The wealth-building thread

[JeffS7444]

When your income is mostly derived from wages, and you pay income taxes via automatic withholding, it insulates you in a way from the reality of the process.

And for me, the reliable paychecks also encouraged a cash-flow mentality, and that's pretty dangerous (but beloved by car salespersons).

 

[amper42]

So, at the end of your first year of actual retirement it's not unusual to start thinking your wealth looks more ephemeral than you thought it was while you were working, and you start thinking frugality is the best strategy. I don't think it's hilarious at all. I'm like that. Twenty years, a very average retirement duration, is a long time to bet on investments. Some people I know chicken out and are buying annuities or letting "advisors" manage their wealth. Retirement can be scary to a lot of people. Sometimes at 2:00am after the equity markets correct for the fourth day in row, me included.

I certainly can't argue about insurance rates. Mine are up 20% each year. It's unbelievable. At some point, that slows or we all go without insurance.
As far as Hot water heater, I got a gas one last year with a 12 year warranty from Home Depot for $1000. For $3500 you must have one of these new heat pump electric hot water heaters or a tankless and needed larger gas pipe? Just a guess.

If you are concerned about market volatility that's a clear sign you need more cash on hand. I keep up to 4 years of cash available in laddered CDs. I don't worry about the market at all. In fact, I hope it drops by 50% so I can rebalance and buy more. It's really about finding the mix that makes you feel secure no matter what. You have to find the specific cash/equity equilibrium for yourself. What I look at is how much came in versus how much went out over a rolling 12 month period. Amazingly, what's been coming in (including appreciation) is 2-3x more than what's going out and I spent a ton on new Heat Pump, Spray foam insulation and new irrigation lines this last year. My advice: don't sweat the small stuff, be prepared for emergencies and keep an eye on the long game. You will sleep like a baby and actually look forward to market dips.

Withholding is an option from Social Security and most pensions. If you don't like quarterly tax payments it's the cure. I had to wait until after my first 2 years of retirement to get a feel how much to withhold but now it's on automatic pilot. No more quarterly payments needed.

 

[blueone]

I certainly can't argue about insurance rates. Mine are up 20% each year. It's unbelievable. At some point, that slows or we all go without insurance.
As far as Hot water heater, I got a gas one last year with a 12 year warranty from Home Depot for $1000. For $3500 you must have one of these new heat pump electric hot water heaters or a tankless and needed larger gas pipe? Just a guess.

Just a 70 gallon conventional tank gas unit. Labor was a significant component of the total cost. Though it's in the garage, it's on a two foot high platform in a moderately inconvenient spot, so it took three plumbers a few hours to get the old one out and the new one in. Local building codes have a formula for tank size based on showers and bath tubs and appliances, so even though there's only the two of us we couldn't get the building inspector to sign off without a 70 gal tank. Also, the building code changed regarding a pressure relief pipe, so that meant some pipe bending and soldering and an overflow tank. What a waste.

I looked closely at tankless options, but all three plumbing firms I talked to said they have experienced reliability issues with tankless units, and recommended against them.

If you are concerned about market volatility that's a clear sign you need more cash on hand. I keep up to 4 years of cash available in laddered CDs. I don't worry about the market at all. In fact, I hope it drops by 50% so I can rebalance and buy more. It's really about finding the mix that makes you feel secure no matter what. You have to find the specific cash/equity equilibrium for yourself.

Yeah, we do something akin to all of that. The difference seems to be your economic emotional maturity quotient must be higher than mine. Our cat has a higher score than my wife.

What I look at is how much came in versus how much went out over a rolling 12 month period. Amazingly, what's been coming in (including appreciation) is 2-3x more than what's going out and I spent a ton on new Heat Pump, Spray foam insulation and new irrigation lines this last year. My advice: don't sweat the small stuff, be prepared for emergencies and keep an eye on the long game. You will sleep like a baby and actually look forward to market dips.

I sweat everything. End of story.

Withholding is an option from Social Security and most pensions. If you don't like quarterly tax payments it's the cure. I had to wait until after my first 2 years of retirement to get a feel how much to withhold but now it's on automatic pilot. No more quarterly payments needed.

I know, but our income streams are unpredictable and widely varying. I would still have to do estimated payments or risk federal and state penalties. Our state is especially obnoxious about it. I've learned to be sure I send them at least 10% more than my highest estimate because the under-withholding penalty is high enough to really piss me off. I only have two words for our state dept of revenue, and all I care to say is that they're not "Merry Christmas".

 

[amper42]

Just a 70 gallon conventional tank gas unit. Labor was a significant component of the total cost. Though it's in the garage, it's on a two foot high platform in a moderately inconvenient spot, so it took three plumbers a few hours to get the old one out and the new one in. Local building codes have a formula for tank size based on showers and bath tubs and appliances, so even though there's only the two of us we couldn't get the building inspector to sign off without a 70 gal tank. Also, the building code changed regarding a pressure relief pipe, so that meant some pipe bending and soldering and an overflow tank. What a waste.

I looked closely at tankless options, but all three plumbing firms I talked to said they have experienced reliability issues with tankless units, and recommended against them.

Yeah, we do something akin to all of that. The difference seems to be your economic emotional maturity quotient must be higher than mine. Our cat has a higher score than my wife.

I sweat everything. End of story.

I know, but our income streams are unpredictable and widely varying. I would still have to do estimated payments or risk federal and state penalties. Our state is especially obnoxious about it. I've learned to be sure I send them at least 10% more than my highest estimate because the under-withholding penalty is high enough to really piss me off. I only have two words for our state dept of revenue, and all I care to say is that they're not "Merry Christmas".

If the city requires permitting for simple hot water heater replacement then costs can explode. Best you can do is have a reasonable plumber that works with you regularly. I find I'm always looking for a plumber whose reasonable as the last one just doubled prices or doesn't answer calls anymore. It's a wild business and city interference makes it worse.

You have different income streams than I or are still working part time? I totally know how much pension will be and interest each year. Any excess gains in the market don't get taxed unless I sell. I sold all my rentals before Medicare (65) so I wouldn't have any huge gains from property sales. Medicare raises fees and automatically reduces Social Security if I have a big gain in any one year - so I try to level it out to stay within current 185 a month premium. Sometimes taking a breath and realizing it's all going to be OK is helpful.

A fun game for me was to run a forecast of how much I would have to spend each year and how bad the market would need to dip and stay low to run out of funds. It can be amazingly hard to spend it all even in difficult situations. If you have 3 things: (1) medical under control with great insurance coverage, (2) stay with the S&P 500 (instead of individual stocks) and (3) healthy savings, it's not too hard to stay financially secure. Sometimes forecasting the worst and staring it in the face allows one to realize how unlikely that scenario is. Peace my friend.

 

[amper42]

Friday, Jan 3 SPY MaxPain dropped to 590.
Yesterday, looked like a continuation of Bond/Equity rebalancing.
If mister market is still BULLISH I expect to see a close above SPY 590 today.

 

[napfkuchen]

Here in the US basically anything tied to home ownership is not going up at 2-3% per year like the Fed discusses, 10% per year is probably on the low side. My homeowners insurance has gone up 30% per year for the last three years, compounded. Home values keep going up, so property taxes keep going up. Cars keep getting more expensive, and their insurance is on a steep upward price slope too.

Whether it makes sense to tax real estate can certainly be debated. In Germany there was once a wealth tax (until 1997) and the property tax is comparatively low.
During the recent property tax reform all properties were revalued. In some cases there were significant increases, when I received the new tax notice I couldn't believe it... My annual payment decreased from 460 euros to 290 euros. In total (property tax, maintenance, electricity, heating, insurance, etc.) my 98 sqm apartment costs around 500 euros per month.
On the other hand: If I hadn't sold nearly my entire stock portfolio (with 15% Nvidia shares), to buy the apartment... But unfortunately, my crystal ball was in repair at that time.

 

[EJ3]

Oh I dunno, it seems to me that your real estate should count as investments, though there may be some work on your part needed to generate income from them.

I'm in an opposite situation: No real estate, never owned a new car, never had car payments. Bulk of my net worth has been in the stock market since my 20s or 30s, but I wasn't the most astute investor, and I kept too much cash on hand. Today I cringe at how I maintained a $30K USD checking account balance on a whim - I thought how neat it would be to have ready cash to buy "whatever". And it was a nice feeling, but far from unleashing a spending frenzy, it made me hold back, because I liked the feeling of having the $ so much. But silly me, I ignored the lousy 0.1% interest rate, which meant that every year, I gained a whopping $30 of interest. Who knows, by not using the money more wisely, I might have basically donated the value of a nice new GR-Corolla (or two) to a big multinational bank.

And I'm kinda embarassed to admit that, until recently while watching a IWTYTBR video, I had never thought of credit card interest charges as being negative compound interest. For the past several years, I've paid off my balance each month, but for many years prior, I carried a balance from month to month.

I was not like you but I was good at wasting it (cars: they were usually older (vintage/classic beater hot rods that cost me $500 a year [that was an extremely high one] to insure & $20 a year in taxes), keeping money in the bank: I did not keep more than about $5K, if there was more than $2.5K, it was time to take a trip or find some other way to enjoy spending it. Investments: you can't have fun doing that. Credit cards: well, you can have 3 with $25K available and as long as you can make the payments, run them out to at least 75% spent (save a little space just in case you want to go somewhere else). The cards where 90% used to travel, so nothing to show for using them [my interest rates did not exceed 7%]). But I owned NOTHING except old cars.
My lifestyle, I never thought I would make it past 45 (& that the credit card companies would be left holding the rather big bag) & I was 100% not marriage material. Bachelor with no kids (that I know of).
Then, at 46, I found a woman in Saipan that I deemed worthy of me straightening up for& who, after 2 years of me being mostly straightened up, accepted that I may yet make mistakes but was definitely on the correct path & had been on it for a couple of years and would likely stay that way.
Anything that we now have is since I married her.
I paid off $76K of credit cards off (she through in $20K towards the end & $35K on our first condo) & we went from there.
Now I am 68 & we are debt free.
It's been a Long, Strange Trip but we've made it this far.

 

[dtaylo1066]

Damn right. There's no mystery about it. When the paychecks stop your whole attitude about accumulated wealth changes with it. And then there's the current inflation factor. Here in the US basically anything tied to home ownership is not going up at 2-3% per year like the Fed discusses, 10% per year is probably on the low side. My homeowners insurance has gone up 30% per year for the last three years, compounded. Home values keep going up, so property taxes keep going up. Cars keep getting more expensive, and their insurance is on a steep upward price slope too. Replacement appliance prices are nutty; parts are worse. When our hot water heater needed replacement it was over $3500. I thought the company I contacted was crazy, until I called around and found that's the ballpark for a model like we needed. Home ownership in retirement can change your whole attitude about how wealthy you think you are.

Of course, the only thing worse than owning a home is not owning one.

Most of us boomers grew up when one million dollars was a lot of money, so anything approaching that (or even a low multiple) might make you initially think you're rich. And then the facts of the previous paragraph set in, and you get a huge reality pill to swallow. Interest and gains aren't the only things that compound, inflation does too. Since most paychecks go up (sort of) with inflation, that insulates you a bit. Like I said, when the paychecks stop the reality starts.

There are also other factors. When your income is mostly derived from wages, and you pay income taxes via automatic withholding, it insulates you in a way from the reality of the process. When much of your income is from interest, dividends, and asset sales, a lot of retired people get a rude introduction to quarterly estimated tax payments to the IRS and most states. Suddenly income taxes look more like a new expense than just paycheck reducers. I know, its just a perception thing, but logging into the IRS website and telling them, yeah, take that big nick out of my checking account, you get a new view of the real cost of living.

So, at the end of your first year of actual retirement it's not unusual to start thinking your wealth looks more ephemeral than you thought it was while you were working, and you start thinking frugality is the best strategy. I don't think it's hilarious at all. I'm like that. Twenty years, a very average retirement duration, is a long time to bet on investments. Some people I know chicken out and are buying annuities or letting "advisors" manage their wealth. Retirement can be scary to a lot of people. Sometimes at 2:00am after the equity markets correct for the fourth day in row, me included.

While the several year inflation spike sucked big time, for the gainfully and professionally employed, wages increased quite a bit in that time frame, so some kept up, or nearly did in terms of wage growth. Of course a bunch did not. And with very low unemployment, many ping ponged in the job market to grow their salary.

I am retired, so no paycheck, though SS did get an 8.5% bump one of those years. And while my risk averse portfolio dumped 17% in year one of my retirement due to the market drop in 2022, as well as the WORST period for bonds in U.S. history (boy did that suck!), the market grew at more than 20% in both 2023 and 2024.

And I live in Colorado where my 28-year-old home has zoomed up in value (along with my taxes).

It is virtually impossible to time the market, so you need to stay the course, and there will be more good years than bad. Without investment in real estate or equities one cannot realistically grow their net worth for retirement, especially as we evolve into a society in the U.S. of haves and have nots. I would suspect most on this Forum are in the haves, based on the audio demographic. But of course, some are not, or have hit a hard patch.

At age 68 I can well remember the enormity and status of the term "millionaire" in the 1960s - 1990s, as if it were some near mythical financial state that one could only dream about. Well, fast forward 40 or 50 years and you pretty much need a net worth of $2 million to retire in the U.S. today, including your home's equity.

I can recall in 1970 going into to a VW dealership with my father and him buying a beetle for $1,900, and I am sure he had to finance it. My parents bought a very nice house in Orange County, Cali., that year for $34,000.

In the 1960s if your old man made 10K a year you were doing just fine. 20K and you may be joining the country club.

 

[blueone]

My parents bought a very nice house in Orange County, Cali., that year for $34,000.

That house is probably worth more than a million dollars now. A lot more if it had 2500sqft or larger.

I lived in Irvine for a year, six years ago. Of seven cities in five states that was my favorite place to live. I just couldn't see retirement in such an expensive city and state. My wife and I still talk about it though.

 

[blueone]

In Germany there was once a wealth tax (until 1997)

I didn't know that. I would have guessed Germans were too smart to have a wealth tax.

 

[blueone]

If the city requires permitting for simple hot water heater replacement then costs can explode. Best you can do is have a reasonable plumber that works with you regularly. I find I'm always looking for a plumber who's reasonable as the last one just doubled prices or doesn't answer calls anymore. It's a wild business and city interference makes it worse.

You got that right.

You have different income streams than I or are still working part time?

I'm retired, my wife still works. (She is not a good retired person. She also gets overly flattered by headhunter interest.) Yeah, we have a bunch of income streams, and one in particular annoys me by being completely unpredictable until about Dec 30th every year. I know can have withholding done on SS and pensions (and my brokerage firm will do it too), but I'd rather be in complete control. I'm like that.

I totally know how much pension will be and interest each year. Any excess gains in the market don't get taxed unless I sell. I sold all my rentals before Medicare (65) so I wouldn't have any huge gains from property sales. Medicare raises fees and automatically reduces Social Security if I have a big gain in any one year - so I try to level it out to stay within current 185 a month premium. Sometimes taking a breath and realizing it's all going to be OK is helpful.

Good move keeping Medicare Part B & D income-based adders under control. As for taking a breath, that's not in my nature.

A fun game for me was to run a forecast of how much I would have to spend each year and how bad the market would need to dip and stay low to run out of funds. It can be amazingly hard to spend it all even in difficult situations. If you have 3 things: (1) medical under control with great insurance coverage, (2) stay with the S&P 500 (instead of individual stocks) and (3) healthy savings, it's not too hard to stay financially secure. Sometimes forecasting the worst and staring it in the face allows one to realize how unlikely that scenario is. Peace my friend.

I just installed TurboTax for 2024. Now I get to see how well my planning was. Well, by about late February.

 

[amper42]

SPY MaxPain 588 Jan7/8 and 590 Friday Jan 10.
Current Jan 7 open = 597.57
Don't be surprised for price to drop back to 594 area by close.

10 year Treasury 4.635
This ramp up in interest rates while Fed trying to drop rates is a tug-of-war.

Update:
Funny trade.
SPY drops to 593.25 within 45 minutes of open. lol
That trade worked.
10 year jumps to 4.696
Looks like 5% in the headlights. Market pricing in Tariffs.

Last 30 minutes 588 SPY tagged. lol
Long 587.75

 

[dtaylo1066]

10 Yr. Treasuries starting to look pretty tasty to us retired, fixed income zealots. Auction tomorrow.

How many of you have Treasury Direct accounts? Great and easy on line tool if you do not!

 

[amper42]

Buying US Treasuries has been a sure fire way to lose money for the last 2 years. I hope that changes at some point.

For the two years ending September 30, 2024, estimates suggest that the Federal Reserve's total losses could reach approximately $290 billion. This includes ongoing monthly losses that began in 2022 and have continued into 2024. Crazy stuff. I guess they just print more money to keep going.
Wish I could do that when times were lean.

 

[Timcognito]

Buying US Treasuries has been a sure fire way to lose money for the last 2 years. I hope that changes at some point.

When the market has a an abrupt "correction" and average15 month and a 36% loss, that will happen.

 

[amper42]

When the market has a an abrupt "correction" and average15 month and a 36% loss, that will happen.

View attachment 419359

Good luck timing this next downturn. Most retirement funds have converted to using ETF's and no longer managed funds. You now have a continuous stream of money feeding the market every week. Covid was a great example of what can happen when a segment of the population stops working for awhile but look how quickly it popped to new highs. It was like holding a ballon underwater.

 

[Timcognito]

Most retirement funds have converted to using ETF's and no longer managed funds.

Yes but with all talk about government layoffs, tariffs, and deportations, hedging 10 years of living expenses without taking profits in an IRA to get 4-5% return in a bond fund that is easily switched back if thing s look rosy, beats a 36% loss.

 

[amper42]

Yes but with all talk about government layoffs, tariffs, and deportations, hedging 10 years of living expenses without taking profits in an IRA to get 4-5% return in a bond fund that is easily switched back if thing s look rosy, beats a 36% loss.

Warren, I know it's you. Take some of that $325 billion in cash and put it to work. You know you want to.

 

[Timcognito]

Expecting the market to hit new highs when its had great and record run if one has a thirty year outlook is fine. But a retired person that needs the money in a downturn is different story. Again the IRA is your friend if one wants preserve profit as that 4+% is there for the taking.

 

[amper42]

Expecting the market to hit new highs when its had great and record run if one has a thirty year outlook is fine. But a retired person that needs the money in a downturn is different story. Again the IRA is your friend if one wants preserve profit as that 4+% is there for the taking.

Retirees are in the best shape of any previous generation.
1. They have more home equity.
2. They get more from Social Security
3. Many have pensions as well
4. About 3 million police, firefighters, teachers, postal workers and other public employees are about to receive a Social Security pension that reflects what they paid in. Just like everyone else. The Feds dropped their social security by up to 50% for 40 years just because at some point in their life they also earned another pension. The Feds used it to pay the Social Security benefit for the rest of Americans. That changes today and they get back pay from Jan 2024.

What I'm more concerned about is new families trying to find affordable housing. There wages got a big increase in the last 3 years but housing is eating it up. They don't have the savings of Boomers. They do have retirement accounts and the smart ones will participate at the highest levels they can afford.