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  #26  
Old 02-18-2020, 10:47 AM
namelessman namelessman is offline
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Originally Posted by 1968BMW2800 View Post
My name is 1968BMW2800 and I am a New Car Smell Addict and a Serial Leaser. Because life's too short not to drive a vehicle you love. Oh, and like others on this Forum, I think I'm Special.
Almost choked on triple zero yogurt(new item at office's fridge) reading this, now that would be a good way to go out!
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  #27  
Old 02-18-2020, 11:13 AM
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Our little mutual admiration society reminds me of Lake Woebegone. Where every child is above average. Though arguably less special than us.
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  #28  
Old 02-18-2020, 12:18 PM
1968BMW2800 1968BMW2800 is offline
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Though arguably less special than us.
Much less.
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  #29  
Old 02-18-2020, 12:20 PM
1968BMW2800 1968BMW2800 is offline
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Almost choked on triple zero yogurt
Life's too short to eat triple zero yogurt.

Drink the good stuff now!
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  #30  
Old 02-18-2020, 12:24 PM
namelessman namelessman is offline
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He lived to 103, collecting that Navy pension for 65 years.
Some research paper says human brain neurons have max life span of 120 years, 103 of age surely gets up there.

Planning for lifespan of 100+ years is a reality these days for many of us, esp. when SSA says in US one in three of 65 year-old(as of today) will live past 90, and one in seven of 65 year-old will live past 95.

Last edited by namelessman; 02-18-2020 at 12:26 PM.
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  #31  
Old 02-18-2020, 12:26 PM
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Drink the good stuff now!
Is it free?

BTW CA wine prices drop like a rock due to surplus grape harvest, it is projected to stay low for a few years.
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  #32  
Old 02-19-2020, 09:31 AM
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We were very fortunate to purchase policies and IRAs with very generous annuitization benefits starting many, many decades ago.
These are life insurance products, right?

Your policies probably are different, but one observation is that, comparing term life versus whole/variable, the cost of term life is usually 10% cost for equivalent coverage.

Also term life limit can usually be much higher than whole/variable, and can easily be terminated once coverage is no longer relevant.

Also it seems convoluted to merge insurance and investment, even with tax advantages(which are complicated and can be subject to changes).

My suggestions(usually ignored) are to skip complicated products like whole/variable, and pay attention to tax deferred and tax free accounts.
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  #33  
Old 02-19-2020, 10:02 AM
1968BMW2800 1968BMW2800 is offline
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These are life insurance products, right?

Your policies probably are different, but one observation is that, comparing term life versus whole/variable, the cost of term life is usually 10% cost for equivalent coverage.
When IRAs were fairly new in the marketplace, some mutual insurance companies offered interesting IRA products with above-market guaranteed returns. I bought one and then, rather than taking RMDs down the road, I went ahead and annuitized it at age 62. It's sort of one of the bedrock parts of the base of our income pyramid. My spouse did the same -- she was a very early adopter of the IRA scheme and it worked very well. We stayed away from the more exotic variable products, eschewing the possibility of greater returns for the security of solid guarantees -- guarantees that are probably not as compelling in the products offered these days.

In addition, I became a traditional whole life insurance program buyer at age 16, because the premiums were so cheap and the guaranteed cash value growth was conservative but solid plus it was a fully participating policy set up that had additional purchase opportunities guaranteed at the best (lowest) rate regardless of future health. As it turned out, these policies cumulative cash value, based on the company's outstanding financial performance over the decades, while not great life insurance, were terrific guaranteed income generators. My agent explained, many, many years ago, that whole life isn't really for if you die --its for if you live. He was right.

I would not generally recommend whole life or life insurance-based products as investments per se. But it was my assumption that I would remain self-employed throughout my career so building a pension base that was simple and did have a death benefit woven in made sense. We lucked out in that these particular policies, purchased at the right moment in time, out-performed expectations. And we lived, so the relatively wimpy death benefit was never called into play.

But, generally, annuities are a better deal for those who sell them. For those who purchase them later in life, not so much.

And yes, I carried a load of inexpensive term life death coverage when there was a need.

Overall, I think not carrying debt and continuing to invest over time, with the miracle of compounding working for you, really works. And, here on the Left Coast, those of us who bought real estate way back when, have really benefitted from that leverage, as well as generous property tax protections from California Proposition 13.

And then there is the sage advice a wealthy friend gave me: If you want to make a million bucks in the stock market, start with ten million.

So, guaranteed cash flow in retirement, a gold-plated investment portfolio, and no debt, are what I would encourage younger folks to work toward -- except for car leasing, which, once any tax advantages fall away, only makes sense to junkies like me.

Last edited by 1968BMW2800; 02-19-2020 at 10:05 AM.
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  #34  
Old 02-19-2020, 10:34 AM
Autoputzer Autoputzer is offline
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For working stiffs, if both working spouses max out their 401(k)'s, etc., and their IRA's, etc. they're well on their way without having to mess with annuities. At age 52, about 95% of our wealth was in retirement accounts. The only thing left was a nine year old BMW, a five year old Honda, a four hear old Chevy Cobalt, whatever equity was left in our house after the meltdown, and petty cash.

The only life insurance I mess with is a $100k, $2.95/month accidental death and dismemberment polity with Allstate that's billed on my Sears credit card (to keep it active). I don't stop it because I'm superstitious. I know as soon as I cancel the policy... Whack! Ouch!... or Splat!

Last edited by Autoputzer; 02-20-2020 at 07:08 AM.
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  #35  
Old 02-19-2020, 10:41 AM
Autoputzer Autoputzer is offline
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Originally Posted by namelessman View Post
Some research paper says human brain neurons have max life span of 120 years, 103 of age surely gets up there.

Planning for lifespan of 100+ years is a reality these days for many of us, esp. when SSA says in US one in three of 65 year-old(as of today) will live past 90, and one in seven of 65 year-old will live past 95.
We almost lost him at 102. He was partying down at his 90 year old brother's birthday party, overdid himself, and ended up in the hospital for a few days. His brother lived to 95.

The AC in my m3 went out the day before Uncle Claude's funeral. I always have the coolest cars at family functions (reunions, weddings, funerals). But, it was August so we took my Chevy Cobalt to the funeral.

Some of Uncle Claude's neurons were already smoked at 102. We were chatting at the party, and he asked me where I lived. I told him Bubbaville, Floriduh. "I got a nephew who lives there."

"Yeah, me."

"Damn, I really pulled a boner."

Both of my old uncles lived long enough to get on one of the Honor Flights to D.C. for WWII vet's. It wore them out, but they had a blast.
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  #36  
Old 02-19-2020, 10:44 AM
namelessman namelessman is offline
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Originally Posted by 1968BMW2800 View Post
When IRAs were fairly new in the marketplace, some mutual insurance companies offered interesting IRA products with above-market guaranteed returns. I bought one and then, rather than taking RMDs down the road, I went ahead and annuitized it at age 62. It's sort of one of the bedrock parts of the base of our income pyramid. My spouse did the same -- she was a very early adopter of the IRA scheme and it worked very well. We stayed away from the more exotic variable products, eschewing the possibility of greater returns for the security of solid guarantees -- guarantees that are probably not as compelling in the products offered these days.

In addition, I became a traditional whole life insurance program buyer at age 16, because the premiums were so cheap and the guaranteed cash value growth was conservative but solid plus it was a fully participating policy set up that had additional purchase opportunities guaranteed at the best (lowest) rate regardless of future health. As it turned out, these policies cumulative cash value, based on the company's outstanding financial performance over the decades, while not great life insurance, were terrific guaranteed income generators. My agent explained, many, many years ago, that whole life isn't really for if you die --its for if you live. He was right.

I would not generally recommend whole life or life insurance-based products as investments per se. But it was my assumption that I would remain self-employed throughout my career so building a pension base that was simple and did have a death benefit woven in made sense. We lucked out in that these particular policies, purchased at the right moment in time, out-performed expectations. And we lived, so the relatively wimpy death benefit was never called into play.

But, generally, annuities are a better deal for those who sell them. For those who purchase them later in life, not so much.

And yes, I carried a load of inexpensive term life death coverage when there was a need.

Overall, I think not carrying debt and continuing to invest over time, with the miracle of compounding working for you, really works. And, here on the Left Coast, those of us who bought real estate way back when, have really benefitted from that leverage, as well as generous property tax protections from California Proposition 13.

And then there is the sage advice a wealthy friend gave me: If you want to make a million bucks in the stock market, start with ten million.

So, guaranteed cash flow in retirement, a gold-plated investment portfolio, and no debt, are what I would encourage younger folks to work toward -- except for car leasing, which, once any tax advantages fall away, only makes sense to junkies like me.
Thanks for sharing, great stuff!

The tricky part about tax deferred account is that, everything is still taxed at withdrawal. The young folks at work seem to favor tax free ones these days.

Yes eliminating debt is a critical point, and often hotly debated. My take is still minimizing committed cash flow is highly desirable and not burdened by monthlies of any kind is a good step to take.

The best kind of annuity is really what Auto mentioned, namely, govt pensions!
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  #37  
Old 02-19-2020, 10:55 AM
Autoputzer Autoputzer is offline
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One of the things I did at age 50 was to re-fi our mortgage, starting over with a 30-year amortization. Interest rates were down and we had a balloon coming up. But, the main reason was to lower our monthly payments so that we could continue to max out our retirement contributions plus over-50 catch-up contributions. A mortgage is "good debt," especially if inflation ever comes back.

One of my co-workers was getting ready to retire, and said he was going to pull money out of his 401(k) to pay off his mortgage. I told him that the spreadsheets say to do just the opposite: pull money out of you mortgage to pay up your 401(k)'s. He got pissed... at me.
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  #38  
Old 02-19-2020, 11:06 AM
namelessman namelessman is offline
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Originally Posted by Autoputzer View Post
One of the things I did at age 50 was to re-fi our mortgage, starting over with a 30-year amortization. Interest rates were down and we had a balloon coming up. But, the main reason was to lower our monthly payments so that we could continue to max out our retirement contributions plus over-50 catch-up contributions. A mortgage is "good debt," especially if inflation ever comes back.

One of my co-workers was getting ready to retire, and said he was going to pull money out of his 401(k) to pay off his mortgage. I told him that the spreadsheets say to do just the opposite: pull money out of you mortgage to pay up your 401(k)'s. He got pissed... at me.
Great point, tax advantaged debt is much preferred to any other debt. As long as expected cash flow is relatively secure, then it will be all good.

Pulling from tax-deferred 401k to pay down debt is last resort, even with zero penalty. These accounts are contracts with IRS to replicate income streams and generate tax.
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  #39  
Old 02-19-2020, 11:19 AM
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vexed vexed is offline
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Originally Posted by Autoputzer View Post
One of the things I did at age 50 was to re-fi our mortgage, starting over with a 30-year amortization. Interest rates were down and we had a balloon coming up. But, the main reason was to lower our monthly payments so that we could continue to max out our retirement contributions plus over-50 catch-up contributions. A mortgage is "good debt," especially if inflation ever comes back.

One of my co-workers was getting ready to retire, and said he was going to pull money out of his 401(k) to pay off his mortgage. I told him that the spreadsheets say to do just the opposite: pull money out of you mortgage to pay up your 401(k)'s. He got pissed... at me.
I just refinanced my mortgage to significantly lower my monthly payment -by 40%. I went back and forth between a 20 year and a 30 year note and realized I will not be in the house for 20 more years and I was better off maximizing cash flow as I have a child who will be graduating HS next year and then off most likely to some ridiculously expensive college. I hope I invest that cash wisely, I max out my 401K/profit sharing at work. As long as the government subsidizes home ownership through the mortgage deduction it's the only debt I will have and not feel compelled to pay off.
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  #40  
Old 02-19-2020, 12:16 PM
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Originally Posted by Autoputzer View Post
One of the things I did at age 50 was to re-fi our mortgage, starting over with a 30-year amortization. Interest rates were down and we had a balloon coming up. But, the main reason was to lower our monthly payments so that we could continue to max out our retirement contributions plus over-50 catch-up contributions. A mortgage is "good debt," especially if inflation ever comes back.

One of my co-workers was getting ready to retire, and said he was going to pull money out of his 401(k) to pay off his mortgage. I told him that the spreadsheets say to do just the opposite: pull money out of you mortgage to pay up your 401(k)'s. He got pissed... at me.
.

Last edited by greginchi; 02-19-2020 at 04:26 PM.
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  #41  
Old 02-19-2020, 04:09 PM
1968BMW2800 1968BMW2800 is offline
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Which brings us back to cars... one of the fastest-depreciating "assets" one can acquire.

So, though I defer to Putzer and his magic spreadsheets on this, my calculations are as follows:

If one purchases a well-made, inexpensive new vehicle that has a reputation for longevity with minimal repair cost, and drives said vehicle for a decade or longer, then buying, especially for cash or, even better, very low cost manufacturer-sponsored financing, usually pans out well.

Let's say you spend $30,000 out the door, drive 15,000 miles/year, and at the end of 10 years the car is worth a grand, with 150,000 miles on the clock, 3 sets of tires, a couple of inexpensive brake jobs, and 15 ~ 20 low-cost routine maintenance services, plus maybe a $100 Pep Boys battery, etc. Well, let's take it all the way out there and say 40 grand for 10 years or 4 grand/year. Plus insurance and annual registration.

Leasing a nicer new car is gonna be 6 grand a year or more for rent and lease fees. My "cheap" $399/month, $42,000 MSRP MINI costs me a $925 lease fee every three years plus new car registration that never really goes down ($500/year). So about $5,100/year plus registration, insurance, and fuel, probably for a "better" more interesting leased vehicle than the $30,000 car one would purchase in this example -- but maybe not. One can buy a $30,000 or less CPO nice car and lay on the 150,000 miles over 10 years for a similar result, hopefully. Or one can buy a deeply depreciated, near new CPO for $30,000 or less, drive it for a couple/three years, turn it in for maybe a $10K to $12K hit, rinse and repeat.

Without looking at tax advantages or disadvantages or anything else, let's put the opportunity cost for leasing a new beast every 36 months @ at least $1,100 per year. Unless at 100,000 miles my $30,000 beater blows an engine or tranny.... but, anyway, the opportunity cost to lease is there, on the surface.

Unless, of course, a few years back, a forward-seeing person said, "Though I'd never own or lease a Tesla, I will buy the stock." And sold it today for $900/share, having leased a BMW and taken the cash that would have been used to buy a $30,000 Toyota or Honda or Kia or whatever... and purchased $30,000 worth of Tesla stock at, say $250/share. $70,000 long term capital gain profit, less the BMW lease costs...

I bought a Toyota when I graduated from high school. Brand new, under 2 grand out the door. Put a couple of hundred thousand miles on it, only did the front disc pads twice, plus a few sets of tires and regular oil changes and a couple of batteries. Got $1,000 trade in credit 11 years later, recovering 50% of my initial investment, not to mention all those memorable, happy miles I logged as a young adult. Hard to put a value on that, but it sure was a good deal.

HOWEVER, that was a period of wicked inflation, so the $1,000 trade in credit wasn't the same $1,000 that paid for half of the car when I bought it, as inflation reduced the buying power of that $1,000 substantially.

All by way of saying, there is no single correct way to view these things.

I took out a 15 year mortgage and paid it off early, but never threw an extra dollar at that mortgage until after I had paid into my retirement savings. Yes, I technically worked 3 jobs at the same time to do it, but I was having the time of my life, and the travel and fine living and all the rest of youthful indulgence were done on a pay-as-we-go basis. No regrets.

I purposefully front-loaded my life, living well, because I could, and I understood most people don't get to but, as an accident of birth, I could. So I did, and still do, though at a slower pace.

I remember my father explaining the stock market to my brother and I. He explained the concept and finished by saying, "It really isn't fair because stocks go up or down and we pick them but we don't have anything to do with how they run the businesses we're investing in." My brother asked, "Can anyone with money invest in stock?" My father said yes, to which my wise brother opined, "Well, if anyone with money can play, it's fair."

In my experience, life is far from fair. But we can do some things to level the playing field for ourselves and we can certainly leverage whatever advantages we may have been handed at the starting gate. And, if we pull it off, and are well-positioned, we can afford the folly of leasing nice cars and we can set up a fund to support our New Car Smell addiction, forever and ever and ever, if we so choose. We're Special. And life is short.
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  #42  
Old 02-19-2020, 04:36 PM
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Originally Posted by 1968BMW2800 View Post
I remember my father explaining the stock market to my brother and I. He explained the concept and finished by saying, "It really isn't fair because stocks go up or down and we pick them but we don't have anything to do with how they run the businesses we're investing in." My brother asked, "Can anyone with money invest in stock?" My father said yes, to which my wise brother opined, "Well, if anyone with money can play, it's fair."
The risk of stock market is real, and your father's perspective is accurate, namely, investors have minimal control on how the business is run. The (alleged) fairness of the stock market is that, everyone has the same opportunity to make AND lose money.

Trying to beat the odds, many worker ants around here become the market themselves by joining/forming small business(aka startups), but many gradually figure out the dismal hit rates of those too.
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  #43  
Old 02-19-2020, 04:40 PM
Autoputzer Autoputzer is offline
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The inflation rate now was 2.3% in 2019. So, every time you make a mortgage payment you do so with less valuable dollars. Your remaining balance also becomes less valuable with inflation (in addition to paydowns).

A simplifying assumption is that all of a year's inflation occurs at one minutes past midnight on January 1st. I spent almost the fist half of my life in southeastern Virginia. The federal government was by far the largest employer there, with employee compensation roughly linked to inflation. In January, every federal worker and retiree got a raise and prices went up by about the same amount. So, the simplifying assumption was actually pretty accurate.

With that assumption, here's what the inflation-adjusted interest rate of a 3.6%, 30-year mortgage with 2% inflation. The real interest rate starts out at about 1.55% and goes down slightly in the beginning, and then drops like a rock toward the end.

I remember those times of 10% inflation. It briefly hit 20% in the late-1970's. That threw everything upside down.

We have 2% inflation because somebody decided we should have 2% inflation. It stimulates consumption and investment by punishing savers and rewarding consumers.
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  #44  
Old 02-19-2020, 04:43 PM
namelessman namelessman is offline
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.
The equal spread to RE, retirement accounts, and cash is an interesting strategy. For sure RMDs from a sizable tax deferred account is analogous to annuity as Auto pointed out, accompanied by an smiling tax man. The simplicity though is hard to beat.
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  #45  
Old 02-19-2020, 05:02 PM
Autoputzer Autoputzer is offline
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The federal income tax rate for a married couple jumps from 12% to 22% at an adjusted gross income (AGI) of around $100k/year. The trick is that when working to make just enough tax-deferred retirement contributions (e.g. 401(k)'s) to get the AGI down to that ~$100k, and then make any remaining retirement contributions to Roth's.

There's a gray zone between working and withdrawing from retirement accounts, living off pensions and burning down non-retirement assets to pay living expenses. We're in that zone now. I'm gradually "Roth-ing" our tax-deferred retirement savings, but only enough to take us up to just under that $100k AGI every year. My goal is to only pay 12% federal income taxes, coming and going (in work and retirement). Once we start getting Social Security the math gets foggy, because the amount of your SS taxed depends on your AGI. So, that's effectively increasing the tax rate on the non-SS part of your AGI.

It took me a while to psychologically be able to Roth tax deferred retirement savings and pay the tax now. What made it psychologically possible was to realize that all those tax-deferred retirement savings have a tax liability associated with them. So, if you have $1M in tax-deferred 401(k)'s, you really don't have $1M. You really have somewhere between $780k and $880k, depending on the rate in which withdrawals will be taxed. By Roth-ing and paying those taxes now, your total net worth stays the same because you're lowing that $120k to $220k tax liability on that $1M 401(k). Paying the tax on the Roth-in with non-retirement savings effectively moves more non-retirement savings into retirement savings.

My work brought me to Floriduh. But, the real estate situation here is making us leave. We're from Virginia, which has a state income tax, about 6%. So, if somebody moves from Floriduh to Virginia and has a $1M tax-deferred 401(k), as soon as they establish residence in Virginia, their tax liability goes up $60k, effectively buying the state of Virginia a new M340i. So, we decided it'd either be another part of Floriduh or Tennessee.

Last edited by Autoputzer; 02-19-2020 at 05:05 PM.
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  #46  
Old 02-19-2020, 05:13 PM
1968BMW2800 1968BMW2800 is offline
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The wealthiest friend I have started out life no-food-in-the-fridge poor, went to a lousy public high school, got into Stanford undergrad with a scholarship and then Harvard grad school. He made a fortune in the leveraged buyout biz yet hates personal debt. His belief is that leverage, in real estate for example, is what you use to buy a shopping center or an apartment building, using the cash flow generated to service the debt and build equity. He pays cash for his own cars and homes. YMMV.
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  #47  
Old 02-19-2020, 05:19 PM
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It took me a while to psychologically be able to Roth tax deferred retirement savings and pay the tax now. What made it psychologically possible was to realize that all those tax-deferred retirement savings have a tax liability associated with them.
No worries, many miss this subtle point. For sure Romney missed this while rolling his exotic vehicles into IRA. Now the tax man is eagerly anticipating govt's share of Romney's $100m!
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  #48  
Old 02-19-2020, 05:33 PM
Autoputzer Autoputzer is offline
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The wealthiest friend I have started out life no-food-in-the-fridge poor, went to a lousy public high school, got into Stanford undergrad with a scholarship and then Harvard grad school. He made a fortune in the leveraged buyout biz yet hates personal debt. His belief is that leverage, in real estate for example, is what you use to buy a shopping center or an apartment building, using the cash flow generated to service the debt and build equity. He pays cash for his own cars and homes. YMMV.
Yeah, but you need a certain temperament to be in real estate. I don't have it. I'd be in prison for a long time... for killing tenants.

A lot of those leveraged real estate tycoons lost their butts (and their creditors' butts) in the real estate meltdown, especially her in Floriduh.
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Old 02-19-2020, 05:39 PM
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Originally Posted by 1968BMW2800 View Post
The wealthiest friend I have started out life no-food-in-the-fridge poor, went to a lousy public high school, got into Stanford undergrad with a scholarship and then Harvard grad school. He made a fortune in the leveraged buyout biz yet hates personal debt. His belief is that leverage, in real estate for example, is what you use to buy a shopping center or an apartment building, using the cash flow generated to service the debt and build equity. He pays cash for his own cars and homes. YMMV.
Yes positive cash flow through income-generating(i.e. not primary) RE is one strategy, but that can easily become a second job even with management company and such.

And leverage is a razor thin double-edged sword that has been proven effective over and over again.
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Old 02-19-2020, 05:54 PM
1968BMW2800 1968BMW2800 is offline
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The newer federal tax laws are amazingly favorable to investment and pass-thru income, and life insurance annuity income can include a non-taxed return-of-principal component which is very tax-advantaged, yet I would not advise anyone to try to out think tax strategy, as one never knows what the future holds.

Regardless of the vehicle, tax-deferred, compounded earnings are powerful wealth builders over time.

The end game, IMHO, is not to avoid taxation, but rather, to generate sufficient income that exceeds living and tax expense, so one's wealth continues to grow in retirement.

I was incentivized to start the game early, I received excellent advice at a young age, I observed how the successful people around me went about this, and I figured out that, since I didn't write the rule book, all I needed to do was learn the rules and play to win, while enjoying the heck out of the game.
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