Madison MoneySports - Personal Finance Thread

[Kaan]

For those of you mapping out your retirement, how are you handling home equity?

I would think it'd be a wash if you plan to stay in your current home, but maybe I've got a skewed perspective in that I think most people would downsize and/or live somewhere cheaper. Given I don't want to own a home when I'm retired, I'm thinking I should be counting equity. Then again, I guess that means I'd also have a rent payment.

You can't really use it in online calculators because it applies the growth rate to all assets - the stock market isn't gonna do the same thing as the housing market. Maybe just count it as a free year or two of income but leave it out otherwise?

I think we want to still "own" home base... without a payment (outside of taxes). I call it home base, because we want to travel as much as we can while we can (even in retirement) but its got to hold most of our normal stuff... single level, smaller (under 1500 sqft), etc.

[Apoc]

I think we want to still "own" home base... without a payment (outside of taxes). I call it home base, because we want to travel as much as we can while we can (even in retirement) but its got to hold most of our normal stuff... single level, smaller (under 1500 sqft), etc.

Our plan is to downsize dramatically and live with only stuff we'd be willing to move around. My dad was renting houses six months at a time in retirement and just moving with the seasons. I'd like to adapt that and move to a new country/city every 2-3 years.

Owning a house could be a nice safety net, but I definitely don't want to have one as a place to keep my things. If we did own, we'd very likely rent it out.

All that said, are you factoring in excess equity after you downsize? I gotta think by then you've got at least six figures in excess, if not more.

[JPolen01]

That is a tough question. My parents are looking into downsizing now. My mom is a couple of years away from retirement and my dad plans to continue to work. He would like to move from Maryland into DC to be closer to his office, but even physically downsizing will cost them either the same or more than what their current house is worth. Seems like a very hard thing to account for especially if you do not know where you want to be in retirement.

[Kaan]

I think we want to still "own" home base... without a payment (outside of taxes). I call it home base, because we want to travel as much as we can while we can (even in retirement) but its got to hold most of our normal stuff... single level, smaller (under 1500 sqft), etc.

Our plan is to downsize dramatically and live with only stuff we'd be willing to move around. My dad was renting houses six months at a time in retirement and just moving with the seasons. I'd like to adapt that and move to a new country/city every 2-3 years.

Owning a house could be a nice safety net, but I definitely don't want to have one as a place to keep my things. If we did own, we'd very likely rent it out.

All that said, are you factoring in excess equity after you downsize? I gotta think by then you've got at least six figures in excess, if not more.

We are not taking into account the equity in the home (or what is left over when we downsize) AND we are not accounting for my "pension" in our overall planning. It might be ultra conservative to do so, but we think of those things as a "bonus" and possibly a potential hedge on another market swing (which will happen).

we will be "fine" with just what we are putting away in the traditional 401k/TSP/IRA side... the rest is gravy.

We would likely not rent our place out and wouldn't be doing "long" trips away... 2-3 weeks per quarter is what we are estimating. I need a place to keep my boat, rifles, etc.

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That is a tough question. My parents are looking into downsizing now. My mom is a couple of years away from retirement and my dad plans to continue to work. He would like to move from Maryland into DC to be closer to his office, but even physically downsizing will cost them either the same or more than what their current house is worth. Seems like a very hard thing to account for especially if you do not know where you want to be in retirement.

the "best states" to retire changes regularly. Obviously it depends on your health and desires, but we are looking at Tennessee ... over FL, TX, etc.

[.RJ]

For those of you mapping out your retirement, how are you handling home equity?

I intend to be paid in full in whatever house I'm living in when I retire (hell, it might be the one we just moved into), sell it, and dramatically downsize/relocate and not have a house note and dump the rest of the equity into index funds. If relo is on the table I dont think we'd go too far - Charlottesville or Richmond - I dont think I want to live out the rest of my days isolated from the rest of the world and family in a cabin somewhere.

[Sijray21]

Home Equity is only great if you're going to sell and since we'll likely downsize later down the road i'm 'softly' considering equity into our calculations/net worth. i find comfort in knowing that there's a place i can just call home that isn't controlled by someone else (with the exception of property taxes and the gov't since i'm not sure you can't get away from that completely in the US). The long-term goal would be to find a smaller place with less of a tax footprint that is a pleasant place to live.

[Apoc]

I don't have a pension and I'm assuming social security is zero. That said, about 40% of our net worth is home equity... and our retirement accounts are pretty healthy... so it's real money.

It's hard to ignore what that money could do if we didn't own an overprices home in Seattle and instead rented a place in a low cost of living eastern European country. I get that lifestyle may not appeal to everyone, but places like Prague are just so freaking cheap compared to US metros. I'd even like to do a stint in SE Asia for awhile.

[Kaan]

trust me I get it... we have toyed with the idea of buying something in Turkey because it was that cheap... simple little two bedroom two blocks from the beach for $40k American. we just aren't looking at our home as "anything."

housing market stuff is so weird. if it were paid off today we could probably get $400k for our home... maybe that sees 500k later or more... but I'm going to have to spend some of that to live somewhere else. so I just don't do the math with that "guess" of a number in 22 years.

[.RJ]

It's hard to ignore what that money could do if we didn't own an overprices home in Seattle 

Dont ignore it then, although if you want your life to revolve around not driving everywhere, walkable neighborhoods, good weather, good public transit and some semblance of culture then I dont know what you can do. You could easily sell a paid off house in seattle and stick 75% of the money in equity and buy another one elsewhere but it would be a pretty big lifestyle change, even if that means moving overseas with a ladyboy nanny.

[Apoc]

housing market stuff is so weird. if it were paid off today we could probably get $400k for our home... maybe that sees 500k later or more... but I'm going to have to spend some of that to live somewhere else. so I just don't do the math with that "guess" of a number in 22 years.

I'm quickly arriving at excluding it from consideration at all because it's hard to model out. Maybe I just assume the equity is a wash and we'll spend it on rent or to buy something for cash when we're retired. I guess that means if I'm trying to estimate living expenses in retirement, I exclude cost of housing and "live within our means." Assuming no inflation or additional equity gained, our current equity could pay $1750/month for 20 years. I gotta think we could get housing on that... although who knows how much it's actually going to cost to rent/buy 20 years from now. Mathematically, it's no different than assuming you're living in a house that's paid off.

[.RJ]

housing market stuff is so weird. if it were paid off today we could probably get $400k for our home... maybe that sees 500k later or more... but I'm going to have to spend some of that to live somewhere else. so I just don't do the math with that "guess" of a number in 22 years.

I'm quickly arriving at excluding it from consideration at all because it's hard to model out. 

Assume you had been in seattle 15 years and your house is paid off and sells for $1M.  I know none of these things are reality but I'm throwing a dart here to make a point.  You cash out that equity and stick it in some investment vehicle that earns you 5% per year, or $50k, or $4167/mo.  Now the house isnt worth that much and the rent isnt that high, but, compared to just living in the paid off house where you only owe the taxes & upkeep I guess thats an audible down the line on whether you want lower costs or more flexibility.

[Apoc]

i find comfort in knowing that there's a place i can just call home that isn't controlled by someone else (with the exception of property taxes and the gov't since i'm not sure you can't get away from that completely in the US).  The long-term goal would be to find a smaller place with less of a tax footprint that is a pleasant place to live.

Stability is one thing when you're raising kids, but I don't need that kind of stability once my kid is out of the house. I guess if I'm infirmed I'd want it. but I hope that's not until I get a good 10 years in after I retire (targeting 61).

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housing market stuff is so weird. if it were paid off today we could probably get $400k for our home... maybe that sees 500k later or more... but I'm going to have to spend some of that to live somewhere else. so I just don't do the math with that "guess" of a number in 22 years.

I'm quickly arriving at excluding it from consideration at all because it's hard to model out. 

Assume you had been in seattle 15 years and your house is paid off and sells for $1M.  I know none of these things are reality but I'm throwing a dart here to make a point.  You cash out that equity and stick it in some investment vehicle that earns you 5% per year, or $50k, or $4167/mo.  Now the house isnt worth that much and the rent isnt that high, but, compared to just living in the paid off house where you only owe the taxes & upkeep I guess thats an audible down the line on whether you want lower costs or more flexibility.

Your math actually isn't that far off, as these are the values I was assuming. That's ~$4,600 per month, or $7,400 if you assume 20 years of 2.5% inflation. We could probably rent our place for $3,200 today, which is $5,200 in 20 years with the same inflation.

Who knows where the world economy is headed, but I gotta think we could cash out and live on this. If not, we're dumb as shit. It's all a matter of choice. I don't care about having a higher cash outflow in retirement than people living in a paid off house, as long as I have a higher basis I'm working from.



I'm seen some pretty shitty thing happen to property rights and taxation in Seattle over the last five years. It's really driven home that it's where the government is going to continue their growth in revenue. Many people who planned to own their paid off home in Seattle until they died are being forced out by increases in property taxes and assessed value. I suppose you could hedge that by living in a red state... but then you're living in a red state.

[WRXtranceformed]

It's too hard to say at this point because I don't know where we are going to be 5 years, 10 years from now. As it sits currently, I just look at the equity in our home as a "soft" number that changes constantly and really only matters when I sell it. And when we do, that equity could just get rolled into another house for all I know. Right now the soft plan for retirement is to build a home on our farm in VA, which conceivably could be paid for in large part if I play the equity game with a few more homes. So yeah, I guess I'm looking at "house money" as house money for right now. No plans to be traveling gypsies when we are retired, we will definitely have a home base so I can walk out into my back yard in my boxers and hit golf balls into the field.

[D_Eclipse9916]

Net Assets yes, retirement is no from a cash flow perspective.

Why?

We are homebodies and therefore will always need a home base. I imagine our square footage will go down; but location will offset it.

2nd why? Capital gains treatment when we die for our children.

[BLINGMW]

Don't tell anyone, this idea replaces the one I had for a retirement plan:

https://m.youtube.com/watch?v=VTe0cdxdSEo

[V1GiLaNtE]

Poll - How many of you guys are using financial advisers/managed funds vs doing it yourself?

Had a conversation with my parents Advisers, but not quite sure how I feel about it active management.

[D_Eclipse9916]

I have both. Slowly moving all my stuff that is actively managed to doing it myself. The returns are decent, but by the time you pay somoene it really hurts your bottom line. Doing it myself usually beats them, but I have only been doing it myself for the past 5 years.

[Apoc]

Poll - How many of you guys are using financial advisers/managed funds vs doing it yourself?

Had a conversation with my parents Advisers, but not quite sure how I feel about it active management.

I think Lee is the only one who actively uses an adviser - his brother. 

I get free consults from Vanguard advisers through work, so I'm going to do that as a one time gut check.

Returns are debatable, but advisers can help you really understand your tax position now and in the future. My experience suggests many people really don't understand the nuances of taxes, myself included at times (e.g. recently learned about Net Unrealized Appreciation), so having someone explain all your options can save you money in the long run.

[Kaan]

I use the "free" advisors through the federal government... but that's really to look at my diversification, projections, etc. I do all the manual controls of the account(s). I also use my accountant, mostly for the tax implications short and long term of my investments and the potential pay outs.

speaking of, we are "planning" for Sylvias student loan forgiveness to be accepted this year and be credited as "income" this year. while not having to pay interest and the bill for the next 5 years, the tax implications BLOW. This sped up her "need" to max out her contributions and stuff to minimize the impact as much as she could... and she can afford to keep those contributions up after the student loans go away.

[V1GiLaNtE]

I have both.  Slowly moving all my stuff that is actively managed to doing it myself.  The returns are decent, but by the time you pay somoene it really hurts your bottom line. Doing it myself usually beats them, but I have only been doing it myself for the past 5 years.

This is where my head is at. Given my current asset size they are looking at a 1.7% fee/year to manage the money. This is on top of what the funds themselves already charge (which are low, thx Vanguard). This is where I'm racking my brain about can I really make up an extra couple of % points with an adviser/manager vs my current "set it & forget it" mentality with target date funds?