Investing for Retirement

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vinsanity
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Re: Investing for Retirement

Post by vinsanity »

Arthur Dent wrote:-I'm not sure of the fraction, but for a large number of people the, "it helps you save" argument turns out to be massively important.
This is the big if to me; from the quoted sections it seems as if renting only "wins" if the renter acts in a perfectly logical manner i.e. investing wisely instead of spending.

Socnorb11
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Re: Investing for Retirement

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I think home ownership is definitely up for debate, but I'm confused by this statement:
That is because it assumes that the extra money a renter saves by not owning a home and not saving for a downpayment is simply spent on goods or services and not invested.

How does a renter "save money"? The down payment, I get. Rent itself can often be as expensive as a house payment, though.

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Re: Investing for Retirement

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Socnorb11 wrote:Rent itself can often be as expensive as a house payment, though.
Houses have other expenses like upkeep, association fees, interest and taxes.

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Re: Investing for Retirement

Post by Michael »

I think renting is particularly attractive for the elderly because someone else will do the upkeep. I also think houses are bad when you get older if there are stairs. Apartments with elevators are the way to go.

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cardinalkarp
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Re: Investing for Retirement

Post by cardinalkarp »

I know in St. Louis, rent prices are sky high. People were renting out townhomes like ours for $1400 a month and the mortgage payment was under $1000 (w/ $115/mth association fee which took care of the outside structure and yards).

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Re: Investing for Retirement

Post by Socnorb11 »

Michael wrote:
Socnorb11 wrote:Rent itself can often be as expensive as a house payment, though.
Houses have other expenses like upkeep, association fees, interest and taxes.

Right.

I'm including interest and taxes with the term "house payment".

I think you're saving very little money, if any, by renting. Ultimately, if you're smart and pay your mortgage off early, I think you end up saving quite a bit of money in the long run by owning. If you're getting a good rate on your mortgage, I think it's really wise investment, long-term.

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Re: Investing for Retirement

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If you have a really good rate on your mortgage paying it off early is the last thing you want to do. Long term you're better off investing that money.

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Re: Investing for Retirement

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Michael wrote:If you have a really good rate on your mortgage paying it off early is the last thing you want to do. Long term you're better off investing that money.

Probably true, strictly from a financial perspective. I'm curious at what rate it's wise to NOT pay off early. Normally if you get a really good rate, you're going to be required to pay it off in short order (15-20 years) anyway.

There is something to be said for the stability/security/flexibility of owning a home, and paying it off as early as possible.

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Re: Investing for Retirement

Post by Michael »

Socnorb11 wrote:
Michael wrote:If you have a really good rate on your mortgage paying it off early is the last thing you want to do. Long term you're better off investing that money.

Probably true, strictly from a financial perspective. I'm curious at what rate it's wise to NOT pay off early. Normally if you get a really good rate, you're going to be required to pay it off in short order (15-20 years) anyway.

There is something to be said for the stability/security/flexibility of owning a home, and paying it off as early as possible.
Well you and vinsanity bring up very good points. I'm speaking in a spreadsheet sense, but investing is a very personal and you have to account for your own behaviors. I know a lot of people feel a great sense of security and satisfaction when they pay off their home. You can't really put that in to a spreadsheet.

With pretty much all mortgage rates today, in a spreadsheet sense, you shouldn't be in a hurry to pay off your mortgage quickly. Particularly when you consider you can deduct the interest and home equity isn't very liquid. Most folks should use their extra money to increase their 401k contribution or add to a Roth IRA. If for whatever reason you have a high mortgage rate you should look to refinance.

On a personal note, five years ago I refinanced my mortgage to a 15 yr @ 2.85%. I figured I had the extra money and I wasn't using it, so why not? At the time I didn't really think about investing much outside of my 401k. In retrospect it wasn't a great decision, but I'm at peace with it. It'll be cool to have it paid off in 10 years. First world problems, etc.

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Re: Investing for Retirement

Post by Socnorb11 »

I did the exact same thing 5 years ago, Michael. I got 2.75% (got a little extra kick because my wife worked for the bank at the time). I'm actually going to try to have mine paid off in a couple of years (not a great financial decision, as you point out, but it'll be a stress-reliever for me, so probably worth it).

Good stuff in these financial threads, Michael. Keep it up.

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