Retirement Information - Things that may help you
- Thread starter Paul F
- Start date
Doug Jensen
Carbonite Member
Like I said, my intention is not to squeak by so a calculator to see where I stand at any given moment is of no use to me. If the calculator showed I was ahead of my goals ,would I slack off my saving, investing, or how many hours I work? No. So what is the point? Plus, there are so many variables and unknowns that a calculator or formula can never really give you an accurate prediction. I'm not saying other people shouldn't use a calculator, I'm just saying it has no value to me.
I do have a spreadsheet, though, that tracks my net worth, asset by asset on a monthly basis. THAT snapshot is the one that I watch to see if the bottom-line number is rising or dropping. And it is also very helpful (and motivational) to look across the columns and see how it changes from month to month.
ahalpert
Major Contributor
yeah but my mortgage is 4% and my savings account is just over 5%. it also surprises me to hear so many bulls advocate paying down the mortgage fast when the market is historically returning like 10% and I see conservative estimates predict 5-7%. I hate debt as much as the next man but in this case the no-brainer goes the other way. not to mention the benefit of maintaining more liquidity
ahalpert
Major Contributor
does your spreadsheet automatically update your account values or do you have to update it manually? on the bank of america website there is a feature for "My Financial Picture" that will track all the accounts I link to it (and supply BOFA with valuable customer data, I imagine...) But obviously I have a simpler situation than you with fewer accounts and types of assets. (no gold bullion or investment properties)
I get a chuckle out of this because your thoughts are so in line with how I was thinking when I was working. I didn't trust online calculators, so I did my own. As you said, with all the variables, it left me unsatisfied, but still, it gave me some indications. The one thing I found useful was to see the growth rate of the retirement savings, especially at the end, where my contributions were making less and less of an impact compared to the investment's earnings, which started ballooning.
Doug Jensen
Carbonite Member
I have a spreadsheet that I made in Apple Numbers that has 27 rows of assets as of right now (bank accounts, investment accounts, real estate, camera gear, etc.) and each month has it's own column. I enter the dollar values manually (rounded to the nearest $1000) and then the spreadsheet adds the rows up and shows a total value at the bottom. It makes it real easy to see changes from month to month be just scrolling left to previous months. Also makes it real handy to see growth/loss on an account by account basis on each row.
I prefer entering the data manually because it forces me to think about each one. I wouldn't want an automated system that pulled the numbers from various sources. And with some assets, such as camera gear, real estate, etc. there is no place to pull that information from anyway. Some things are better done manually so you have to stop and think about it or look it up.
I especially wouldn't want a system at one institution that required me to enter information about assets or other accounts that have nothing to do with that institution. That's none of their business.
Doug Jensen
Carbonite Member
Ha, ha. I actually have seven 100 ounce silver bars in my closet that have their own line on my spreadsheet. I have to look up the spot price of silver every so often to see what they are worth. No, I'm not a prepper! I accepted them as payment many years ago from a deadbeat client and have had then in a box ever since. But when Armageddon happens I expect to be able to trade them for a few loaves a bread.
So rerun the numbers for 4.0%. Also the $400K assumption is ridiculously low for Colorado, I doubt NY could be nearly that low either.
Loan amt $400K @ 4.0% Down-pmt 20% Finance amout $320K
30 years total interest paid = $230K; monthly payment with tax and insurance = $1,953
10 years total interest paid = $69K; monthly payment with tax and insurance = $3,665
So $161K of your money to goes to purchase only bank interest...
This isn't about bulls advocacy or the markets, even in a bull market. Debtor advocacy is irrational because a responsible person doesn't put his family in debt as a gateway to the markets, that and whatever market gain you would offset with, in theory has 10-12% tax owed on it.
Sounds like 401K/pension contributions, in which case you're not receiving interest/dividend/capital gains payment checks, but instead those amounts are usually re-invested in the fund to purchase more shares. That's why the ballooning growth exceeds the rate of return because the number of shares are increasing the principal amounts faster than your contributions toward the end. That's just smart retirement planning. Employer matching can be big here too.
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Unfortunately, in the corporate world, I've talked to two people who said their big corporation is dropping company match for 401ks. That really stinks. That was a big incentive to me to put in as much as I could. It was dollar-for-dollar, then it went to 6%. After I retired it went to 3% and now they are dropping it all together.
I find the 'keep debt' a fallicy. It's another one of those stupid talking points finance people like to pitch that isn't real. It's just like how they advise to go with a Roth IRA. I don't think people will really invest that extra money into something. Plus the delta between the mortgage rate and what a conservative investment will return is marginal.
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ahalpert
Major Contributor
Ah that's what it was. You told this story before but I got the metal wrong
As for giving my account info to BOFA -- not my ideal either. But not that big of a deal, at least for the moment. Some day I'll have more time available but for right now quick and easy wins
Yep, sad and true. For me it was dollar for dollar match up to 6% contribution, then dropped to 50 cents for the next 3%. After 9%, then no more match. I contributed every dollar they would match even at 50 cents. Free money. Beyond the 401K, I made other investments that didn't have the early withdrawal penalties, for liquidity, lifestyle needs.
ahalpert
Major Contributor
We live in a far-flung NYC suburb (last stop on Metro North train, about 1.5-2 hour drive to midtown Manhattan depending on traffic) and we bought a house for $430k with 20% down. New houses around here are going for about $600k-$1M at the moment, depending on size. Gets much more expensive as you get closer to the city. Median sale price in Westchester County is $800k vs $400k here. Taxes are a few hundred dollars more per month than your estimate.
"Debtor advocacy..." lol
That's banking's business model. Borrow money from depositors and profit from the difference on your ROI vs what you pay them on their deposits.
I'm not advocating taking out high interest rate loans or credit cards to play the market. Just advocating against paying down a 30-year mortgage ahead of schedule depending on the difference in interest rates between earnings potential and mortgage.
You can make a definitive calculation for a savings account minus tax. Going into the market is a gamble but you can make an estimate. (10% return - 10% tax = 9% return. Better return than paying off a 4% loan... but my liquidity is in my savings account. I don't have any equities outside my retirement accounts for the time being.)
Drawing a contrary conclusion is irrational and probably points to an anti-debt pathology that values the erasure of debt at greater than its dollar amount.
I have Roth and regular IRAs too. I don't think the Roth has to be such a terrible idea. It just depends on when and how much you are withdrawing from your other retirement accounts. If you keep those withdrawals below $24K-32K than the non-Roth won't have taxable consequences, but if more than that it starts getting taxed, at which point if you need the money for kids college, cars, boat, vacation or whatever, you can pull from the Roth because the tax is already paid.
ahalpert
Major Contributor
This is an unusual moment where interest rates have risen sharply from incredible lows. Mortgage rates bottomed out in recent years below 3%. They were up to 4% when I bought in. I'm earning 5.25% on my main savings account now. Even if it's a wash with income tax, I'm maintaining higher liquidity which is very important to me. But then I dump in as much as I can into the solo 401k annually (up to $40k or so depending on where my net income shakes out....gotta do my accounting and file my returns...) So that liquidity will end up deferring taxes until I'm Paul's age and can dodge the tax altogether.
ahalpert
Major Contributor
Everybody's looking for a handout. Just kidding!
ahalpert
Major Contributor
That sounds like a good idea. I also feel like Roth lets you save more because if the contribution limit is the same, you're also contributing the tax money...
But if you end up with Paul's taxes then you gave the government free money. More likely my scenario... I'm not currently planning on doing any Roth...
ahalpert
Major Contributor
Actually the case is even better for investing in a tax-deferred 401k rather than paying down your mortgage early. Assuming that you would pay the mortgage with earned income, you're going to be taxed on the extra payments you make that year. (The saved interest, of course, will be tax-free.) Put it in a 401k and you dodge the tax right now (add those savings to the 401k.) Then, against a 4% mortgage rate, you probably make a substantially higher return from the 401k and possibly avoid taxes on those gains anyway.
Back of envelope calculations -- average income tax rate in US is 15%. So let's say you take $100x and use it to pay off your mortgage. $15x goes to the tax man and $85x to the mortgage.
Compound interest of 4% for 20 years = $186.25x
Let's say you stick $100x in a tax-deferred 401k instead and assume a 20% tax rate on withdrawal.
Compound interest of 7% (internet tells me this is a conservative stock market return prediction) for 20 years, minus 20% tax at the end = $309.58x
Way more! All depends on your mortgage rate, of course.
Even if the market return is only 5%, you end up with $212.26x after taxes. Having that larger initial investment by deferring taxes helps a lot.
What if the return is 10%? You end up with $538.20x after 20% tax
What if your marginal tax rate is currently higher than 15%, so the payment you make on your mortgage is even more diluted by taxes? The 401k is an even bigger win...
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What you can earn in the marketplace on the difference is hypothetical unless it is actually earned. The extra $161K in interest is not hypothetical at all. I don't believe people are doing 30 yr mortgage as an avenue of growth or savings. They do it to get a lower monthly budget.