Retirement Planning - Lessons Learned

[MossRoad]

When we were paying off mortgages early, we'd always pay the exact payment with one check and plop down another check with whatever we could afford extra that month and specify it was to go towards the principle only.

Also, two words:

Amortization Table!

If you've never seen one, or did not get one with your mortgage, get one.

Ours was 360 lines long (one line for each monthly payment over 30 years).

It shows exactly how much money for that month's mortgage payment is going towards interest and principal.

On our very first monthly payment, the principle was about $7.00 and the interest was about $250. The we put down another $250 towards the principle, and that wiped out the principle payment for the next 29 payments! That saved us around $6000 off the end of the loan, and shortened it from 360 payments to 331 payments.

It was great fun to hang that amortization table on the wall and strike out all the payments each month. Really shows your progress and makes you feel like you accomplished something.

 

[California]

In the last years you're paying almost entirely principal. So in effect you have an extremely low interest loan. Like nearly 0%.

Huh? No. Every month the contract interest rate is applied to the balance due, to determine how that payment is allocated.

Payments later in the life of the loan pay it down faster. Because the fixed monthly payment required, is finally much larger than the amount of interest calculated due that month.

 

[California]

If you have any credit card debt, you should not retire. You have established a lifestyle that is above your means.

Glaringly true!

Paying 29% interest perpetually on any balance at all is the height of foolishness.

 

[grsthegreat]

Don’t do it. I paid my mortgage off thru an inheritance, and that’s the only reason we were able to do it. I would never have cashed out early on my investments to take a 10+% hit penalty. Just over pay each month as others have said.

 

[beowulf]

When we were paying off mortgages early, we'd always pay the exact payment with one check and plop down another check with whatever we could afford extra that month and specify it was to go towards the principle only.

Also, two words:

Amortization Table!

If you've never seen one, or did not get one with your mortgage, get one.

Ours was 360 lines long (one line for each monthly payment over 30 years).

It shows exactly how much money for that month's mortgage payment is going towards interest and principal.

On our very first monthly payment, the principle was about $7.00 and the interest was about $250. The we put down another $250 towards the principle, and that wiped out the principle payment for the next 29 payments! That saved us around $6000 off the end of the loan, and shortened it from 360 payments to 331 payments.

It was great fun to hang that amortization table on the wall and strike out all the payments each month. Really shows your progress and makes you feel like you accomplished something.

Oh yeah, about the amortization tables. We did the same - a lot of satisfaction to see the principal go down and the interest diminish. We would also, from time to time, redo the table based on the new balances. Having that table available is also a great way to make sure the bank is crediting your extra payments appropriately. More than once I found mistakes - usually because they did not credit the extra payment until the following month and sometimes they overcharged interest. Most of that was cleared up when I would clearly identify that the extra money was to go only to principal.

 

[kenmac]

It backfired though, they applied it toward the escrow even though it already had enough to pay my insurance and taxes.

Escrow something I don't do. I pay my HO insurance yearly myself.

 

[California]

Is there a good way to factor future tax liability in retirement...?

As I noted in another post, good retirement planning software that models a forecast for your individual circumstances will answer this.

Obviously it will be less precise for the distant future as compared to say next year. But it will give you a good idea of the range of possible outcomes.

I bought Quicken's version in the mid-90's. It was excellent to work with. By inputting conservative estimates back then, things have turned out better than what it forecast.

Read some reviews on modern retirement planning software. Anybody have a good suggestion?

 

[Torvy]

Beware of this risk when making extra principal payments on your mortgage - Homeowner - Homeownering

Making extra principal payments on your mortgage can be a solid financial strategy. But, sometimes banks don't apply your payments correctly, costing you money and affecting your finances. Learn how to tell if your extra principal payments are being applied correctly and what to do about it if...

www.homeownering.com

@Jstpssng

 

[MossRoad]

Escrow something I don't do. I pay my HO insurance yearly myself.

We were not allowed to do that until we had X dollars in equity in the house. Probably something like 20% paid off. Escrow paid insurance and property taxes. We took those over as soon as we were able to.

 

[Larry Caldwell]

just before i left portland Oregon some gal across the river in vancouver wash got popped for selling and delivering mattresses to oregon customers from her stores in wash to avoid the sales tax

I think i got that backasswards but you get the idea.

Yeah, backwards. It must have been somebody in Oregon delivering to Washington without collecting sales tax. Nobody cares about delivering from Washington to Oregon. If you are an Oregon resident you pay state income tax no matter where you earn it. I had a friend who was a welder on an Alaskan pipeline who had to leave the state because he didn't pay his tax bill.

There are plenty of opportunities for smuggling between states. Everybody in Southern Oregon drives to California to buy booze. There are huge warehouses along the freeway to service northbound travelers who don't want to pay Oregon liquor tax. OTOH, the per capita pot consumption in Ontario (right across the border from Boise) is astronomical. Dispensaries there rake in $millions from Idaho, where pot is still illegal.

 

[California]

...after the bust, Congress required us to take their money even though we were one of the banks that past the 'stress' test.

I hope that wasn't WF. We discovered for both FIL and then Mom, several new checking accounts (or credit cards?) had been established in their names without telling them. FIL was very confused by all the invoices for late charges. My wife cleaned up the mess for him.

Mom asked me to take over her financial records at her age 95 when she discovered she was suddenly being billed $65/month for 'Credit Protection' (useless duplication of the existing disputed-charge provision) on each of multiple credit cards that she didn't recognize. They halted that charge and closed the unneeded cards as soon as we requested it.

And when I closed Dad's WF checking as Executor, I was told to send a notarized request and an original death certificate to a special branch in Oregon. Twice. Both instances were ignored by that special 'cheat the widows and orphans' Oregon office, they had no record of my responses. I finally cashed a check for the last $1k in the account less 5 cents, then ignored the Low Balance Penalty letters they sent me for months. So sue Dad! He donated his body to science, you'll never find him.

 

[Larry Caldwell]

Im thinking about using my 401k to pay off my house early next year. I will pay 10% penalty fee and they will deduct state and federal taxes which comes out to this as an example. If I remove 100,000 out of my 401k, that means they will hand me a check for 65,000 dollars. I would have to withdraw 155,000 assuming 10% penalty fee, 20% fed taxes and Maines 5.5% tax rate(total 35.5%) in order to get the 100,000 to pay of the mortgage.

1-I would own the hose after that so if stock crashed-I got something out of it.

2-I should get some taxes back after filing taxes?

3-If I font pay of the loan early i will pay on interest which is 5% now foe me for 15 more years. Thats about 75,000 in interest I would save vs 65,000 in taxes and fees withdrawing from my 401k.

4-I would lose compound interest earnings but then again the stock market isnt going to continue to go up like this...no way no how.

5-I would have 750 a month less to pay for bills meeting meeting and exceeding my budget.

Anyone think of any more pros or cons? My medical is mostly paid for for life and I already have a soc security and two small pensions and one medium sized pension for life. I am also mostly debt free.

You can refi for way under the inflation rate. It's free money. Let your 401k ride; if the market crashes it will recover. You should be able to get a 15 year fixed for under 2%.

 

[RickB]

I hope that wasn't WF. We discovered for both FIL and then Mom, several new checking accounts (or credit cards?) had been established in their names without telling them. FIL was very confused by all the invoices for late charges. My wife cleaned up the mess for him.

Mom asked me to take over her financial records at her age 95 when she discovered she was suddenly being billed $65/month for 'Credit Protection' (useless duplication of the existing disputed-charge provision) on each of multiple credit cards that she didn't recognize. They halted that charge and closed the unneeded cards as soon as we requested it.

And when I closed Dad's WF checking as Executor, I was told to send a notarized request and an original death certificate to a special branch in Oregon. Twice. Both instances were ignored by that special 'cheat the widows and orphans' Oregon office, they had no record of my responses. I finally cashed a check for the last $1k in the account less 5 cents, then ignored the Low Balance Penalty letters they sent me for months. So sue Dad! He donated his body to science, you'll never find him.

Wells has passed bank stress tests. They are still working on basic human decency and honorable business practice skills.

 

[kenmac]

We were not allowed to do that until we had X dollars in equity in the house. Probably something like 20% paid off. Escrow paid insurance and property taxes. We took those over as soon as we were able to.

I forgot about the dreaded taxes. LOL. Yes, I pay those as well.

When I bought the place (four yrs. ago) I paid 25% down to avoid PMI.
I have always paid HO insurance and PT instead of escrow.

I also self insure a portion of my HO insurance to keep the rates down.
Perhaps it's up to each individual lending institution's requirements.

 

[California]

I also self insure a portion of my HO insurance to keep the rates down.
Perhaps it's up to each individual lending institution's requirements.

Heck yes. Insurance should be for expensive disasters, and for a representative to defend you from liability. Not for an expense on the level of a blown-down fence etc.

 

[MossRoad]

I forgot about the dreaded taxes. LOL. Yes, I pay those as well.

When I bought the place (four yrs. ago) I paid 25% down to avoid PMI.
I have always paid HO insurance and PT instead of escrow.

I also self insure a portion of my HO insurance to keep the rates down.
Perhaps it's up to each individual lending institution's requirements.

Yep. We had to start from scratch on our 1st house. Double payments made the 30yr go away in less than 5. Then we put that house and 20 acres under a blanket mortgage. The value of the house and land together, less the equity in the house, meant we owned more than 25% of the total value, so no money down and no mortgage insurance required. Paid that off pretty quick as well. 5 years later, we did another blanket mortgage on that same house and the house we are currently in. Again, since the values of that house plus this house, less the equity we had in the first house, meant we owned more than 25% of the total value, so again, no money down and no mortgage insurance required.

When we first heard about blanket mortgage it seemed like "creative financing" and kinda shady, but it was the Savings And Loan's idea to help us get around the 25% down and insurance requirements. It worked out great both times.

 

[MossRoad]

Self insured...

Our current house is valued at just a tad over $100K. The replacement cost is estimated to be over $250K. Our home owner's insurance is currently around $1K per year. I don't think self-insuring would save me much on premiums.

I'm sure other people it works out numbers-wise though. Just not for us.

 

[RickB]

Self insured...

Our current house is valued at just a tad over $100K. The replacement cost is estimated to be over $250K. Our home owner's insurance is currently around $1K per year. I don't think self-insuring would save me much on premiums.

I'm sure other people it works out numbers-wise though. Just not for us.

My self insured portion is called a deductible.

 

[grsthegreat]

In today’s market I thought all houses were worth over 100K.

 

[Torvy]

I hope that wasn't WF.

Momma always said if I don't have something nice to say, don't say anything... So I will not say anything about WF except that I have never worked for them.