I really don’t understand these projections. They are only as good as the assumptions you make to come with them, rate of annual return, life expectancy, etc. How does anyone know what to assume? Do financial advisors know them better than any of us?
I do think running a type of monte carlo simulation (all scenarios) is useful but there are online tools that can do that.
No one has a crystal ball but, if you want to retire at some point, you have to put a fork in the ground somewhere, and common sense conservative financial assumptions based on historic patterns, your own known spending habits, how you want to live in retirement, and reasonable forecasts for health care, inflation, and longevity generally are a good place to start. If you don’t think you can trust any assumptions, never retiring is always an option. There is an element of faith in retirement planning, no getting around that. Each person just has to decide where their comfort level is with each assumption that goes into the plan. A good financial planner can lay out all of the important components, listen carefully to and address concerns, and guide an ongoing conversation toward achieving your personal retirement goals. I don’t advocate for FPs. Many successfully plan retirement on their own but, for those who are unsure or don’t know where to start, a good FP can help get you on solid footing and can be money well spent.
We are juggling lots if different retirement income balls. We are perfectly happy to have someone else crunch these numbers and give us some options. I know…for some it seems like a waste of money…but the big issue is one of timing. For all of these accounts.
I do think for many that consulting with a third party with some financial expertise can be one of those “sleep well at night” things. If it makes someone more comfortable about deciding to retire, it serves a purpose.
You mean like this? https://www.firecalc.com/
just finished a good book, which is worth adding to your library:
Since advisors have recently come up here, I’m looking for some advice about advisors. My company provides “free” retirement and financial planning in which you meet with an advisor to see where you are in saving for retirement, asset mix, etc. As a single parent in my late 50s who has had to spend a lot on medical issues, I know I haven’t saved as much as I should for retirement but I’m making inroads.
Anyhow, their solution involves refinancing my house (which will be paid off by the time I’m 65 and now has a 15-year mortgage) to a 30-year mortgage and plowing the difference in payments into my pre-tax 403(b). By their figures it makes sense since the mortgage would be small in retirement, but it seems kind of crazy and counter-intuitive. Of course they can recommend a mortgage broker (and maybe they’ll get a kickback for the referral, who knows) Any thoughts?
Also, I’ve always managed my retirement investments on my own and haven’t done too badly (except during a panic phase during the Great Recession when I pulled out of a lot of stock mutual funds and didn’t get back in soon enough after they bounced back). Their proposal is to put it in a bunch of funds they recommend, with a management fee of 1% and about .6% annually in fund expenses. The returns they’ve gotten do look pretty good.
They’re not really hard sell, but keep circling back to see if I want to do any of this. I’ve been ignoring them so far, but my gut says no. At the same time, I’ve just been kind of making up a retirement plan as I go along without help, so maybe the advice is sound.
We paid our house off, and are glad we did. We may have a very big ticket item that will require us to refinance the house. Glad to have that option. Otherwise, I’m not sure where we could come up with $150,000 in cash quickly. Hoping we don’t need to…but it’s there if we need it.
We contributed the max allowable to my 403b and to DH’s 401k plans. We couldn’t have increased those contributions any higher.
We are waiting for our possibilities plan from the planner we met with on Monday, and we will go from there. We asked for a one year, two year and four year from now options. DH will be 70 in four years.
1.6% of assets is not cheap. I wouldn’t refinance the house, either if you are under ten years to payoff. That would be a big chunk of your SS payment going to a mortgage.
Hmmmm… 1.6% is a lot. That is a big red flag for me.
I wouldn’t do any of the things that were suggested to you either. We love having a paid off house and it gives us a great feeling of security.
You are very right to be suspicious of their motives and kickbacks/ commissions they may earn.
1.6% is a big red flag to me as well. I’d suggest broad index funds that are no load and very low annual fee. The reason their funds past performance looks good is the market has been great the past bunch of years.
I would make an appointment with a fee only financial professional and get their advice. Counter to the advice you are getting here, I got a 30 year mortgage at age 60 at a low interest. The funds that I left in my investments are making more than my mortgage interest. The funds are there if I ever feel the need to pay off the mortgage.
IIRC, you are in my area. PM me if you want an advisor recommendation.
I think I’m further from retirement from you @Barbalot but I have never heard the recommendation to refinance a home to invest in retirement. The refi fees alone! Trust you’re gut here. Plus it feels great to have a home 100% paid for. I would focus on that first and then throw your mortgage payment towards retirement when you have it paid off.
Hell, if I were going to get 1.6% year after year, I’d encourage you to refinance the house also so I could get me some of that pie also.
Crooks. Run, don’t walk, away.
ETA: and dollars to donuts, the portfolio would be a “dog’s breakfast” that’s difficult to unwind. Shameful.
FWIW, I think advisors are useful if they can talk you out of emotional behavioral issues (panic, greed, etc). That’s worth something. Investing is easy if you are satisfied with market returns. If you’re not satisfied with market returns, you had better be lucky, because you’re not a genius.
If you think their asset mix/fund selection makes sense, you could implement it on your own using very low cost funds from Vanguard or Fidelity.
Leveraging your assets by refinancing your house and investing your equity can lead to higher returns overall, and it can also lead to worse returns. I think it is generally a mistake to think of your residence as an investment vehicle you can move money in and out of. You can’t sleep in your mutual funds.
Are you itemizing deductions on your tax return?
It’s actually very inexpensive to refinance these days. No points/no closing cost loans are common and have interest rates as low or almost as low as ones with fees. If you search around you can get a pretty good deal.
@Barbalot , does the “advisor”'s firm get a fee for the money you put in the 403b? That may explain the advice to refinance your house to put more into it. Which sounds like bad advice.
There are a lot of sharks in the water in the investment management business, lots of acronyms and safe sounding terms like ‘fee only’ and ‘fiduciary’ that don’t always mean what you think they mean.
For DIYers the bogleheads forum/wiki is the best I’ve seen anywhere. If you want a person to talk to, you can take your chance on ‘advice-only’ or ‘one-time consulting only’ people if you can find one you can trust, which would be a high bar for me. I’ve heard good things about Garrett Financial Planning, but have no experience with them.
The closer we get to living just on pensions, investment and SS, the more I appreciate the wisdom SS as a safety net. Most people are terrible at managing their own investments, and if you don’t know what you are doing you can’t even trust that the person doing it for you is doing anything right.
A paid off mortgage in ~7 years vs. assuming a 30 year note is crazy talk, imo. (Well actually, its only crazy for you as they get 1.6% of the proceeds, year after year after year…)
Don’t do it. Get one of John Bogle’s books and/or head over to the Bogleheads Forum (bogleheads.org), where you can get plenty of free, high quality advice.
“It’s actually very inexpensive to refinance these days. No points/no closing cost loans are common and have interest rates as low or almost as low as ones with fees. If you search around you can get a pretty good deal.”
Yes, but then there are title insurance, flood cert, wire fees, escrow fees… those suckers can add up.
IMO, it’s hard to say if the mortgage advice has any merit without knowing more details about the amount of retirement savings. If retirement savings are inadequate to provide sufficient funds for retirement, refinancing (while actually having a job - it is harder with no income coming in), might actually have some benefits. For many people, their home is their biggest asset. Sitting on that lump of tied up $$ doesn’t pay the bills although it does provide a place to live. But, in retirement, folks need more than a roof over their head to get by.
“You can’t sleep in your mutual funds.”
You can’t eat your house or use it to pay your electricity, heating, etc.
I do agree that it is easy to refinance with minimal costs.