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66

Do they want your help? Many times parents have difficulty taking advice from those whose nose and butt they wiped. Your accomplishments and investments are independent of the fact. What are their needs? They likely have social security and is that meeting their needs now? What happens after dad passes? Coming up with solid numbers is an important step ...


55

Where is the risk? The short answer is... Property damage from weather, termites, tenants, whatever. How about tenants who stop paying the rent and you need to go through legal channels to evict them? It doesn't cost a fortune but you had better not need that rent to make the mortgage. How about another GFC (Global Financial Crisis) like 2008 when ...


49

This seems to me irregular both in terms of risk, lack of diversification Me too. Is this a suitable allocation of assets? Putting 50% in one stock is acceptable, I think, if that one stock is a highly diversified and well-run investment company like Berkshire-Hathaway. (Apparently, half of Bill Gates' wealth is in B-H.) Of course, a giant bank isn't ...


47

Probably they shouldn't be investing. It's too late for that. And if they aren't investing it's pretty simple: Sell the big property before they urgently need the money because that takes time, then pay off the mortgage on the other house because the mortgage only costs money and they probably can afford to pay it off. In that order so they always have some ...


33

Not safe at all. A 4% withdrawal rate would require the US stock market in the 21st century to produce returns similar to those of the 20th century, i.e. in the vicinity of 7% in real (inflation-adjusted) terms. Fair estimates for stock returns going forward are not this high. Rick Ferri proposed a real 5% over a 30-year horizon in 2015. I recall Bernstein ...


26

Explain to your parents what a fiduciary1 is. Tell them that no matter how much they like this guy (gal?) they should only invest with someone that they have a fiduciary relationship with - because they only have one shot left and it needs to be the best thing for them. Steer them to someone who is a certified financial planner or any other ...


25

where is the risk? Losing renters Damage done by renters Unexpected maintenance Legal liability Capital losses Other factors that should be included in expenses: Routine maintenance Paying the landlord (essentially a part time job for him) I'm not saying it's a bad investment - and it sounds like he has a decent property for an amazingly cheap price, ...


24

First, if you structured your rental properties correctly and had a Self-directed 401(k) you could each be contributing over $56,000 a year into it under various characterizations. As you mentioned, you are only making $40,000 and will never max it out, but you already indicated a desire to expand. It may be obvious to some, but there is still $40,000 that ...


21

The biggest problem your friend has isn't the risks associated with real estate per se, and the existing answers have covered those pretty well. The problem is that your friend is about to sink their entire net worth (or some appreciable fraction thereof) into a single asset class. Not a great plan. The problem is systemic risk: for example in this case ...


19

Short answer: no… When you pay into a a defined contribution pension (for example a SIPP), you get income tax relief at source. Usually this happens in one of two ways: Your employer makes the contribution from your pay before income tax is applied; or Income tax is reclaimed on your contributions after you have made them. First, the pension scheme ...


14

Whoa. The real estate is a business, not a retirement. Totally different. The 401(k) is a trust account that is absolutely protected. It cannot be sued out from under you. You cannot lose it in bankruptcy; it cannot be garnished or attached (until you are near retirement and you reach a point where withdrawals are compulsory). The only way you can lose ...


14

So the general rule for real estate investment (in North America) is this: only do it if you love the idea of doing it. If you love the idea of being a landlord and property manager, you think the Monopoly Guy had the right idea, and you think hours spent repairing units and analyzing property spreadsheets and browsing property listings are a really fun ...


11

The 4% rule was created by looking at hypothetical retirees throughout all of the history of the stock market. 4% was found to always ensure that a retiree never ran out of money for at least 33 years regardless of what period of history you looked at. This includes a retiree going through any of the 30 year periods that intersected the Great Depression, ...


9

The piece you're missing about a traditional IRA is the up-front tax savings that may apply. If you were taxed at 25% and able to deduct the full contribution then you could contribute 33% more to a traditional IRA (assuming room under the annual contribution limit) than you could to a Roth IRA for the same net cost, or have 25% more cash in hand after ...


9

I think you could answer this by looking at how the world market does on average compared to the US market. Essentially a comparison of VTSAX to VTWIX. This website will allow you to do exactly that. While VTWIX has a lower growth rate over a 10 year period (8.57% versus VTSAX's 13.09%) it's still higher than the ~7% annualized growth required to make the 4% ...


9

Yes, this is terrible in terms of lack of diversification and concentrated risk. Conflict of interest? No, because there's no benefit to Morgan Stanley if a client owns shares of JPM. Mismanagement? Maybe, maybe not. This might be a violation of FINRA's "Know Your Client Rule" which requires a broker to assess each customer's financial situation, ...


8

There are a couple of reasons why Dave Ramsey advises you to look at the 10-year performance of mutual funds. When comparing the past performance of different funds, you need to make sure that you are using the same time period for each comparison, so that each fund will have been subject to the same market conditions over the comparison window. 10 years is ...


8

I "retired" at 50. In no particular order, here are my thoughts in response to your question: You offer a mix of numbers ($$) saved and percent moving forward. There are a few issues with this. Few FIRE savers are saving so little. My minimum goal was always to maximize the 401(k) along with 5% company match. This meant at least 20% of gross was saved. More ...


8

That calculator presumes that the stock market will increase every month. It doesn't. I would still have to take into consideration on how much of % the loan would be and subtract it. But you haven't. A 6% rate on personal loans isn't out of the question, and it might be higher. Instead of hypothetical growth numbers, use real statistics for the past two ...


8

I can jump in on this as a family with a lot of property. First off, I personally wouldn't mortgage an investment like this. He got lucky with this duplex but it can still go south. Over the years, we have seen a wealth of horrors like you wouldn't dream of from tenants who have destroyed our properties over and over again. Everything from dead sea snakes, ...


7

Ultimately, it's just a matter of your retirement goals and preferences. If your goal is to keep acquiring additional rental properties then contributing to 401k beyond employer match at this point doesn't make much sense. If you imagine getting out of the landlord business in retirement you might want to max out Roth IRA contributions each year now to ...


7

A typical "friend who wants to help them with investing" is actually out for himself. The most benign way this occurs is the "friend" recommends them into annuities and load mutual funds that pay him a gigantic commission, at the expense of the value of the investment. For instance I found a Florida investment "counselor" had put my parents into a ...


7

I have the exact same goal as you so I have been thinking about this problem a lot. The biggest issue I have (and you seem to be missing in your plan) is when your retirement funds will be available to withdraw. If you plan to retire at 50 you have 9.5 years before you can touch your traditional 401K (or IRA) funds without tax penalties. and 12 years ...


6

The point you are missing in the examples is what you are doing with the money saved on taxes with the Traditional IRA. Assuming that that money is also invested, if you have a completely flat tax with no deductions on both contributions and distributions, a Roth IRA and a Traditional IRA are equivalent; because taxes are multiplicative, rate of return is ...


6

What would make investing into my 401k the better option other than NW? Company match. Eliminating all 401(k) contribs means no company match, and that's a pay cut, which naturally is Unwise. More important is the foolishly binary thinking embedded in your statement: If I choose to invest $19k into my 401k Who mandates that you must fully contribute ...


5

I agree with you about Roth accounts. Pay the tax now and you only pay tax on your contribution not any gains. But the advantage of Traditional arrangements is as you put it "albeit later on." Generally speaking people begin earning at the lowest tax rates. Through their lives they increase in earning power and thanks to progressive tax schemes your rate ...


5

There are a lot of topics here but I'll just try to touch on the main ones. Figure out what your expenses will be when you retire--look at your current expenses and determine what will change if you stop working. A major issue is how you will get health insurance (if it is currently subsidized by your employer) until Medicare kicks in. If you will need to ...


5

Your question about when it makes sense to stop paying in depends on three things: The possible growth rates of your investments. The costs of going over the LTA. The benefits when under the LTA, which translate into lost opportunity to benefit if you undershoot. It's really hard to make a good guess about growth rates, so I won't try, and instead focus ...


5

This is a complicated tax issue that has a lot of implications. The draw to retirement accounts is preferential taxation. But preferential taxation assumes other jurisdictions will honor that preference. You have various citizenships or work visas. You need to understand what obligations those citizenships place on you to report income and pay taxes. A ...


5

You've stopped the drawdown projection after 15 years, but you could easily live longer than that, and in just a few more years you'd run out of money. Your initial withdrawal rate of >7% is very high. You haven't considered the need to grow your withdrawals with inflation. As a result of the above, most people cannot rely purely on "conservative portfolios" ...


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