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.