How are you getting by on your savings?

[ToadHill]

I decided to take some $$$ out of my IRA over the last several years and loan it to m y kids when they each wanted to buy a home.

I bought the 3 homes and I now hold the mortgages. They pay their mortgage payments to "ol dad" and it helps with the monthly income. They get a deal because my interest rate is a lot less than the banks wanted.

 

[tallyho8]

I decided to take some $$$ out of my IRA over the last several years and loan it to m y kids when they each wanted to buy a home.

I bought the 3 homes and I now hold the mortgages. They pay their mortgage payments to "ol dad" and it helps with the monthly income. They get a deal because my interest rate is a lot less than the banks wanted.

The bad part about this is what happens when one gets sick and can't work for an extended period of time or gets laid off or has triplets or is divorced or is sued for a large sum or ?? and can't or won't pay the notes anymore.

Anything bad can happen in 20 years.

Will you kick them out and repossess the home or will you just get a large reduction in your retirement income.

 

[magicheater]

I decided to take some $$$ out of my IRA over the last several years and loan it to m y kids when they each wanted to buy a home.

I bought the 3 homes and I now hold the mortgages. They pay their mortgage payments to "ol dad" and it helps with the monthly income. They get a deal because my interest rate is a lot less than the banks wanted.

Good for you AND your kids. Only you can ascertain the risk for yourself, financially...... IF. You are probably getting better than what the banks are paying and your kids are are not paying what they would have to. Tie it with love and it is a sweet package!

 

[keegs]

With individual bonds, you face the risk that the issuer will default. Think about GM. The primary advantage of a good bond fund is that it holds a diversified portfolio of bonds, so the effects of default by an individual issuer will not be catastrophic.

Here's a link that does a reasonable job in discussing the advantages of bond funds over individual bonds.

Litman Gregory - Bond Funds vs. Individual Bonds - October 9, 2009



Steve

Thanks Steve,

It came across to me as a bit of a pitch but it was informative nonetheless.

Obviously if you're in an investment income situation you're likely to stick with high quality corporates and gov. bonds. And there is the added trade off of less flexibilty although some of that can be mitigated by the term of the bond.

There's certainly allot to consider here and I appreciate your response. I'm not sure the average American is prepared for this ..but that's another topic.

 

[keegs]

I took half of my combined pensions and rolled that into an IRA and took the other half in a monthly lifetime distribution.

At first the IRA was netting something like $200/day; life was good. But when the market crashed, so did my retirement nestegg. After 5 years, it's about 20% less than what I started with. The distribution portion is barely enough to cover my miscellaneous monthly expense but not my mortgage. In addition, I do collect a paltry sum from SS. That's enough to cover my mortgage.

So, the short answer to a complicated question is, I'm barely making it. As prices and taxes go up, the closer to not eating I get. And there is no SS cost of living adjustment this year. Eventually I'll have to cash out my IRA, paying a 10% early fund withdrawal penalty plus a 28% income tax (which is expected to go back to 33% next year).

So, after 50 years of working, I get the honor of dying bare bones broke with nothing to show for it. It's just not a pretty picture any way you look at it.

Maybe a reputable fee for service consultant would be money well spent in your situation?

 

[smstonypoint]

I'm not sure the average American is prepared for this ..but that's another topic.

Keegs,

Sadly, I think you are correct.

Steve

 

[Travelover]

Thanks all..

What I'm driving at here is if you're relying on savings to get you through...how are doing it? Did you purchase an annuity with some or all of your nest egg? Are you keeping a portion of your assets invested in stocks and bonds and if so how do you manage those in such volitile market conditions?

These are just some investment basics ahead of us and we're both feeling a bit stymied by just the basics.

There's lots of information out there but most of it is geared to selling you something rather than providing guidance.

I'm happy for all of you who've had the fortune of a defined benefit.

Now is a bad time to buy an annuity as interest rates are so low. A really simple and low cost DIY plan is to invest in a low expense ratio mutual fund like Vanguard's Wellesley or Wellington funds. Both invest in both stocks and bonds to throw off a steady source of income and provide a hedge from future inflation.

 

[keegs]

Now is a bad time to buy an annuity as interest rates are so low. A really simple and low cost DIY plan is to invest in a low expense ratio mutual fund like Vanguard's Wellesley or Wellington funds. Both invest in both stocks and bonds to throw off a steady source of income and provide a hedge from future inflation.

Interesting....I didn't know that annuity terms were associated with current interest rates. I thought insurers made money on the upfront fees and the insured's untimely/premature... departure.

Both Vanguard funds look pretty good, especially the Wellesley income fund... even over the 10 year and the fees are reasonable.

Thanks.

 

[smstonypoint]

Interesting....I didn't know that annuity terms were associated with current interest rates. I thought insurers made money on the upfront fees and the insured's untimely/premature... departure.

Both Vanguard funds look pretty good, especially the Wellesley income fund... even over the 10 year and the fees are reasonable.

Thanks.

Keegs,

Keep in mind that there are different types of annuities (e.g., fixed versus variable) with their own advantages/disadvantages. Humberto Cruz is a financial columnist that I find informative. He has written several articles on annuities. Here's a link to one such article.

Humberto Cruz: Annuities can be valuable slice of retirement funding pie | Dollars & Sense

Both Wellesley and Wellington are great funds, in my opinion. (Disclaimer -- I am a Vanguard customer). Both have relatively low fees for actively-managed funds. The Wellesley fund maintains an approximate 40% stock/60% bond allocation, while the Wellington fund maintains an approximate 60% stock/40% bond allocation.

Vanguard's Target Retirement funds are index funds with stock/bond allocations that change over time; e.g., the Target Retirement 2025 fund will gradually decrease its allocation to stocks and increase its allocation to bonds over time.

The beauty of the hybrid funds (Wellesley, Wellington, Target Retirement, Life Style) from Vanguard and other relatively low-cost companies (e.g., Fidelity, T. Rowe Price) is that you don't have to worry about rebalancing your portfolio -- they do the work for you. Set it and forget it.

Steve

 

[forester2]

I'm on the cusp of retirement and have managed my own retirement accounts all my life. My tendencies have been relatively conservative and contrarian and that has served me well. However, this is the first time I've been entirely bewildered on what direction to go in. Interest rates are incredibily low so I don't see how they can continue in that direction, business prospects are iffy at best and gold is pretty darn high. My one investment area is feel relatively at ease in is land. At least I can play with that.