Saving for retirement

Concrete Helmet · Mar 15, 2019

78 said:
Apparently you're LT in real estate, ST in stocks. The market's delivered 10% historically. I'm sure you've had tenants leave you high and dry or had a roof needing replacing. Shyt happens.

The 2 rentals I mentioned have conservatively doubled in value in the time we've owned them....and I'm not sure if I said this before but here goes.......SOMEONE ELSE IS BUYING THEM FOR ME...Including initial down stroke, several month's of missed rent and attorney fees for 1eviction, repairs, maintenance, all in I've got 50K of my money in, MINUS probably 100K in tax write offs which pretty much make my 50K a wash....If I sold both which I could do before the end of tomorrow, I would gross 250K...I don't have to pay RE commission and other than doc stamps on the deeds very little closing cost(we're a Title Agency)....

So maybe you have something where I bring you 50K and you slowly give it back, allow me to borrow a quarter million dollars, allow other people to pay it back for me, and hand me a quarter million dollars or more 10 years down the road.... :lol:

I'll take 4 or 5 of those please.

BTW, the whole key to this is what Bushmaster said in his post about inexpensive real estate...this doesn't work nearly as well with higher dollar stuff. Realistically try to stay in the 150-300K market range. And Commercial is a whole different animal altogether.

78 · Mar 15, 2019

Concrete Helmet said:
The 2 rentals I mentioned have conservatively doubled in value in the time we've owned them....and I'm not sure if I said this before but here goes.......SOMEONE ELSE IS BUYING THEM FOR ME...Including initial down stroke, several month's of missed rent and attorney fees for 1eviction, repairs, maintenance, all in I've got 50K of my money in, MINUS probably 100K in tax write offs which pretty much make my 50K a wash....If I sold both which I could do before the end of tomorrow, I would gross 250K...I don't have to pay RE commission and other than doc stamps on the deeds very little closing cost(we're a Title Agency)....

So maybe you have something where I bring you 50K and you slowly give it back, allow me to borrow a quarter million dollars, allow other people to pay it back for me, and hand me a quarter million dollars or more 10 years down the road.... I'll take 4 or 5 of those please.

BTW, the whole key to this is what Bushmaster said in his post about inexpensive real estate...this doesn't work nearly as well with higher dollar stuff. Realistically try to stay in the 150-300K market range. And Commercial is a whole different animal altogether.

Fantastic, Crete. BTW, what's your cap rate?

Detroitgator · Mar 15, 2019

78 said:
Apparently you're LT in real estate, ST in stocks. The market's delivered 10% historically. I'm sure you've had tenants leave you high and dry or had a roof needing replacing. Shyt happens.

Investment RE is a growth and income play. There are myriad ways to replicate that.

Here is what I was told by a guy with a net worth north of $500MM (he invested in my failed business and is the guy who owns a P-51) and I've paid attention ever since: every ultra high net worth individual I know either made their money in real estate, or put their money in real estate after making it some other way.... every single one of them.

78 · Mar 15, 2019

Detroitgator said:
Here is what I was told by a guy with a net worth north of $500MM (he invested in my failed business and is the guy who owns a P-51) and I've paid attention ever since: every ultra high net worth individual I know either made their money in real estate, or put their money in real estate after making it some other way.... every single one of them.

My post wasn't intended as an indictment of investing in RE, but rather as a rebut to Crete. You should know me by now. I believe in diversification.

Detroitgator · Mar 15, 2019

Concrete Helmet said:
The 2 rentals I mentioned have conservatively doubled in value in the time we've owned them....and I'm not sure if I said this before but here goes.......SOMEONE ELSE IS BUYING THEM FOR ME...Including initial down stroke, several month's of missed rent and attorney fees for 1eviction, repairs, maintenance, all in I've got 50K of my money in, MINUS probably 100K in tax write offs which pretty much make my 50K a wash....If I sold both which I could do before the end of tomorrow, I would gross 250K...I don't have to pay RE commission and other than doc stamps on the deeds very little closing cost(we're a Title Agency)....

So maybe you have something where I bring you 50K and you slowly give it back, allow me to borrow a quarter million dollars, allow other people to pay it back for me, and hand me a quarter million dollars or more 10 years down the road.... I'll take 4 or 5 of those please.

BTW, the whole key to this is what Bushmaster said in his post about inexpensive real estate...this doesn't work nearly as well with higher dollar stuff. Realistically try to stay in the 150-300K market range. And Commercial is a whole different animal altogether.

I was going to highlight where you said 3/2 starter home.... for flips and rentals, 3/2 (make it that if you have to) in the 14-1800 sq/ft and $100-175K (valued) range in area of steady employment with semi-skilled/skilled labor is the ticket that I was taught in Atlanta.

Concrete Helmet · Mar 15, 2019

Detroitgator said:
for flips and rentals, 3/2 (make it that if you have to) in the 14-1800 sq/ft and $100-175K (valued) range

That market is so tight in the Orlando area right now you wouldn't be able to stick the sign all the way in the ground before you had an over listing price offer....I'm not even exaggerating. We have another rental close by our home and I CAN'T wait to evict the Tenant. It has not done as well as the others and was barely above what was owed on it 2 or 3 years ago....it's now sitting about 75K profit and it's going bye bye, Mama says Casa Del Lago needs a new dock/boathouse... :lol:

Detroitgator · Mar 15, 2019

Concrete Helmet said:
That market is so tight in the Orlando area right now you wouldn't be able to stick the sign all the way in the ground before you had an over listing price offer....I'm not even exaggerating. We have another rental close by our home and I CAN'T wait to evict the Tenant. It has not done as well as the others and was barely above what was owed on it 2 or 3 years ago....it's now sitting about 75K profit and it's going bye bye, Mama says Casa Del Lago needs a new dock/boathouse...

yeah, obviously price range varies by market, the rest of the info holds... those specs i used when applied to where i lived in Cali = a $1.2MM home to buy, $3700/mo to rent!

Bushmaster · Mar 15, 2019

My rule I'd thumb based in where I live takes into consideration interest rate, taxes, insurance. We have a piti factor. I'd the price of the house is is 50k, I want at a minimum 1.2 factor, which means 600 in rent per month. I can pay principal, interest, taxes, and insurance. Cash flow about $250 a month. We have some that are 1.5 and up and those give me a chubby. Purchase price is based on what I can rent it for. Duplicate that a 100 times and retire in15 years with 50k a month net rental income.

Politigator · Mar 20, 2019

Zambo said:
For the love of all that is holy, if your company offers matching funds for 401k contributions, do whatever you need to max out these matching funds. It’s FREE MONEY!

If you’re young and in a lower tax bracket consider a Roth IRA or 401k. They tax your money at your current low rate before it goes in, but when you draw it out later it’s tax free, even if you’re in a much higher tax bracket. It might not be worth it if you are already in a high bracket and plan to be in a lower bracket after you retire and downsize. In any event only funds you personally put into your account qualify for the Roth option...any company matching funds will not be Roth funds.

No matter how much money you make there is a limit to how much you can sock away into a retirement account to save on taxes. It’s roughly 18k per year for your own contribution, and 54k total per year for company matching contributions combined with your own. After age 50 they increase the allowable amount by $6k for a total of 60k per year. These limit amounts go up a little bit roughly every other year.

If you’re a young ‘un you might think those limits are way beyond your means but if you have a degree from UF chances are you’ll get a good job and receive enough compensation that by the time you are in your 40s or 50s you’ll have plenty of opportunity to save this much. The more you save and the earlier you save the sooner you can retire. Who wants to work until they die?

Almost everybody that works with a company has access to a 401k and the ability to automatically contribute to it every payday. Trust me on this, if you haven’t done so already go set it up today. You will never miss the money. Until you want to retire and it’s not there.

I helped my wife's small company employer set up a new vanguard ascensus 401k plan. Safe harbor plan so it has good company match. In spite of that most employees don't participate. Turning down free money. Insane.

Politigator · Mar 20, 2019

Gator By Marriage said:
Call it paranoia, but I have always been slightly nervous of Roth IRAs. (in the interest of full disclosure, it has not prevented Mrs. G and I from both having one, i'm just nervous about it.) My nervousness comes from the difficulty of trying to predict what a future Congress might do. WIth a regular IRA, i get my tax savings now, so, naturally, I am sure I am getting them. What's to stop a future Congress from deciding there's "too much" non-taxable money sitting in Roths and deciding they need put some sort of "withdrawal fee" (or whatever they'll call it) in place? Wouldn't be the first time a Congress changed the rules of the game halfway through the game. Please opine with how I am crazy, so I can stop worrying about it.

I hear this a lot. While anything is possible, my take is:

The likelihood that they raise income tax rates, which will hurt your traditional ira / 401k seems more likely than retroactively taxing a tax free investment.

While things very well may veer decidedly leftward (which I have feared for years) whatever the politics old people vote and taxing tax free retirement investments would cause a political backlash most politicians don't want to touch. And there are a lot of wealthy liberals too.

An example is Obama administration put proposal to tax some 529s. It was pelosi who squashed it, because her wealthy constituents had a **** fit.

Currently there is no formal requirement to track Roth basis. You can't tax gains without knowing basis (although you do need to track basis if you want to pull contributions out tax free)

Having said all that I think have diversification between traditional and Roths is probably wise, because in the end nobody can predict what may happen.

Politigator · Mar 20, 2019

divits said:
Couple things. Vanguard has one of if not THE lowest cost managerial fees in the business. Those fees can add up and eat into your returns in the long run. Just think of all the compounding interest you can lose if you are paying 1% management fees over decades. But the main reason for your increase is that the stock market took a dumper at the end of last year and has made a pretty solid recovery this YTD.

John Bogle: The "Train Wreck" Awaiting American Retirement

Fees, expenses, portfolio turnover inside of the fund, sales loads, advisory fees, operating expenses — take them all out, and the net return divided up by investors is what’s left. So costs are a crucial part of the equation.

And a lot of people say, “So what?” Well, think about this. We’re lucky enough to get a 7 percent return on the market. That means it should not surprise anybody that investors as a group divide up 7 percent. Suppose it costs two percent — maybe a little bit high but in the ballpark — to gain that return. Then investors who grossed 7 percent will net 5 percent.

Now, when the market’s going up, as it did in the ’80s and ’90s, at 17 percent a year, 2 percent doesn’t seem like much. But it’s an awful lot. And if you compound a 7 percent and the 5 percent return over, say, 50 years, let’s call that an investment lifetime — well, in fact the investment lifetime is longer than that — something like 70 percent of the market return goes to the purveyors of the services, Wall Street if you will, and 30 percent goes to the fund owners. …

So it’s greatly underrated, in part because we’re all so short-term-focused. We don’t think about investing for a lifetime.

… Say I have $100, and I’m paying 1 to 2 percent of that in fees. [How is it possible] that at the end of my retirement life I’m only taking home 30 percent of what I would have taken home if I hadn’t been charged those fees?

What it is is the classic example all of us have been taught, probably from grade school on, about the magic of compounding returns, compound interest if you will, over the long term.

What happens in the fund business is the magic of compound returns is overwhelmed by the tyranny of compounding cost. It’s a mathematical fact. There’s no getting around it. The fact that we don’t look at it, too bad for us.

TL;DR

A 2% fee from a 7% nominal return over 50 years will eat up more than 2/3 of your portfolio value.

Gator By Marriage · Mar 21, 2019

Politigator said:
I hear this a lot. While anything is possible, my take is:

The likelihood that they raise income tax rates, which will hurt your traditional ira / 401k seems more likely than retroactively taxing a tax free investment.

While things very well may veer decidedly leftward (which I have feared for years) whatever the politics old people vote and taxing tax free retirement investments would cause a political backlash most politicians don't want to touch. And there are a lot of wealthy liberals too.

An example is Obama administration put proposal to tax some 529s. It was pelosi who squashed it, because her wealthy constituents had a **** fit.

Currently there is no formal requirement to track Roth basis. You can't tax gains without knowing basis (although you do need to track basis if you want to pull contributions out tax free)

Having said all that I think have diversification between traditional and Roths is probably wise, because in the end nobody can predict what may happen.

I admire your optimism, but I don’t share it. The last time Nancy P. was speaker, she made a comment about the government employees 401k (the Thrift Savings Plan) having a lot of money in it and Congress needed to find a way to make that money “work for America.” I have never forgotten that quote and it has kept me wary. Choose not to be wary at your peril.

Buckman2000 · Mar 24, 2019

We both have a 403B because we both work for the state college system. We have FRS retirement as well. What I was told is that once I retire I’m entitled to receive 70% of whatever I am being paid at the time of retirement. I think we have a good thing in both. I think when I chose my investments, I went moderately aggressive. We may not be millionaires at the time we retire, but the hope is that we are ok. Or as my wife says maybe one our kids will strike it big and take care of us.

BMF · Mar 28, 2019

Bushmaster said:
My rule I'd thumb based in where I live takes into consideration interest rate, taxes, insurance. We have a piti factor. I'd the price of the house is is 50k, I want at a minimum 1.2 factor, which means 600 in rent per month. I can pay principal, interest, taxes, and insurance. Cash flow about $250 a month. We have some that are 1.5 and up and those give me a chubby. Purchase price is based on what I can rent it for. Duplicate that a 100 times and retire in15 years with 50k a month net rental income.

BM, where are you finding 1.2 factor? That's something I've been searching for (the 1% rule - I first read that in Rich Dad, Poor Dad). I live in the DC area and there is no way in hell you can find a 1% rule/factor here. My wife is from the Sarasota/Port Charlotte area - Sarasota is out (too expensive), but the Port Charlotte, Englewood, Punta Gorda areas have a lot of under $200K houses that rent for $1300+. Thanks!

Bushmaster · Mar 28, 2019

BMF said:
BM, where are you finding 1.2 factor? That's something I've been searching for (the 1% rule - I first read that in Rich Dad, Poor Dad). I live in the DC area and there is no way in hell you can find a 1% rule/factor here. My wife is from the Sarasota/Port Charlotte area - Sarasota is out (too expensive), but the Port Charlotte, Englewood, Punta Gorda areas have a lot of under $200K houses that rent for $1300+. Thanks!

Well, its not easy. I live in a rural NC county and a lot of people can't afford the down payment, so they are lifelong renters. I get $700-750 for a house I may have $60k in. In places like DC? I doubt that exists. You can break even at 1.0 in my area, but may have to come out of pocket once in a while for R&M.

BMF · Mar 28, 2019

Bushmaster said:
Well, its not easy. I live in a rural NC county and a lot of people can't afford the down payment, so they are lifelong renters. I get $700-750 for a house I may have $60k in. In places like DC? I doubt that exists. You can break even at 1.0 in my area, but may have to come out of pocket once in a while for R&M.

Makes sense. I started looking for "the 1% rule" houses after reading Rich Dad, Poor Dad and had a hard time coming anywhere close to that. I'm waiting to see if there's a housing downturn in the next 12-18 months before I get back into a rental property. I have my primary home and a cabin right now, but sitting on the sidelines to see about another rental property.

bradgator2 · Mar 28, 2019

I might change my strategy: Xmen!
This X-Men collector has spent more than $150K on memorabilia: 'People think I'm crazy'

daytonacane · Mar 30, 2019

BostonGator84 said:
Anyone still have a pension? I work in pension consulting so I see them every day, but I know on the whole they are becoming less and less common.

I am retired but my employer still has a Profit Sharing Plan. I worked there 45 years and over that period of time we had a Defined Benefit plan, Money Purchase Plan and ended up with a Profit Sharing Plan.

They were all employer funded and in the early 70's to early 80's they put in 25% of our annual salary. This was done primarily to permit the employers to contribute a huge amount. This was reduced over the years and ended up with 10% contribution which in today's time is still good. I worked for a large group of surgeons & was the group business administrator. I also established my own personal IRA and every time I got a raise, would contribute that amount up to the maximum. Surprising how that can build up over the years.

I rolled over my monies @ retirement to Morgan Stanley in 2008 & for the past 10 years have received double digit gains. As I have gotten older, I readjusted my portfolio & reduced stock investments to 50% stocks & 50% fixed. The majority of my stocks are conservative & considered necessities of life. I am now of the age where I have to take out the RMD yearly.

ChiefGator · Mar 31, 2019

daytonacane said:
I am retired but my employer still has a Profit Sharing Plan. I worked there 45 years and over that period of time we had a Defined Benefit plan, Money Purchase Plan and ended up with a Profit Sharing Plan.

They were all employer funded and in the early 70's to early 80's they put in 25% of our annual salary. This was done primarily to permit the employers to contribute a huge amount. This was reduced over the years and ended up with 10% contribution which in today's time is still good. I worked for a large group of surgeons & was the group business administrator. I also established my own personal IRA and every time I got a raise, would contribute that amount up to the maximum. Surprising how that can build up over the years.

I rolled over my monies @ retirement to Morgan Stanley in 2008 & for the past 10 years have received double digit gains. As I have gotten older, I readjusted my portfolio & reduced stock investments to 50% stocks & 50% fixed. The majority of my stocks are conservative & considered necessities of life. I am now of the age where I have to take out the RMD yearly.

Great for you, I have no bonds, but rather dividend paying stocks for my fixed income, almost 100% dividend paying stocks. Few today have any pensions other than union type or government.

Politigator · Mar 31, 2019

ChiefGator said:
Great for you, I have no bonds, but rather dividend paying stocks for my fixed income, almost 100% dividend paying stocks. Few today have any pensions other than union type or government.

I'd advise against using dividend stocks for fixed income. Dividend stocks are fine, but ultimately they will perform like stocks. Bonds tend to have weak correlation to stocks and can even have negative correlation in severe economic downturns.

High dividend yield funds lost more than 50% of their value in 2008 downturn.

VHDYX Vanguard High Dividend Yield Index Inv Fund VHDYX Quote Price News

Lower yield Dividend growth funds fared somewhat better, maybe lost 35%

VDIGX Vanguard Dividend Growth Inv Fund VDIGX Quote Price News

A simple 60/40 stocks/bond fund dropped maybe 30%

VBINX Vanguard Balanced Index Inv Fund VBINX Quote Price News

Saving for retirement

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