Advice please home/tsp in retirement

[Bullitt]

You saved all your life and you're now at a point where you are transitioning to a spender from saver. You should enjoy yourself and as long as you're doing it responsibly then you should be fine.

A friend of mine bought a $10,000 Sea-Doo 10 years ago and probably used it less than 10x. It was not a good investment for him but he did not buy used either.

I'm glad things worked out for you. I sense a feeling of relief in your recent post. Merry Christmas.

 

[dave123]

A little update, if I may.

The old home sold in September. Since then, I've made 3 payments for a total of 2256.00 interest paid on the loan. This money is tax deductible.

The money that I could have used to pay off the loan has been conservatively invested and I'm up almost 17k.

Yes I know that November was a historically good month, and I know this won't continue. This blessing has, however, given me a nice buffer. I got my jetski, put some in savings, and now the money in the market is sufficient to pay off the home if I choose to do so.

With my risk aversion, I won't sit by and let this money ride a crash. If things turn ugly, out it comes and the home is payed off with a profit to boot.

So, I will say "so far, so good" on my decision to not pay off the home.

I'm still not sold either way on this topic, this is just my experience so far.

p.s. @ bullitt Don't flame me for the "Hedonistic" jetski too bad. At least I got a used one, only $4,500.

 

[Bullitt]

Would you rather die owing on a home, and enjoy a jet ski (jet ski standing in for whatever you enjoy in life), or would you rather pay off the home, live on a tight budget, and die owing nothing?

Neither. The house will be paid off in 3 or 4 years and we live well within or below our means.

1. We plan on dying debt free. We've also seen how stressful it is for others who have had loved ones pass with debts.

2. RE: Jetski, material things. See "Hedonic Treadmill" - https://en.wikipedia.org/wiki/Hedonic_treadmill

Note: A roof is generally something you should be able to plan for. A need to perform a complete tear off doesn't happen overnight. Leaks can just happen, but they can be repaired without a roof replacement. Any roofing contractor can give you an estimate as to how much life you have left in the roof and should by no means be considered an emergency.

 

[dave123]

Maybe I am not understanding, but wouldn't paying off the loan free up what would have been designated for a monthly payment? If the loan was paid off, you would only need to come up with real estate taxes and and homeowners insurance. I'm confused???

That was my thinking, Raven. Here is how I'm looking at it now (right or wrong):

I could have paid it off and pocketed about 10k. Now if something comes up, let's say I need 20k for a roof, well I would have to dip into TSP. I'm assuming here that the money saved from the payment would be used on "stuff."

But not paying off the home allows me to invest almost 300K into a portfolio that I can dip into, allowing me to leave the TSP alone. I can get that jet ski, for example. I can get a roof if I have too. As long as the portfolio makes around 3.5%, I think I break even, and have the cash if I need it. I can also write off the interest for my taxes. Also, if I die tomorrow, the wife would be better off as she could tap the cash if she needed anything (I don't have life insurance).

Of course, the home will be worth more when I die than it is now, so my heirs can just sell it. A bit of a pain for them, but they will remember how much fun they had coming to my house and riding the jet ski to get them over the hump.

Of course, if I get stupid and blow it all, well, then I would be screwed. But I've always been fiscally responsible before..

Not 100% sure I'm right on this call, but consider this:

Would you rather die owing on a home, and enjoy a jet ski (jet ski standing in for whatever you enjoy in life), or would you rather pay off the home, live on a tight budget, and die owing nothing?

edit: my TSP took in 9% last year - 3.5 is just my break even. Yes I've been careful, perhaps too careful. This year I'm up about 6%.

 

[Boghie]

Maybe I am not understanding, but wouldn't paying off the loan free up what would have been designated for a monthly payment? If the loan was paid off, you would only need to come up with real estate taxes and and homeowners insurance. I'm confused???

It's not really a gamble. Dave123 apparently can invest the proceeds from the sale of his prior house - which exceeds the cost of his new house - without much concern for retirement spending needs. All he has to do to break even is clear an average annual return of 3.5%. The only concern I would have is that he made 3.5% on his TSP account last year - a year where the C-Fund (S&P500) made 31.1%. That means he is a very risk adverse investor. That is risky in itself. He should invest to a point where he reaches 7% to 8% to safely cover the cost of the home and grow his retirement savings and overcome the effects of inflation.

I think he has addressed that issue by attaining the services of Edelman Financials. Just remember, Dave, they do not 'market time' in the sense folks around here do that. They do, however, re-balance at opportune times - for example they sold bond and 'cash' holdings in March and bought stock holdings and other 'risky' assets. So they sold high (bonds and less risky assets were at a premium) and bought low (risky assets were in a panic sale phase) simply because the less risky assets were now over-represented in the allocation in relation to more risky assets. They reversed that in mid-August by buying less risky assets with the growth of more risky assets. It looks like they have made the equivalent of 4 IFTs in my Edelman account since February. I very much doubt that an Edelman advisor would recommend to Dave that he camp his house sale proceeds in an allocation expected to return 3.5% - thus, over time he will gain by doing this.

By the way Dave, your advisor probably worked with you on your TSP holdings. If not, set a meeting. At the very least you can look at the pie chart on their website and configure your TSP closely to that. I do that - but I kinda sleuth out three different allocations based on projected mood. I have a normal allocation, and aggressive allocation, and a conservative allocation. Then I play on the edges of those based on the flight of birds from the Temple of Jupiter.

 

[Bullitt]

One friend told me "I'd rather die owing on a home than live wishing I had enough money to take my wife to dinner." Hmmm

His heirs must love him. Dealing with an estate when someone passes is stressful enough.

Someone who makes a statement like that is living above their means and has numerous other debts that are now someone else's problem.

 

[ravensfan]

Maybe I am not understanding, but wouldn't paying off the loan free up what would have been designated for a monthly payment? If the loan was paid off, you would only need to come up with real estate taxes and and homeowners insurance. I'm confused???

 

[dave123]

Thank you NASA. I decided not to pay off the home. I put a few thousand into my etrade, and I'm most likely going to let the Ric Edelman guys manage my proceeds from the home. The TSP will stay where it is until I'm 59 1/2, then I will reevaluate. I figured better to have the cash and hopefully make enough to offset the 3.5% on my new home then to pay off the home and have to dip into TSP if anything past normal living comes up. I do hope it's the right call.

One friend told me "I'd rather die owing on a home than live wishing I had enough money to take my wife to dinner." Hmmm

 

[nasa1974]

Dave,
In your other thread you asked if you should pay off your new mortgage? You said you had enough to do it. I guess my perspective is 1) paying off your new mortgage how will that affect your retirement income short term and long term? and 2) how long is your mortgage and what will your interest/principle costs be vs. retirement income?
Example: $780 interest/month is $9,360/year and $140,400 for 15 years.
Obviously it will be you and your wife's decision on what to do. But I would say let the math give you your best option.

 

[dave123]

Got an update, finally!

Home sold (for more than we were asking!). Finally closed yesterday. I have enough to pay it off, and then some.

I had the wire all set up, all I had to do was go to the bank and sign, but I got cold feet.

I'm 57 years old. Perhaps I should enjoy some of the money. The loan is at 3.5. I'm paying 780.00 a month interest, which I hate. My TSP is up 7% in the last 12 months (I got blessed with timing and was in G when the virus crash came). I'm back in S and G now. My etrade, however, is down. SO, the TSP guys are doing better than I've been able to do myself.

Are there stocks I could buy with dividends high enough to protect me if I put in, say 100,000?

Thanx for any input - I'm just not sure how I want to play this now with the economic uncertainty that the world is currently experiencing.

I'm open to one more round of advice.

 

[Boghie]

I am a recent Edelman client.

I got involved with them a little prior to selling a house for a nice profit, moving cross country, and starting life anew... Personally, the advice I received on budgeting, unexpected costs, emergency funding, investment strategy, and insurance needs has been spot on. And, yeah, the little investment account I have with them has that 1.7% fee - but I now can watch what they do and can make similar moves in my much larger TSP account. They know what I do with their advice and they are quite good with it. Also, I have never been pushed into investing more with them. All in all a great experience.

As far as that fee, to me it also seems a bit steep for a company that talks negatively about investment fees - but it is in the clear. You know what you are paying for. I will probably roll my TSP over at retirement and let them deal with the micro mess of allocation investing in 20 or 30 sectors. I might not have internet access in my Winnebago or yacht. All I need them to do is cover the salary of my driver/captain.

 

[rangerray]

Where there's a will, there's a way on that boat.

 

[dave123]

Thanx for replies @rangerray - the boat thing was always tongue in cheek, implying "enjoying a bit of the good life."

Update: inspections done, unfortunately my septic system failed and I had to come down because of that. I will still have enough to pay off the new home, and maybe a couple of extra thousand left over - so no boat for me

So, the last hurtle is the appraisal next week. Cross your fingers for me!


So I'm leaning very heavily towards paying off the home, and, at least for the time being letting the TSP ride.

 

[rangerray]

Personal experience: I would never buy another boat unless it was brand spankin' new. Give me one that nobody has ever tinkered with or neglected, and I could probably keep it going and avoid it being a big hole in the water that I pitch money into. However, if you intend to keep one in the water most of the time (at your own dock, for example) it is going to be a money pit, regardless if it's new.

 

[uscfanhawaii]

PS. Did you look into a Federal job or part-time contractor? Only IF you think you want to work a little longer.

 

[uscfanhawaii]

Dave,
Exciting to be that close to retirement!
I looked back at my Jan post, and I think I still recommend the same thing.
Keep the 3.5% mortgage. Is it 15 yr also? If not, you can still put in additional funds monthly to make it into a 15 yr.
1.35% is too much for a financial planner. But like you said, you could use it just to get started then take it over yourself.
You may want to keep some in your TSP. If nothing else, it would give you a good reason to keep in touch here. (That’s what I did.) Plus, if you take it ALL out, you can’t move any back later on. As long as you maintain SOME in TSP, you can move some back later if you want.
Don’t buy a boat unless that is a pastime that you intend to be a big part of your life. Find a friend with a boat first to see if you want to invest the time and $$ in a boat.
It’s not too early to start planning for your RMD’s at 72. Tax rates are probably as low as they will get. Consider rolling Traditional over to a Roth, a little at a time.
Good Luck! And let us know what you decided.

 

[Bullitt]

If you still want (or need) the new house, sell the old house ASAP and roll whatever isn't used on closing costs, down payment and minor improvements into a balanced portfolio.

Don't become a client of that money management firm. It will be a headache to leave and will likely involve various fees.

Be honest about buying a boat. Financing, gas, storage, maintenance fees will be a second mortgage in itself.

 

[dave123]

Thought I would drop an update; hoping some of you will revisit.

Just read over this thread again, and I'm getting close to crunch time.

SO, I have a contract on the old home for about 10k more than I owe on the new one, closing set for June 30th. This money will be eaten up by some upgrades I need to do. And, of course, it could fall through.

I'm still not sure what I want to do. Much has changed since my last post. I'm paying around $780.00 a month interest, and it hurts. I'm just not wired to pay fees and interest if there is any way to avoid it.

The virus has dramatically changed the market. I believe the long term outlook is still good, but...

Any updated advice? What would you do in today's market?

thanx

 

[Scout333]

Good luck with the boat Dave! I highly recommend it!

 

[dave123]

Dave, just wanted to confuse things even more. This actually isn't an either/or choice. You can take part of the money from the paid off house you are selling and pay off part of the mortgage on the new house. Gives you a nest egg and a smaller mortgage payment on the new house. All kinds of options depending on what you want to do in retirement. One other thought, as a young man you really need to consider what you want to do in retirement. I retired at 62 to take care of my mother and mother-in-law but still too young to sit on my hands at the house. Have fun, travel, buy a boat, etc. You earned it!
Scout

Thanx, Scout. I've considered that as well Extra closing costs may make me look the other way. I used to work for the state before going Fed. I'm going back and will be eligible for a second pension in less than 2 years; so no, I won't be sitting on my hands.

I spoke to a financial adviser from Edleman again today. He really thinks he can comfortably beat the 3.5 on the home, and is pushing to roll over my TSP and the money from the home sale. I like what he said, but of course he is trying to get a client. They would charge me 1.34% a year, but maybe I would only need them in the beginning to get the ball rolling. He said that I can fire him later and keep the account with Schwab (that's who they use). Tempting

P.S. Maybe a small boat