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Is being debt free the new "saving for retirement"?

Discussion in 'The Okie Corral' started by glockdoc21, Nov 10, 2012.

  1. glockdoc21

    glockdoc21

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    I recently started a new job, and I'm having to decide what I'm going to do for retirement and with the $ that's left over at the end of the month. I'm just starting out, and I'm afraid that politically, it's going to be much safer from here forward to be debt free than to have a huge retirement portfolio. I've heard similar concerns from some of my colleagues of similar age. I wonder if the next 30 years will see a change from investing in the stock market to going back to "burying money in the yard" as some of my relatives say.
     
  2. RonS

    RonS Millennium Member

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    If I were starting out again I would make more of an effort to minimize debt. Save like mad, buy cars for cash, be very careful what you invest in, never refinance a home etc. The problem is that inflation is kind of a tax on people who save. You put a hundred dollars in the ground this year and it will buy less each year until it won't be worth the effort to dig it up.

    Good luck, I don't envy young people starting out.
     

  3. Restless28

    Restless28

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    Wealth preservation seems awfully challenging now. I work with a few guys in their 50s that have been frugal and saved and invested for decades. They are very concerned now.
     
  4. robertoh

    robertoh

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    I was able to retire with a modest retirement amount because we didn't have a house payment,car payment, college payment,and not maxed out credit cards.Also have two pensions from companies I worked for over the years and also the SS payment.If anyone is thinking about retiring early with any of the above pay outs they might want to reconcider.
     
  5. JMS

    JMS 02

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    You need to do both. Not carry debt as it's generally not conducive to building wealth AND have a retirement fund you can draw 3-4% from annually that will last you 30 years of retirement.
     
  6. paynter2

    paynter2 It ain't over Millennium Member

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    Not all 'huge retirement portfolios' are the same. One thing they all have in common is that they are affected by QE - the creation of more dollars from thin air. But, some 'huge retirement portfolios' are affected negatively and some can hold their own - or even increase in value relative to the debt you own.

    Money market funds (dollars buried in the back yard) will become worth less (worthless). Commodities, in an inflationary environment, will generally become worth more.

    Investing is always a good idea - choosing what/where to invest... "Aye - there's the rub".

    An example: A few years ago I was going to cash out an old (roll-over) IRA, pay the taxes, and pay off my house. I asked my accountant about it. In reply he asked me if I thought I could make more investing the money than the interest on the house. I said yes and left the money invested. That account gained 72% that year. Used wisely, debt can free up funds for other uses.

    Also - different things are considered to be money. Paper (dollars) are debt instruments and yet are considered 'money'. Metals are NOT debt instruments - there are no counter-party risks behind an ounce of gold or silver (provided you hold the metal).

    When the artificial interest rates can't be held down any longer and serious price inflation commences, do you want paper buried in the back yard? Or do you want metal (buried in the back yard). Or shares of XOM? Or the deed to a farm...?
     
  7. Averageman

    Averageman

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    Work hard to get out of debt.
    It would not be unreasonable to take a part-time job to pay off your debt allowing you to really move forward with your retirement program.
    In this economy even with all of the worry about unemployment you can pick up a part-time job in retail and do a lot of good with your debt.
    After you get a good program together you wont even notice the money not being in your check. Make a good five year plan, pay it all off and in the end you're going to be very happy you did.
     
  8. Highspeedlane

    Highspeedlane NRA Life Member

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    I think it's a good idea and exactly what I'm doing now.

    My goal is to be completely retired in 9 years with no mortgage obligation and we will be selling and moving from the Iron Curtain to a more 2A friendly state.
     
  9. Restless28

    Restless28

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    This is an interesting conundrum. Dave Ramsey advocates investing before paying the mortgage off. His theory is that a lot of old people have a paid off home and eat alpo.

    I'm not quite sure I agree with his broad paintbrush.

    If a person is within a few years of retirement, it seems to me that paying off all debt, including the home would be wiser than hoping for significant investment returns in a short time.

    It bothers me that he won't adjust his advice,
    given the economic malaise that won't end.
     
  10. MrKandiyohi

    MrKandiyohi Millennium Member

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    I'm trying to focus on getting rid of my mortgage so I'll be down to the basic expenses of:
    Food
    Heat
    Electricity
    Water/sewage/trash
    Property taxes/insurance
    Transportation
    basic healthcare
    and maybe phone

    Figure out what those costs. If you have those covered, then anything else can be curtailed/removed if push comes to shove.

    Internet, TV, movies, travel, etc are luxuries. You can enjoy them if you have the excess cash.
     
  11. Caver 60

    Caver 60

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    Always good to be debt free. We got debt free in 86 and we've stayed that way ever since.

    But when I was young I used debt wisely. We've owned 4 different houses, all but the last one bought on credit. Only ever bought one new car on credit. There rest were used. But I'm a pretty good mechanic and I've saved a ton on not buying new cars and repairing my own. I've saved and invested wisely.

    One tip. I used what I called the 50% plan over the years.

    When I first started, I was able to live on my income without going into heavy debt other than my house. Never used credit cards unless it was paid off at the end of the month.

    So when I got a pay raise, I waited to see what it was after taxes. Then I took at least 50% of the extra amount after taxes and either saved or invested it. The rest went to give us a little higher standard of living. Over the years, the amount being saved or invested really added up. Today we're comfortable, not rich, but comfortable.

    But you've got to have a wife who will go along with that plan.
     
  12. glockdoc21

    glockdoc21

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    I agree with you, and that's one reason for the initial question. I value Dave Ramsey's advice, but I think that it was more applicable pre-2008. I feel like most people that invest now and let their debt ride (the famous "low and slow debt" like mortgage and student loans) are going to be stuck with no money in their 401K AND a house that they are still trying to pay on. I had rather own a house and my car and worry about trying to pay for food (a relatively small expenditure) than have a small amount of investment income from a large amount that I paid in and have food + mortgage to contend with. I'd rather not be homeless if I pick the wrong team in other words.
     
  13. Powers77

    Powers77

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    Get and stay out of debt with the exception of a small mortgage that you can pay off in 15 years or less. At the same time start the retirement savings focusing on putting as much of that into Roth protected type accounts that will eventually allow you to withdraw the funds TAX FREE in your retirement. IMHO the tax free withdraws will be huge by the time you retire. Normal taxable retirement accounts are going to be adversely impacted by the actions of our wonderful politicians who will have raised tax rates on ALL income by the time you retire. Again IMHO.
     
  14. FullClip

    FullClip NRA Benefactor CLM

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    Getting my house paid off and not owing anybody anything was a great feeling, but the bills are always coming in until after you're in the ground (and that expense is paid off).

    I've never been comfortable with investing much as I've seen too many guys I know get burned, and I ain't too clever about finances, so having a couple 401Ks in "safe" low yield funds makes me sleep better at night.

    Boils down to what you are comfortable risking I think and what kind of life style you want to live in retirement. Take a round the world cruise, or just putter around the house

    Guess if worse comes to worse, a purposely botched bank robbery will at least let you "retire" with 3 hots and a cot for the rest of your life.
     
  15. Patchman

    Patchman Florist

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    The biggest expense is the mortgage. Next is the cost/expenses of purchase/lease a new car every 3 years. Once you shed these expenses, the breathing room feels great.


    Even old age has phases. Recent retirees have the energy to travel, etc... but as you get into your 70s, you're not going to feel like being on a bus, car or plane, even if it is taking you to exotic destinations. As you get older, your life is going to revolve around going to one MD's appointment to another.
     
    Last edited: Nov 10, 2012
  16. Bruce M

    Bruce M

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    It will be interesting to see how much of our current financial wisdom will hold true over the next decade or two.
     
    Last edited: Nov 10, 2012
  17. boone10

    boone10 Glockeologist

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    Tagged till I've got a few minutes...
     
  18. CAcop

    CAcop

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    Not so much these days. A lot of states are cutting back. You will probably end up on house arrest.
     
  19. CAcop

    CAcop

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    As for the OP. It is never a bad idea to be debt free.

    Of course getting there can be hard when the world around you functions on debt.

    Also debt may actually work for you in some ways. Inflation is coming. Just because right now things are pinging off the bottom does not mean it will always be like that.

    Keep debt down, keep unneccessary spending down, put something away for retirement, and be willing to downsize in retirement. The last one is key. If your kids are out of the house do you need to have a 4/3? Can you get by with a 2/1? Can you move out of the area?

    People get into trouble when they try to do too much with too little.
     
  20. 4Rules

    4Rules

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    Gold buys just as much as it ever has.