I think that's one of the main driving factors. Just do a google search for top schools in your state, then look at house prices in those school zones. It gets absolutely nuts in some places (Colorado, I'm looking at you.)
I think that's one of the main driving factors. Just do a google search for top schools in your state, then look at house prices in those school zones. It gets absolutely nuts in some places (Colorado, I'm looking at you.)
You can amass a good stockpile with no debt. I know there are plenty of people that say "if you can get x% return and the mortgage is under that X, then have the mortgage" but I've never met someone that has a paid off house that said it was a dumb move.
My favorite was watching a money guy telling one of my employees that paying off his house was a dumb move. I spoke up and said this guy has no car payments, no credit card debt and has enough cash to pay off his house. You have 2 car payments and live in a smaller house across the street, that you can't pay off Today, why would he take your advice?
ProDarwin said:I have heard many places homes appreciate more in areas with good schools. Anecdotally, I have seen it.
Quick random google:
https://thinkrealty.com/home-values-higher-in-zip-codes-with-good-schools/
I don't doubt that in the least. But appreciation at what cost? Is home value appreciation worth paying an extra $5K/year in taxes? Because that's kinda what it's like in my area. Right now, my annual school tax is a bill I don't really have to think about. If that bill were to double or triple, that would definitely affect my budgeting.
Now I'm not saying home values aren't important, but it does depend on an individual situation. I've lived in my house for 30 years and have no plans to move. How much it's worth when I die isn't really something I care a lot about. Especially since it'll likely go to a charity since I have no heirs.
ProDarwin said:I would want to keep as much invested - earning me $ as possible. I'd have a mortgage, I'd finance cars, etc.
1.8million = $72k a year at 4%. Easy to live off that. If you want to spend more, go get a job. But something you enjoy, you can pick your hours, has good healthcare - you don't need to focus on the $ nearly as much because of your base income.
$1.3M is $52k a year at 4% and with zero debt, not a bad living. That $500k house loan will eat up $37k of that $72k leaving you with $35k to live on....
Did you say how old you are ?
I did see the 10 month old kid mentioned ,
What is work ? Is managing rental property work .
depending where you live and how you like people maybe a duplex/ triplex may be an option.
or building storage units / RV parking .
The famous 4% Rule comes from the Trinity Study that used Monte Carlo simulations to determine that you'd have a 95% chance of not running out of money over the course of a thirty year retirement.
But, what if you want to retire early and/or leave a legacy for your heirs?
Here's an on-line calculator I use that provides a lot of flexibility to run these types of scenarios.
I think of the 4% rule as the 3.3% rule when contemplating an early retirement.
To answer your specific question, I'm a math guy and I happily do it "wrong" by living debt free even though the likely ROI exceeds the interest rates...as someone mentioned, being debt free allows me to be more aggressive with my investments which more than recovers the delta between ROI and interest rates.
BTW, I'll be 58 next Monday, plan to retire at 60 and have zero bonds...I'm 100% equities and don't intend to become more conservative in retirement.
Added later...
I've asked multiple financial advisors a simple question "why would anybody own bonds when they have debt" and not one could give me a coherent answer...I don't have a financial advisor.
It's insane, I'm being told to pay 6% interest on my mortgage while getting 3% from my bond and if for some reason I can't pay my mortgage, I lose my house; derp.
Steve_Jones said:ProDarwin said:I would want to keep as much invested - earning me $ as possible. I'd have a mortgage, I'd finance cars, etc.
1.8million = $72k a year at 4%. Easy to live off that. If you want to spend more, go get a job. But something you enjoy, you can pick your hours, has good healthcare - you don't need to focus on the $ nearly as much because of your base income.
$1.3M is $52k a year at 4% and with zero debt, not a bad living. That $500k house loan will eat up $37k of that $72k leaving you with $35k to live on
Good point, I failed to take my own advice: always do the math. I was still thinking growth mode where you can account for a 10% return. Even then, the 4% is 4% of your portfolio value, so on year 10 when you are still paying $37k on the loan, your portfolio should be worth significantly more and that 4% # may have grown from $72k to $95k (for example)
I would run Firecalc on a few of the scenarios here and see which one I am most comfortable with.
My house is paid for so that's off the table. When we move in the next year or so, the proceeds from this house will pay to build something smaller and more efficient on the family farm. I will probably net some cash out of that deal. I also have almost zero other debt beyond the monthly payoff on the credit cards, so that's off the table as well.
I'm banking it all.
In reply to RX Reven' :
I like that calculator
Very interesting discussion. My wife and I are 50 and are starting to look at/plan for retirement and hope to retire early. My wife is already retired from her 30 year profession and taken an hourly "retirement job". We currently live in Atlanta, but it is our plan to be traditional snow birds. We are going to move back to my home of Pennsylvania and spend our winters in Florida. We've taken step one and just bought an investment property...we actually closed on it today and I'm sitting in it right now. If/when the real estate market takes a dip, we may look at a property in PA that we can rent to yearly renters until we're ready to retire completely.
As has been mentioned, the 800lb gorilla is health care. I have health issues that are expensive, so that coverage is important. My current coverage is phenomenal and would be hard to walk away from. On a related tangent, my wife and I have talked about how long I may live and/or live with a good quality of life. Yeah, I know, anyone can get hit by a car tomorrow. However, barring an unforeseen circumstance, we're concerned my future isn't super bright. Do you live for today vs. save for retirement when we are 70, 75, etc...? It's not a fun conversation, but something that has to be taken into consideration. You need to "plan" to live quite a long time, but we also don't want to pinch every penny so that we can't enjoy anything while we're still able bodied.
I agree with a lot of the general concepts of 4%-ish per year. At the same time, with such an unpredictable economy it's so hard to know what will work. I think the best we can hope for is plan for as many possible potential outcomes as possible and make our best "guess". Even if/when I retire from insurance, I'm not the kind who could sit around idle and watch life go by. I'll have to have things to do, so I'd love a retirement job.
There is an entire community dedicated to (more or less) this question.
Google Mr. Money Mustache, FIRE (Financial Independence Retire Early), Early Retirement Extreme for lots of good information.
Short answer is it depends on your expenses. As others have noted, the 4% rule resulting from the Trinity Study is pretty much your answer here.
SV reX said:In reply to RX Reven' :
I like that calculator
I'm glad you like it.
I do statistical analysis for a living and I was working on creating essentially the same thing when my research led me to the calculator.
I've read all of the published information on its methodology and I've talked to its creators twice...I can say that competent people that are committed to quality built it.
Ok, the 10 month old changes things quite a lot. You need to stockpile all of the expenses for a kid for the next 20 or so years, including any post HS education you may need. May want to see if whatever state you move to has some kind of pre-paid education account- which will pay for the state funded post HS system.
We never had kids, but with them growing and whatnot- seems that you need at least expenses to cover 3 full adults to live on. More if you think your kid may want to be involved in stuff- since that will be equipment and organization fees.
ProDarwin said:I have heard many places homes appreciate more in areas with good schools. Anecdotally, I have seen it.
Quick random google:
https://thinkrealty.com/home-values-higher-in-zip-codes-with-good-schools/
The scary thing is how easy the lower tax crowd can come in and destroy a good school district.
They don't even have to be the majority. One or two members who have grudges or object to policies and programs. Even non board members who choose to be disruptive or cause parental support to erode. Wealthy daddy who's son is sub par becomes a captain or promoted unfairly due to a good deal on a car/home sort of bribe.
Noisy mother who interferes with programs or support clubs.
In reply to alfadriver :
It now costs $300,000 ( up from $200,000 just a decade ago) to raise the average kid from conception to 18. Add another $100,000 through college.
RX Reven' said:SV reX said:In reply to RX Reven' :
I like that calculator
I'm glad you like it.
I do statistical analysis for a living and I was working on creating essentially the same thing when my research led me to the calculator.
I've read all of the published information on its methodology and I've talked to its creators twice...I can say that competent people that are committed to quality built it.
https://firecalc.com/ is another good one that does the same thing, but gives you a little more control over the inputs, and more detailed output. However that comes at the expense of a much less friendly UI.
frenchyd said:In reply to alfadriver :
It now costs $300,000 ( up from $200,000 just a decade ago) to raise the average kid from conception to 18. Add another $100,000 through college.
I'm driving from Los Angeles to Reno this afternoon ($6.39 a gallon - whoopee) to attend a parent / student orientation at UNR for my 17 y/o daughter...it's going to be 120K and as soon as she's done Reven' daughter #2 will be starting so we're looking at a quarter mil plus.
I did this same thought exercise a few years back before I found out my grandfather was a lying sack of E36 M3 and my uncle an even bigger scumbag.
Cashing out $500k for a house and property and living on the yearly dividends of the rest would have lasted me about 30 years, which is longer than I anticipate to have left. It also would have had me living with a higher annual salary than I ever made working, so probably last even longer since I'm used to living on next to nothing and would only really be paying for utilities and food.
That's if I did the "smart thing". Most likely I'd have bought outright or bought into a business of some sort to supplement the income. Storage units, car washes, apartments, RV parks, those kind of things.
With a young child and 'only' $1.8M of net worth, I would choose to not retire... Of course, that also depends on how one defines 'retirement'. I would then continue life largely as if that money didn't exist, and reevaluate every few years.
RX Reven' said:SV reX said:In reply to RX Reven' :
I like that calculator
I'm glad you like it.
I do statistical analysis for a living and I was working on creating essentially the same thing when my research led me to the calculator.
I've read all of the published information on its methodology and I've talked to its creators twice...I can say that competent people that are committed to quality built it.
I also like that they show their methodology clearly. Helps know how to use it.
Yeah, you can choose to balance rates (interest paid on asset vs income predicted).
I like a paid off house for 2 reasons:
1. You cannot guarantee the income you make on your investment. Forcing a house payment means you are forced to pull money, which might be at a really inopportune time. If you own the house you are in near full control of the timing of your expenses and if the market has a bad year you can choose to cut back.
2. It's a lot of work just to manage the logistics. Each month you need to make a sale or otherwise pull money from investments, transfer to bank, pay mortgage, etc. Yes you can automate but still it is work that needs to be managed. Not having it taking up mental space can be worth something for sure.
I also don't like to think of retirement as end of all other income. Certainly, plan for that worst case. But likely you can still find ways to be productive and serve others with your time and also likely you will end up cash positive on some of those efforts.
The security that a paid off house buys is, IMHO, often worth the opportunity cost of not having that money in the market. There are certainly situations where it does make sense, and situations where it doesn't, but the peace of mind is large.
I also agree with Robbie, just because you're retired doesn't necessarily mean that you're without income outside of your retirement income. I'd love to retire and caddie in the summers and referee the rest of the year. Or drive the Zamboni. My uncle moonlights with some of his old employers. Hell, I'd even consider an entry level job that I didn't have to take anything home with me, just for the health insurance, if I could get enough vacation time with it.
In reply to mtn :
If a house is just something you buy, it can be ruined by a bad neighbor.
If a house is more than that, something to aspire to, something to achieve. That others aspire to. Waterfront, special view, unique or historic home.
Then a bad neighbor can either be brought around or ostracized until they leave.
frenchyd said:In reply to mtn :
If a house is just something you buy, it can be ruined by a bad neighbor.
If a house is more than that, something to aspire to, something to achieve. That others aspire to. Waterfront, special view, unique or historic home.
Then a bad neighbor can either be brought around or ostracized until they leave.
Great!
Not sure of your age, but with a young kid I'm guessing you're still in your 20's/30's. That's just too long to rely on that size of nest egg. Imagine if this discussion was happening at the end of 2019 or early 2008. In either case you would be in a world of hurt 2 years later. IF this is your final nest egg and you're (for the sake of argument) 30, now you have to pull out a higher % of your capitol and can never really catch up. At 60's it's the same situation, but while painful not the end of they world as you are so much closer to the end of your 'needs' the loss of capitol would be less serious.
If I were in your situation I'd pay off everything, get an affordable house, invest the rest and not touch it except for significant house repairs or other, planned for, one off expenses. With everything paid off you can stuff your after tax and tax deferred retirement investments to the max. Sit on that until you're in your early mid 50's and you have more than enough to live a good life, and pay for health care, until Medicare kicks in at 65, it also means even if you hit your next egg hard in the early years, everything else is still sitting there building up until you start drawing on that in your sixties.
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