Correct -
Souf has no taxes until the end
Smf pays taxes every month on his withdrawl of investment .
Souf also has no mortgage for a decade .
Because souf lives in the real world .
Tiny Houses
- Thread starter TheWerewolfFromTwilight
- Start date
Souf has no taxes until the end
Smf pays taxes every month on his withdrawl of investment .
Souf also has no mortgage for a decade .
Because souf lives in the real world .
Right. 5% is a shitty return for a 10 year average. 8% is the minimum you should expect but not a guarantee. The last 10 years have been 12% but we've had a historically good run thanks to the incredible post-Covid economy. So you could be averaging returns of 8, 10, 12 percent.
Also, 150 posts in, Souf still has no concept of how taxes work. He says he doesn't pay taxes until the end. No, he pays yearly tax on the dividends. The long-term capital gains tax could mostly be deferred until the end. His annual tax would be less than mine, sure as I'm starting with 100K and he is starting with 0 but he is still paying annual taxes.
Also, as I've said, you used to be able to write off mortgage intetest. The Trump tax cuts expire in 2025 so you may be able to do so again. That is a very big benefit to not paying off a low-rate mortgage if that comes back.
As noted
You are paying the bank with your home as collateral for a decade - to maybe make a couple grand more post taxes .
Hint a 3% interest deduction is less than your capital gains taxes - and is essentially gone by that point since you’re paying toward premium .
And no- souf isn’t paying taxes on anything since he’s able to invest in a Roth 401k for or regular 401k to lower income my income tax rate , where smf isn’t .
Souf likes no debt and having options .
SMF like hypotheticals avoiding reality .
Its why one works and the other doesn’t .
You are paying the bank with your home as collateral for a decade - to maybe make a couple grand more post taxes .
Hint a 3% interest deduction is less than your capital gains taxes - and is essentially gone by that point since you’re paying toward premium .
And no- souf isn’t paying taxes on anything since he’s able to invest in a Roth 401k for or regular 401k to lower income my income tax rate , where smf isn’t .
Souf likes no debt and having options .
SMF like hypotheticals avoiding reality .
Its why one works and the other doesn’t .
A couple things:
1. You can only invest $23,000 per year into a Roth 401K. I learned that the hard way a few years ago. Wondered why my contributions were stopped so I called and apparently I hit the limit. I am assuming you are already hitting that 23K cap. So where else are you going to invest this $1000/month that you now have to avoid taxes? A Roth IRA? OK. But you should be doing that anyway and that's capped at 7K/year. Translation: You are going to have to pay taxes on the dividends of this $1000/month investment. Sorry.
I dont know why this is so hard for you. Just take the L and move on. Its ok that you dont understand basic finance. That's not your thing.
Let me ask you this, if you had a 2% student loan, would you also pay that off in this same $100K scenario?
There does not have be any withdrawal of investments. The $1k payment just continues from its current source.
The statement about "no mortgage" is not a financial statement, but a preference statement.
Sure it is financial .
Debt used is a financial measure .
You also miscalculated my future value of investing $1k monthly instead of paying your mortgage .
My net end value is $184k vs SMF’s $37k at the end with 8% annualized interest rates (o.667%| monthly ) over 120 periods
Whoops
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And at 10%, its 64K.
And again, you arent comprehending. You are comparing 2 things that arent equal. Yes, you'd have 184K at the end but you spent 120K to make that extra 64K. I spent $0 to make what I made because my investment paid the mortgage for 10 years and I still had money left over. I could have also invested another $1K per month like you did because I also didnt have a mortgage payment because my monthy withdrawal from my investment is paying it.
If we both had 100K left on our mortgage and won the lotto for 100K, doing it your way, you would pay off the mortgage, invest 1000/month and at the end of 10 years, would have 184K.
I'd invest the 100K, take a montly withdrawal to pay the mortgage and at the end of 10 years, have 37K (at 8% annual).
The huge difference here is I didnt spend a dime to make $37K. You spent $120K to make $64K and I could have done the same thing with $1000/month.
Whoops
He'll never admit he doesn't understand investment strategies. That's why he counts out pills and puts them in containers while hoping his student loans are next to be forgiven.
Having or not having debt when one can afford to not have it is a personal decision and not a financial one.
I didn't miscalculate anything. I stated my assumptions. You changed them from even your own in prior posts.
I have no clue how you reached $37k for SMF. It makes no sense.
If you are using withdrawals to pay the mortgage, what are you doing with $1k per month that currently pays the mortgage?
Sorry to create this firestorm. Could we have done things differently? Sure. Would I change anything? Absolutely not.
I’m a lucky guy, and things fell into place. Not sure there is a right or wrong way to do this, but I’m not sure it’s worth fighting about.
We accomplished our goal of a comfortable retirement. At least up to this point.
Wish you all well in your investment strategies. But for a life long car guy, things turned out really well…….
Good luck….guys.
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I’m a lucky guy, and things fell into place. Not sure there is a right or wrong way to do this, but I’m not sure it’s worth fighting about.
We accomplished our goal of a comfortable retirement. At least up to this point.
Wish you all well in your investment strategies. But for a life long car guy, things turned out really well…….
Good luck….guys.
.
Right. I could invest that extra $1000 and make the same 184K that Soufie made. Plus I have an extra 30K-80K (depending on market conditions of free money leftover from the other of money (100K windfall with $1000 per month withdrawals to pay the mortgage).
Knowing a little more about your situation, seems like you did the right thing. I have said many times that it depends on each's individual scenario. Knowing what Soufie tells us about his life, if he were to hit the jackpot at The Rivers, he should probably invest that money and not pay his mortgage off (if its a low rate).
He’s withdrawing $1k from that investment every month for the sake of consistency - 120 times (over 10 years ).
(So his “payment “ is -$1k.
so long as you simply ignore the taxes you’re paying on those gains .
Souf would rather be retired and debt free at any age .
You would like to take a cash out home equity line to invest hoping you can make more since it’s “good” debt .
Correcto. If the bank is willing to give you cheap money that you can use to make even more money, you do it. This is essentially how business works. Businesses borrow money to make money. You should treat your own personal financial portfolio as a mini-business. You are being overly simplistic in thinking just because you are debt free that that is better than having low-interest debt that is making you money. To be fair, most people would probably do what you would do but Americans are dumb AF when it comes to personal finance.
Taking out a home equity line of credit for investing in financial instruments is not a good strategy as HELOCs float at market rates. You need a fixed debt rate such as a 30 year fixed mortgage at a rate less than assumed rate you can make over time (plus refinancing costs). Its simple math.
I would agree most of the time. But again, it depends on market conditions. If you can get a HELOC at 3% but a fixed rate loan is 5%, you may want to roll the dice with the 3% variable. Everything is risk/reward.
Here is the thing many are forgetting also. Unless you are buying real estate, CDs or other instruments that need to mature, you should be able to turn your stocks, ETFs, MF into cash real quick and pay off the loan. So if you get a 3% variable and it balloons up to 6%, sell out of it and pay the loan off.
You're playing stupid games. If he's withdrawing $1 from his investment to pay the mortgage, then he has freed $1k in other funds that would have paid the mortgage. He could invest that $1k in addition to the upfront $100k. That monthly investment would the same as your investment PLUS he gets the income from the $100k that you don't get. His method is clearly financially better. It makes sense that when the return of money exceeds the cost of money, you make money by borrowing it.
As would I. But it isn't the best financial decision. It is a peace of mind decision.
I paid off my mortgage as soon as I could. I retired at 51 with zero debt. I pay cash (well, credit cards to be technical) for everything, including $54k for a new car this year.
I have often talked about my portfolio that allows me to sleep well at night. I have net worth approaching 7 digits and 60% of that is in cash or cash equivalents. That has been true for 20 years. I even financed the home purchases for 4 relatives at rates under 3%. I consciously gave up market returns for peace of mind. I also have no need for more money as I have more than I will ever spend.
The point is that my decisions were not financial. They were purely for peace of mind.
Being debt free is by definition a financial decision -
Because as you noted , liquidity is a financial state .
Similarly I’d like that freedom to do whatever in the interim because who knows what the future holds , including health and family .
Rather than relying on an intermediary to execute the gambit if something happens to me .
Its also why , despite growing up as poor white trash , we now have an estate plan due to our accumulated net worth built by long term planning since graduating from college .
Souf doesn’t have student loans for a few years . Since he was fortunate to have very low fixed rates when he graduated in 2002.
But student loans are actually good debt depending if you’re fortunate to pick a career and get licensed making 6 figures putting pills in a bottle.
Souf knows there is too much variability within such a short time to expect annualized returns .
So- say this investment happened in 1999, and ya bought a sp500 index fund -
You lost 3% over that 10 years .
Me - I like invest aggressively for the long term since my 20s.
Now I’m 46- and like being nearly debt free with a mortgage gone in a few years for a house worth twice what I paid for it 8 years ago .
Gives us plenty of options as our kid graduates has in 5 years
Fair enough point
Just hope that short term doesn’t lead to a loss .
Guess it depends if you’re someone who can afford risks and I don’t just mean financial .
NCPitt is an unlikely ally but I'l tell you this: those righties know money and finance. Hopefully Soufie learned a valuable lesson.
Did you know you could sell stocks in, like, 30 seconds?
In other words, stocks are barely less liquid than cash. This isn't the '60's anymore.
I didn't want to take either side because I don't generally have happy thoughts about either Souf or you. But the numbers don't lie.
As I said above, I made the same choice he did by going debt free. But I recognize and admit it came at a financial cost as you point out.
You just slapped them both. Well done!
Made for a more interesting discussion
Never need to apologize for that
I was referring to the mortgage based debt making one less liquid .
Apologies , thought that obvious .
Removing the risk and variability to have no debt as a result seems financially flexible to me.
I mean - why isn’t Social Security fully invested in the market to grow the funds , with the higher yield , right ?
Potential financial costs, to be clear .
Risks and variability make it far from a certainty .
Hard to find many folks who look back and say “man , I wish I carried more debt for another decade !”
Actually, debt can provide additional flexibility. That's why many companies use it. But your conclusion keeps bringing me back to the same answer. You made a choice based on a personal preference. I won't argue with the choice because its the same one I made. Your point seems to be that it is a financial benefit, but the numbers don't lie. It is optimizing financial benefits to be debt-free.
SS is forbidden to invest in the market by law.
Because if they did invest it, SS would be fully funded and not always at risk of bankruptcy. If they did that, the government (both parties) couldn't rob the citizens future and create chaos for them to capitalize on for their own personal gain.
But this is entirely a different discussion then what is being discussed here.
The projected numbers .
But risk makes those numbers uncertain and timeline length increases that variability .
Its why you can get a much lower mortgage rate for a 10 year versus 30 year-
Because the bank is taking on more risks.
I don’t find the company vs personal finance analogy compelling at all .
A company is a legal entity , whose bankruptcy impacts debtors .
Personal bankruptcy affects so much more for such a much substantially longer time .
Well to be clear - the trust was built to be fully funded . And it was the borrowing against that trust with I.O.U.s. Starting in 1981. Even if fully depleted benefits will be at 80% for perpetuity.
Let’s be clear , the program intent is to keep the elderly out of poverty - not to be retired comfortably .
But I suppose if you don’t think US Treasury bonds backed by the full faith and credit of the US are less reliable than the market
Let me ask you a simple question
Since , you are very confident in this return -
If I give you $100k to invest for me, will you guarantee me at least an 8% return on investment .
I’ll be happy to have that contract drawn up .
You can keep 2 % in excess of that guaranteed return .
Seems like easy money for you , right ?
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