Safe Haven, if possible without...

[cat fever]

Square1,
I think you'll do fine, just by reading your posts. Living debt free and within your means is key. You have that mastered. Good luck with all you do in the future.:thumbsup:

 

[KennyG]

There are a lot of good thoughts here. Much of from us "older folks" who have done things right and wrong over the years. I hope some younger people can pay attention to this because one thing I learned (by doing it kind of right but not as well as I could have) is that time is on your side.

Savings put into the stock market when you are young and left to ride the waves for 30 or 40 years is the best investment you can make. You can see this with a spreadsheet. Put $5,500 per year (the current IRA limit) into the stock market each year from age 21 to 65 and you will end up with about $4,000,000 with the historical average return of 10% per year. BUT the money you put in in the first 10 years (21 to 30 years old) will account for almost 60% of that final sum. If you delay serious retirement savings until you are 45 or 50 you will probably never catch up with the person who put a modest amount away in their 20's.

 

[ultrarunner]

I know I am late to this thread, but I have experience.

I am 71 and have been retired for a few months short of 10 years.

At about 61 I realized that I was selling my days to the company for less than they were worth to me and retired a few months later. Took SS at 62, as soon as I could. I am very happy with this decision. Whatever "break-even" age you calculate form most of the calculators out there is very much biased towards taking SS later. The reason is that they leave out what economists call the "time value of money". Essentially, a dollar income today is worth more than a dollar income in a year and a lot less that a dollar income in 10 years. The higher the interest rate you can get on your money, the longer the break even point becomes. Plus, I would far rather be master of my own financial destiny than have the government be master of my financial destiny.

Funny thing is that the government knows all about the time value of money when they want you to pay them. If you are late on a tax payment, they charge interest. But when they calculate what your best age to take SS is they develop amnesia on that point.

Make no mistake about this point: there is no such thing as a safe haven. There are at least two types of risk with any investment (and just putting money in a bank account is an investment). If you buy stocks or any other asset there is market risk. If you put your money in fixed income investments, or a savings account there is inflation risk. Annuities are almost always a bad idea. The return on your money is paying a whole raft of people at the annuity company before you ever see a cent.

If you need a financial advisor because you do not feel qualified to manage your own money, get one who charges a fee, not one who charges a percentage of assets. Interview several before you choose a financial advisor. If you have SS and/or a pension ask him how he treats them in your asset allocation. If he does not count them as the equivalent of a fixed income investment, move on until you find someone who understands this concept. An advisor who does not understand this will subject you to much more inflation risk than you should take on.

Do not believe the fiction that SS is inflation-protected. The inflation numbers the government uses leave out a lot of things we all have to have, like food, medical care and energy, but include a lot of things we don't need to buy all the time like TVs, which keep getting better and cheaper. I got a letter from SS last week telling me that inflation increase in my payment would be O.3% for 2017, which was about $5 per month, but that the deduction from my check for medicare will increase by a little over $125 per month. This means that I lost $120 per month. Now I can probably afford this, but people who are more reliant on SS are going to be negative effected.

For us, a safe haven is having all (as in 100%) of our investable assets in stocks (mostly very low fee mutual funds) and rental property. We withdraw a fixed percentage of the stocks each month. Not 1% like RSKY, but I think 0.5% is OK. As the market fluctuates the amount can go up or down. Cash flow from the rentals is spendable income also. This is not for the faint of heart, but it works for us.

* * * * * * * *

One last point. We do not have paid-off mortgages. We have fixed rate mortgages between 3 and 4% on our home and on our rentals. Why? When lenders are willing to give this old geezer a great big, non-callable loan at 3 to 4% at a time when real inflation is at least that high, I am going to take it. Our pensions and SS will more than cover the loan on our home, and allow us to live frugally. We would have to take money out of stocks where we are getting 8 to 10% to pay off the mortgage. IMHO paying off the mortgage is not safe, it is dangerous. It subjects us to excessive inflation risk which is very real.

Great perspective as always...

I did have a lot of of First Mortgages with low balances with one as high as 5% and with a 22k balance it was not a good candidate for refi...

Also have been unsuccessful in finding that forever home.... and having a bunch of first mortgages no matter how small the balances complicates things a lot... not only makes you ineligible for additional conventional financing...

My solution was to take a 100k and simply retire all of them... with the exception of the 2.75 fixed on my residence.

Was it the right thing to do... can't answer other than saying it provided tremendous satisfaction for me and simplified my life...

 

[NorTracNY]

I have zero problem letting money ride in the market with a very aggresive profile, but I do have a hard time with the mortgage. I completely understand the low interest loan of today's mortgage rates, but it's tough for me to not stive to pay it off in a few years. That is one point that Edelman gives that's tough for me to swallow. I'm doing everything else right, so I'm not going to go and take out a huge mortgage just to put the money in the market. For all the excellent points that have been made here, I haven't heard the one that should stand true.

Investing should be boring! If it's not boring, you're likely not focusing long-term and you will let your emotions make HORRIBLE mistakes. Remember that the majority of the upturn in the market occurs in just a few days. If you EVER think you can or should try to time a market, you're a fool. You should believe in your plan and follow it. I track once a quarter and even then, I don't care about ups and downs. I only need to look for rebalancing opportunities which are part of the plan. Sell things that have done well and buy things that have done poorly. If you don't understand this, you should either pick up some good books or find a trusted fiduciary.

How missing out on 25 days in the stock market over 45 years costs you dearly - MarketWatch
What’s the worst part about saving for retirement? – Retirement Rocket Science

 

[Oaktree]

For people absolutely cannot take a risk, annuities will take away a lot of risk. However, that 4% return is principle plus interest, not comparable to your 1% interest return.

Could you explain that? i ask because just this morning the wife & I went to one of those "free" financial planning mini-seminars put on by an investment advisory firm, and that was one of the products they mentioned. Sounded interesting, but part of me says if it sounds too good to be true...

 

[KennyG]

The "big mortgage" advice can certainly be oversold. Most people need a solid base of stable value and equity in a home can be part of that, which can free up other money (that otherwise would be earning 1%) to put into the market. No one should put less than 20% down on a home if it requires them to have PMI. And, given that almost 50% don't pay any federal income tax, the mortgage tax deduction only benefits high income people.

That said, I have mortgages on two properties. I'm in a high tax bracket. They are 15 year mortgages with about 3% interest. At this moment I have the money to pay them off in the money market, which wouldn't make sense, but I've set that money aside for the first few years of retirement while I defer SS and 401K distributions for as long as possible.

 

[KennyG]

Could you explain that? i ask because just this morning the wife & I went to one of those "free" financial planning mini-seminars put on by an investment advisory firm, and that was one of the products they mentioned. Sounded interesting, but part of me says if it sounds too good to be true...

A fixed annuity is just what it sounds like. It's life insurance that provides payments instead of a lump sum. You make payments monthly or a lump sum and the investment company assigns some return to it. Eventually, it reverses and starts paying you monthly or annual payments. The accountants look at your life expectancy and decide how much to pay you. When you die, it stops. If you die before it's annuitized and payment starts, you get the calculated value. There can be all kinds of details of guaranteed value etc, but it's basically a bet on how long you are going to live.

These products usually have significant fees for the agents that sell them because of the market advantage the company has. They have a huge number of accounts starting and stopping at different times so they can put the money in the market and make overall much higher returns. They tell you that the payment are 4% (or 3% or 5%) suggesting that that is an investment return, but part of that must be the capital you put into it.

Variable annuities are better because you actually own the mutual funds and get a market return (less the relatively high fees that go with the investment) and, if the company goes bankrupt, you still have the underlying investment. However if you annuitize it and change it to a fixed annuity, it can be wiped out if the company goes bankrupt.

These products originally were created when the estate tax applied to moderate incomes because, by disguising an investment as an insurance policy, you could avoid the "death tax". They became so profitable for insurance agents, they have been promoted as a general savings product.

I do understand that for some people they may fill a need and, if you are interested, go to the Vanguard web site to look as some very low overhead annuities, but for most they don't have an advantage. I think you will find that fee only (not commissioned) advisors seldom recommend them.

 

[dickfoster]

Funny, my wife and sons think I'm an incredible tightwad.

That's the funny thing about being a tightwad, I am one too but I owe no one and everything I have I own free and clear. No one owns me so if that is the cost of being a tightwad so be it. I retired early but everything I have, I earned fair and square and I never had to cheat a soul out of anything. So if being a tightwad lets me sleep at night that's OK too. One thing I've learned is that if there is zero risk then naturally there will be zero gain, so invest you must but if you do, don't get greedy or stupid about it because someone with no scruples who is greedier than you will always be around to take your money from you. There is no such thing as a free lunch and nothing will ever be easy about earning money honestly. It takes time and effort along with good doses of patience and constant unwavering attention. That's where "you snooze you loose" comes from.

 

[cat fever]

DF,
We are a lot alike except I still owe a little on my home. I agree with everything you said.

 

[Travelover]

As CurlyDave said above, there are two kinds of risk. Most of us are fixated on volatility - like when stocks go down. But inflation is the torpedo that will sink your ship, especially if we get it like we did in the late 70s / early 80s. That non-COLA annuity, pension or bank account will eventually be worth a lot less, even with normal inflation, but a wave of inflation can only be countered with stock or real estate over the long haul. I have a combination of stock and bonds at Vanguard, but you can just go simple and put your money in Vanguard's Wellington fund. It is a managed fund of stocks and bonds and goes back to 1928.
VWELX Performance Overview | Vanguard Wellington Income Fund Stock - Yahoo! Finance