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Message
re: What to do with $250K
Posted on 9/15/18 at 1:16 pm to castorinho
Posted on 9/15/18 at 1:16 pm to castorinho
Why would it be 40% cash?
1
Posted on 9/15/18 at 2:37 pm to Janky
4% seems reasonable with a good amount of bonds 
Posted on 9/15/18 at 3:09 pm to jimbeam
USBLX is 50/50. 10 year average return is 7.33%. VWINX is typically more conservate. Right now it is 40/60 and it’s 10 year average is 7.55%. So yeah, I think 4% is low for a balanced portfolio.
Posted on 9/15/18 at 3:30 pm to Janky
Last 10 years have been phenomenal though
Posted on 9/15/18 at 3:35 pm to jimbeam
6.88% since 1989 for USBLX.
9.72% since 1970 for VWINX.
9.72% since 1970 for VWINX.
This post was edited on 9/15/18 at 3:40 pm
Posted on 9/15/18 at 5:21 pm to Janky
10 year average is meaningless when we are at the tail end of the longest bull market in history. Averages are really misleading if you ignore all market factors. The OP is 65.
Posted on 9/15/18 at 5:23 pm to lynxcat
Lawd.
Posted on 9/15/18 at 7:49 pm to Janky
get a HELOC before you retire, just in case you need it. easier to qualify with wages before retirement. consider paying off mortgage. peace of mind is very liberating in retirement, especially facing the next recession shortly after you retire.
Posted on 9/15/18 at 8:00 pm to Janky
quote:
This statement confuses me. Can you explain?
The return on investment from paying off a mortgage early is just not all that great, especially if you can itemize deductions (which may not play a role for the OP if it's just land, but still).
Posted on 9/15/18 at 8:52 pm to NorthTiger
quote:
Everything is paid off except a mortgage that is just under 4%.
quote:
Would I defnitely pay off the mortgage?
I'm not going to tell you "no" - don't pay off the mortgage. It isn't a "wrong" decision with your transitioning to a fixed retirement income. So, you have 15 years left on this mortgage?
I would consider some income generating options that offset your mortgage - if you have income that closes or ends that gap AND survives your paying off the mortgage, that's a win.
There's nothing wrong with going debt free, but you're already leveraged in there - if you can win the game at the end, I would do it.
Posted on 9/15/18 at 10:41 pm to PetroBabich
quote:
He said he and his wife have 100k worth of pension.
my bad then
Posted on 9/16/18 at 8:32 am to foshizzle
You are right. I would need the OPs mortgage terms, but say he has 15 years left on his mortgage, and will save $63,000 by paying off his mortgage. He uses 190,000 to make 63,000, over 15 years. that’s a return of 1.9%. That’s not even enough to keep up with inflation. So if your goal is to make money, the only way paying off a mortgage makes sense is if you’re putting every penny of your monthly payments to investments.
People wrong when they think that you’re making 4% by paying off a 4% note.
When I did the math on 190 K for 15 years at 3% versus 1450 a month for 15 years at 3% it came out to be a wash. But as the return increase to 8% the clear winner was the 190 upfront.
Here is another example from a previous post on the results of putting $500 extra month into payments.
$300,000 at 4.5% for 30 years = $1,520 a month.
Paying an additional $500 per month on principal shortens the repayment by 11 years 10 months.
$500 per month for 30 years at 8% is $734,075
$2020 per month for (rounding up to) 12 years at 8% is $496,805
So in scenario 1 after 30 years you have a paid for house and $734,075
In scenario 2 after 30 years you have a paid for house and $496,805
People wrong when they think that you’re making 4% by paying off a 4% note.
When I did the math on 190 K for 15 years at 3% versus 1450 a month for 15 years at 3% it came out to be a wash. But as the return increase to 8% the clear winner was the 190 upfront.
Here is another example from a previous post on the results of putting $500 extra month into payments.
$300,000 at 4.5% for 30 years = $1,520 a month.
Paying an additional $500 per month on principal shortens the repayment by 11 years 10 months.
$500 per month for 30 years at 8% is $734,075
$2020 per month for (rounding up to) 12 years at 8% is $496,805
So in scenario 1 after 30 years you have a paid for house and $734,075
In scenario 2 after 30 years you have a paid for house and $496,805
Posted on 9/16/18 at 9:47 am to Rust Cohle
quote:
I would need the OPs mortgage terms, but say he has 15 years left on his mortgage
I refinanced several years back and now have 25 years remaining on the mortgage. In other words, I’ll never pay it off.
This post was edited on 9/16/18 at 9:49 am
Posted on 9/16/18 at 12:32 pm to Rust Cohle
quote:
So in scenario 1 after 30 years you have a paid for house and $734,075
In scenario 2 after 30 years you have a paid for house and $496,805
Wouldn't you have to consider the net here? In scenario 1 the house cost 1520*12*30 and in scenario 2 the house cost 2020*12*18.
That would narrow the gap and doesn't include factors such as PMI, ability to self insure, investment gains on property taxes sitting in escrow, etc. It also says nothing about the time value of money, while there may be a bigger number at the end of 30 years, it's a lot less important than what I have now. Especially if you're 65.
The counter-point is the same reason we don't take out personal loans at 6% to earn 8% in the market.
If someone wanted to give you 190k now or 630k (190@8%) in 15 years, which would you take? It's an easy decision, then if you considered that 8% was a variable rate, it gets even easier.
Posted on 9/16/18 at 2:39 pm to jimbeam
I wouldn't buy anything having anything to do with bonds. You can get money markets rates that pay more than T-bills now why take the risk of the inevitable higher interest rates by owning bonds?
The idea that bonds are less risk is just wrong. Bond funds are even worse because they have to sell to cover disbursements if people leave the fund.
If you don't want to research stocks or manage some low debt rentals (u could build a duplex for example) income then just average into a Vanguard S&P index fund over the next year or so.
The idea that bonds are less risk is just wrong. Bond funds are even worse because they have to sell to cover disbursements if people leave the fund.
If you don't want to research stocks or manage some low debt rentals (u could build a duplex for example) income then just average into a Vanguard S&P index fund over the next year or so.
Posted on 9/16/18 at 3:29 pm to lynxcat
quote:
10 year average is meaningless when we are at the tail end of the longest bull market in history.
People disagree on how bull markets are defined making the claim about the longest bull market is disputable, what year will this bull market end?
Tolerance of risk is a major factor as he has good income outside of investments. If, once invested, the thought of loosing 20% of his investment at anytime makes him loose sleep at night, he should pay off his loan.
Posted on 9/16/18 at 4:34 pm to NorthTiger
It sounds like you are expecting a pension income of $100K, which will be taxable to you. You are also saying your spending is $85K in after tax spending. Are you eligible for social security or did you not pay in due to your pensions? Other than the sale of the this property, I'm going to assume you have no other assets or income in retirement.
If this is the case, your retirement will be very tight, if not difficult when you account for inflation. My suggestion would be that you need the cash generated by that property to be invested somewhat aggressively as a long term inflation hedge.
As far as paying off your house, the general logic would be your interest rate when you consider the deduction is about the rate of inflation. Therefore you would be better off being invested and paying the mortgage over time with a long term expected return on those invested assets of 7%. However, no one has a formula that takes into account peace of mind...
But going back to the big picture, if you have $100k in taxable income with a $85K after tax spending need and no other income source or assets, you should seriously consider delaying retirement a few more years.
If this is the case, your retirement will be very tight, if not difficult when you account for inflation. My suggestion would be that you need the cash generated by that property to be invested somewhat aggressively as a long term inflation hedge.
As far as paying off your house, the general logic would be your interest rate when you consider the deduction is about the rate of inflation. Therefore you would be better off being invested and paying the mortgage over time with a long term expected return on those invested assets of 7%. However, no one has a formula that takes into account peace of mind...
But going back to the big picture, if you have $100k in taxable income with a $85K after tax spending need and no other income source or assets, you should seriously consider delaying retirement a few more years.
Posted on 9/16/18 at 10:17 pm to I B Freeman
You boys advocating for bonds have never owned them while rates are going up. You can lose ur arse quick or be left holding bonds until they mature just to get your money back.
Posted on 9/17/18 at 8:34 am to juice4lsu
quote:
It sounds like you are expecting a pension income of $100K, which will be taxable to you. You are also saying your spending is $85K in after tax spending.
I'm guessing the 85k also includes the mortgage which he could pay off. That would free up 20k+ a year in spending.
Posted on 9/17/18 at 8:38 am to Rust Cohle
quote:
People wrong when they think that you’re making 4% by paying off a 4% note.
But aren't you saving 4% then if you make 2% it's a net gain of 6%
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