As I approached retirement, I used the most dirt-simple, no budgeting required, method to determine readiness. Over the years I had worked up to contributing 14% of my gross salary to my 401(k). Far above what was required to max out the company match, but saving a little more never hurts. But, when I thought about this I realized that at 6.2% to SS and 1.45% to medicare, if I replaced 80% of my pre-retirement salary with post-retirement income I was going to be doing just fine. Now if we throw in some other savings from not going to work, that was a cushion, but 80%, which could be a combination of SS, pension and 4% guideline savings withdrawal, was how to keep my current lifestyle. Hit the number right before 62, and net worth has kept increasing for 16 years...
As much as I like the advantages of stocks you list, I think you have missed one of the great advantages of brick and mortar real estate. Sweat Equity: No matter how much I may want to, I can not add untaxed income to stock investments through my own labor. DW and I are both very handy people who enjoy working together to build our future. We never engaged in house flipping, which is fraught with many dangers, but have invested in "unloved" houses that we repaired, painted, landscaped and rented out. The work we put in together was both a great bonding experience and represented an untaxed contribution to our retirement portfolio. We are both long retired -- our stocks and bonds have done very well, but so has our real estate, which has even more tax advantages than stocks. Certainly not for everyone, but we have about equal amounts of each asset. When we retired, the RE moved to our new location through the tax-deferred magic of 1031 exchanges. Of course there is work involved, but many of the articles I read on retirement extol the value of part-time work in retirement. The job title of "landlord" has a lot more class and appeal than "Walmart greeter".
I have a different take on prepaying a mortgage. If I prepay and have a crisis or emergency I am going to get absolutely no sympathy, or credit for the prepayment from my mortgage holder. Instead I put the money into my normal investments at my normal asset allocation. If I accumulate enough, I can pay off the entire remainder of the mortgage. If I have a need for money before the mortgage is paid off, I have it available. If I don't have a need I can pay the entire mortgage off. In most cases this will result in an earlier payoff than pre-payment since market returns are usually higher than mortgage rates.
Instead of a cash emergency fund I always had an emergency plan. Every 6 to 12 months we would consider what to do if we needed 2 months income immediately. Then we would think about what if we suffered a loss in income (job loss, injury, etc.). Essentially we listed our assets by which would be the least painful to sell. We kept enough cash in the bank to make ordinary payments, and maybe another month or so of income, but nothing big enough to encourage a splurge on some marginally necessary luxury. When we had a job loss, the plan prevented panic and we immediately shifted to a lower standard of living. Came out smelling like roses and with an even higher saving percentage when a new job came along.
Comments
As I approached retirement, I used the most dirt-simple, no budgeting required, method to determine readiness. Over the years I had worked up to contributing 14% of my gross salary to my 401(k). Far above what was required to max out the company match, but saving a little more never hurts. But, when I thought about this I realized that at 6.2% to SS and 1.45% to medicare, if I replaced 80% of my pre-retirement salary with post-retirement income I was going to be doing just fine. Now if we throw in some other savings from not going to work, that was a cushion, but 80%, which could be a combination of SS, pension and 4% guideline savings withdrawal, was how to keep my current lifestyle. Hit the number right before 62, and net worth has kept increasing for 16 years...
Post: Is It That Hard?
Link to comment from October 22, 2023
As much as I like the advantages of stocks you list, I think you have missed one of the great advantages of brick and mortar real estate. Sweat Equity: No matter how much I may want to, I can not add untaxed income to stock investments through my own labor. DW and I are both very handy people who enjoy working together to build our future. We never engaged in house flipping, which is fraught with many dangers, but have invested in "unloved" houses that we repaired, painted, landscaped and rented out. The work we put in together was both a great bonding experience and represented an untaxed contribution to our retirement portfolio. We are both long retired -- our stocks and bonds have done very well, but so has our real estate, which has even more tax advantages than stocks. Certainly not for everyone, but we have about equal amounts of each asset. When we retired, the RE moved to our new location through the tax-deferred magic of 1031 exchanges. Of course there is work involved, but many of the articles I read on retirement extol the value of part-time work in retirement. The job title of "landlord" has a lot more class and appeal than "Walmart greeter".
Post: So Much to Like
Link to comment from April 1, 2023
I have a different take on prepaying a mortgage. If I prepay and have a crisis or emergency I am going to get absolutely no sympathy, or credit for the prepayment from my mortgage holder. Instead I put the money into my normal investments at my normal asset allocation. If I accumulate enough, I can pay off the entire remainder of the mortgage. If I have a need for money before the mortgage is paid off, I have it available. If I don't have a need I can pay the entire mortgage off. In most cases this will result in an earlier payoff than pre-payment since market returns are usually higher than mortgage rates.
Post: Six Rules for Wealth
Link to comment from January 28, 2023
Instead of a cash emergency fund I always had an emergency plan. Every 6 to 12 months we would consider what to do if we needed 2 months income immediately. Then we would think about what if we suffered a loss in income (job loss, injury, etc.). Essentially we listed our assets by which would be the least painful to sell. We kept enough cash in the bank to make ordinary payments, and maybe another month or so of income, but nothing big enough to encourage a splurge on some marginally necessary luxury. When we had a job loss, the plan prevented panic and we immediately shifted to a lower standard of living. Came out smelling like roses and with an even higher saving percentage when a new job came along.
Post: Six Rules for Wealth
Link to comment from January 28, 2023