize how much your mortgage payment of $1000 is going to be in 30 years? Chump change! Don't forget, bond owners HATE, HATE, HATE inflation - and what do you think your mortgage is? A bond! But when you are on the PAYING side of the bond, inflation actually helps! IMHO, a fixed rate mortgage is a great inflation hedge.

Humandrydel,

I guess the reasoning was you have 50% of your assets tied up into a modestly appreciating asset (historically).

Let's just use me as an example. We have 65% equity in our home.

With the last real estate run-up in 2002-2004/5, our house appreciated significantly.

However, as you know, it's only paper worth. It's probably depreciated somewhat the last year like all of you.

And maybe more importantly, it's "illiquid" right now with market conditions.

My Roth portfolio is much more liquid - I could cash it out tommorrow and take a 10% penalty.

I don't know - I didn't agree with the commentary completely either.

Taking his reasoing, I should borrow out 45% of our equity on a home loan and then deploy it into different markets.

I just can't be comfortable with that.

Sorry if we have drifted off topic, DisneySteve. . .

[disneysteve]

Originally Posted by Scanner

My Roth portfolio is much more liquid - I could cash it out tomorrow and take a 10% penalty.

Sorry if we have drifted off topic, DisneySteve. . .

Actually, even better, you can withdraw the contributions you've made to your Roth with no penalty at all. You just can't withdraw the earnings. Certainly, I don't recommend it, but in an emergency you can get to that money easily.

No apologies needed. I enjoy following the discussion wherever it may lead.