Retirement Planning - Lessons Learned

[Larry Caldwell]

I wouldn't be so certain that if the market crashes that it will recover. NOTHING lasts forever. That 401k money can evaporate in an instant: Petro-dollar collapse might do it [kick the legs out from under the USD as world's reserve currency and all of a sudden the endless money printing stops, and inflation shoots sky high]. Absolutes have a way of turning around and biting one. Not that it's "one sided." Case in point, a guy in Utah(?) took out all kinds of loans expecting for everything to crash (no one left to collect, right?) and, well, crickets (no crashing sounds came)... they rounded him up.

Hedge your bets! Name of our "farm" is "Scattered Eggs Farm," not because of the obvious (anyone familiar with chickens and other free-ranging fowl understand this), but more along the lines of "NOT all eggs in one basket." I had an extreme wake up at one point in which I had my entire "future" charted out, how I was going to use money for retirement and use the sale of my house for late-in-life needs. Major economic upheaval upended my plans. I got a bit wiser from that and am now a bit more resilient. I decided that I would never "retire," and that my 401k, social security and whatnot wouldn't be there, and this mentality allows for me to adjust should I have to- I figure that as long as I am able I will be working, whether that work will provide sufficient "revenue" is the question. No matter, it's about controlling one's expenses.

If one refinances one should "invest" the "savings." Back when I was playing with banks and doing refinancing (I now have no mortgage) I would be looking more to reduce the term than having a lower payment (though I always got a lower payment rate). I see a lot of volatility ahead, and most everything is a total crapshoot; what is certain, however, is that the future won't be what it used to be!

If something can happen it doesn't mean it will. The petrodollar is already history. The Saudis are accepting a market basket of currencies. Pricing oil in dollars is a convenience, not a requirement. Yes, civilization may end in the next 15 years, but barring that I would bet that the money people will end up with money. If you are really worried, put your 401k in a contra fund and keep paying your bills.

If he has to pay a 10% penalty for withdrawing from a 401k, he's still in his 50s, or maybe even younger. This is not the time to be giving away 50% of his retirement savings to the gummint. I'm a big fan of retiring the mortgage before you retire, but not at the expense of retirement savings.

 

[Torvy]

If something can happen it doesn't mean it will. The petrodollar is already history. The Saudis are accepting a market basket of currencies. Pricing oil in dollars is a convenience, not a requirement. Yes, civilization may end in the next 15 years, but barring that I would bet that the money people will end up with money. If you are really worried, put your 401k in a contra fund and keep paying your bills.

If he has to pay a 10% penalty for withdrawing from a 401k, he's still in his 50s, or maybe even younger. This is not the time to be giving away 50% of his retirement savings to the gummint. I'm a big fan of retiring the mortgage before you retire, but not at the expense of retirement savings.

I don't always agree with Larry, but this is pretty good. The S&P has averaged something like a 10% return over the last 50 years. 401k plans can be invested in a lot of different funds with different risk tolerances. The closer to get to retirement, the less risk you should take...unless of course this is just your fun money and you have a safe nest egg elsewhere.

When we bought our first house, we took out a 401k loan for the down payment...essentially, we borrowed from our own future and paid ourselves back with interest. Other than life or death situations, this would be the only time I would consider pulling money from a 401k. The loan was through our employer and the payback came out of our checks. We were also in our mid 20s and had time to rebuild if needed...though the risk was extraordinarily low.

 

[MossRoad]

Holy cow. Even a dump of a house in coeur d Alene is bringing in $350,000

Median home price here is around $147K.

 

[MossRoad]

Median home price here is around $147K.

Some sites list the median home price under $100K.

Average age of homes is 60+ years.

Average household income is under $60K per year.

Unemployment rate is about 4.5%. If you're not working here, it's because you either don't want to, you are disabled, or you are unemployable. Everyone is hiring.

Cost of living here is very inexpensive. Young people starting out will have no problem finding jobs, affordable housings, etc.

We're an hour from Chicago. 2hrs from Indy. Trains to and from Chicago several times a day. We have decent connecting flights and schedules to several major airports. About 15 minutes to corn fields from the center of town.

There are some bad parts of town with high violence. The downtown is thriving again. Next town over has huge shopping district. Great private schools. Public school system is not so good, but if you have involved parents, they are fine.

Overall, it's a pretty OK place to live if you stay out of the bad neighborhoods. Even then, just passing through you'd be OK. Most if not all of the violence is drug and/or gang related, or disputes between parties that are acquainted with each other.

 

[MossRoad]

One issue with borrowing from you 401K is that if you lose your job, you have to pay the entire balance back almost immediately. Something like 60 days. If you don't pay it back within that 60 days, the IRS will consider it income, and then you'll have to pay income tax on it. And, if you're under 55 years old, you'll probably have to pay an additional 10% early withdrawal penalty.

8 Reasons to Never Borrow From Your 401(k)

Find out why dipping into your 401(k) can have serious consequences.

www.investopedia.com

4 Reasons to Borrow From Your 401(k)

While 401(k) loans are often demonized, when done sensibly, taking one need not spell trouble for your retirement savings.

www.investopedia.com

 

[newbury]

The variable interest rate worked down to some 2.5% so this was near free use of their money.

That is one of the key things to pay attention to - what is the cost of the money?
I invested in T-Bills when they were paying 10% back in the '80's. Sadly they timed out.

The sweet spot in lending is someone who has ok credit, but has been improving over time.

Which I resent because I've always had great credit. But have been told by loan officers that I needed more loan to show I could repay them.

Just my opinion . . . And, I should add, you really shouldn't be relying on financial planning advice from an Internet tractor forum!

But it is a good source to figure out what not to do.

If your mortgage loan APR is high (over 4-5%),

ROFL!!
When I bought the house I'm in rates were over 10% and predicted to never go lower than 7%.

Having faced loan interest rates of 10%+ I'm now looking at the value of doing a refi at 2% just to stash $$ away for a crash. In case some opportunities arise.
The 2008 "decline" I had kept a stash in cash, which enabled us to buy a house on a short foreclosure for $25K, now assessed at about $110K.

 

[JethroB]

My self insured portion is called a deductible.

Mine too, at $1000 for home, autos, etc. I’d make it higher if the insurance company allowed it (and benefit was there.)

 

[kenmac]

Oddly enough, the last time I updated my homeowner's insurance, going from $500 to a $5,000 deductible would only save me about $5/month. If I assume the actuaries know their business, small claims must be rare.

I don't know what insurance you have. None I know of offer $500.00 deductible any more. The lowest is $1000.00 and has been for some time.

My home in the city had $500.00 deductible at one time (years ago). At renewal time, they sent me updated paper work indicating that $500.00 deductible was a thing of the past, and the renewal deductible would be $1000.00. Every insurance company my guy checked had min. $1000.00 deductible .
I can't remember the savings, but My $5000.00 deductible save me more than 50 bucks a year, or I wouldn't have gone that way.

 

[Larry Caldwell]

I don't know what insurance you have. None I know of offer $500.00 deductible any more. The lowest is $1000.00 and has been for some time.

My home in the city had $500.00 deductible at one time (years ago). At renewal time, they sent me updated paper work indicating that $500.00 deductible was a thing of the past, and the renewal deductible would be $1000.00. Every insurance company my guy checked had min. $1000.00 deductible .
I can't remember the savings, but My $5000.00 deductible save me more than 50 bucks a year, or I wouldn't have gone that way.

State Farm, the same policy that we had 27 years ago when we bought the place. We insured for replacement value two years ago, and I asked about the increased deductible then. The agent ran the numbers, and there was not much savings. Our umbrella policy also has features not available nowadays. We have several policies with them for very reasonable rates. They take care of their legacy customers.

 

[ultrarunner]

Insurance is another wild card...

Rates tripling in 3 years is staggering and this is with going from a thousand deductible, to $5,000 to $10,000 but the real issue going forward might be availability.

i have one retired friend that dropped fire all together and kept liability... small cinder block home with clay tile roof... Fire $2800 on a home he built for 15k...