Investing in retirement


I am confident that I will reach my goal in retirement, of having a fully paid house and having enough money to last me well into my 90s if I live that long. When that day comes, I do not want to spend much time worrying how my retirement savings is doing today.  I want my biggest worry to be figuring out how much money I should donate to charities this week, what kind of fish to catch today, how to cook my catch and what type of wine goes well with my catch.  So as soon as I stop working, I will re-allocate my assets this way, 25% in a Large-Cap value fund, 25% in a Mid-Cap value fund, 40% in a government Bond Fund and 10% in a Money Market fund. I will limit my withdrawals to 4% per annum or the RMD (required minimum distribution) whichever is lower. Finally, I will re-balance my portfolio each quarter.

Note that there is a strict rule on RMD.  Penalty is severe, a whopping 50% on the required undistributed amount.  So please pay attention.  You must take the RMD by April 1 of the year following the year you turned 70 ½.  Open these IRS links for more information,

The IRS links above will take you to a worksheet to figure out your RMD. If you are still working at age 70 1/2, you don’t have to take RMDs from your current employer’s 401k plan until you leave your job.  For this reason, it is a good idea to transfer all of your other taxable retirement accounts, traditional 401k and IRAs to your current employer’s plan so as to avoid the annual RMD. If you have retired and are one of the lucky top 10% who have more than a million dollars in your retirement accounts, take the annual RMD and pay the taxes. If your required RMD is $55,000 a year for 27 years, pay the tax each year.  It would not be so bad.  Don’t be too greedy.  Some financial advisors recommend buying a QLAC (Qualified Longevity Annuity Contract) at this point to defer RMD and tax payment, but I would not recommend them. See the chapter below, “Annuities, what are they?” Pay the taxes annually now at this point in your life rather than try to defer the taxes for later. If you have dependents depending on you for financial support, give them some of the after-tax money.  Check with your tax accountant if you may be able to claim any of them as dependents on your tax return so as to reduce your taxes.  Better still, give a big portion of the money to charity to reduce taxes. If you are adamant about minimizing taxes on your RMD, one option that many financial gurus advocate is to start a foundation to reduce taxes.  Click on the link below to learn more:

According to these financial gurus you may be able to deduct many business expenses (*wink wink*) from your tax returns if you have a foundation. Examples of these “business expenses” are:  vacations, cruises, casino trips, cars, yachts, gardening, janitorial services and many other expenses.  As for me, do I really want to get involved in this in my old age?  If I have 2 million dollars at the age of 70, I want my biggest worry to be what kind of fish I am catching today, how to cook my catch and what kind of wine I will pair with my catch.  I also want to plan a trip every couple of months to every exotic location in the world I can think of.  Right now I am thinking of Seychelles, Bhutan, Myanmar, Galapagos, Maldives, Alice Springs, Cape Town and many others.  Geeeeeez, I can’t wait!



A house will likely be your single biggest investment ever. Statistically, buying a house is cheaper than renting. By the time you are ready to retire the mortgage on the house will probably be paid off leaving you with a nice nest egg of a few hundred thousand dollars.  This plus the million dollars in your retirement fund if you succeed in following the strategies in this book will provide you with a nice retirement income that should last for as long as you live.  Buying your primary residence with a low interest mortgage loan is an investment that is hard to beat.  The rent you would have paid would go instead towards servicing the loan.  Towards interest which is tax deductible and towards the principal.  As the principal is reduced, your equity increases. You will always be paying property tax but that is deductible too.  The way you can really compare owning to renting is by creating a Pros and Cons comparison table.  Plug in real numbers to give you a better idea of where you will be after a period of time.

Pros and Cons of Owning

Pros: No landlord or landlady to deal with.  You are at their mercy if you did something they don’t like.  If you make too much noise, scratch the walls, host too many parties they can increase your rent by 25% in one year or worse, kick you out when your lease is up.  A fixed rate mortgage loan is guaranteed for a period of time.  You have more freedom to do what you want with your dwelling.  You have bigger space and no stomping neighbors going up and down the stairs to deal with.  It is great for do-it-yourselfers and for those who enjoy yard work and gardening. You will receive mortgage tax deduction, property tax deduction, have a sense of community; equity build up; appreciation; capital gains tax exemption when you sell; pride of ownership; availability of an equity loan for emergencies.

Cons: Loss of interest on the down payment and closing costs; depreciation; illiquid asset; it’s stressful to buy and sell; broker’s fee when you sell; maintenance costs; time you lose in maintenance; may be farther away from your place of work; higher insurance and utility costs; common fees; it’s an albatross around your neck if you get divorced; you cannot instantly move out if a bad neighbor moves in; property taxes; you will lose your equity and your FICO scores will plunge if you can no longer afford the monthly payments and have to move out.

Doing the comparison in an excel spreadsheet and using realistic figures will give you a more accurate result.  The following websites are very useful. You can enter your actual numbers to see the result but you must enter accurate variables.

I entered my figures on the above websites, then I created the excel table below to verify my figures. The result is astonishing. I would lose $159,876.05 if I choose renting to owning.  This does not even take into consideration the intangibles, some of which were enumerated under the subject “Pros and Cons” above.

The above table only shows a 15-year projection.  After 15 years, I practically live rent free.  Yes, I will still pay real estate taxes which are tax deductible and I will continue to pay for repair and maintenance and higher insurance and utilities than a renter.  But my home “may” continue to appreciate too as years go by.

Brian Lund, freelance writer wrote this article on July 19, 2014, “The Worst Investment You Can Make: Buying a Home”. .

In his article, Lund claims that you will end up saving $3 million if you rented a comparable house instead of owning one for $350,000. That is, if you invested the savings you will realize by renting instead of owning a comparable house.  Lund adds, “Of course there are numerous tweaks you can make to this scenario -– for example, factoring in your home’s price appreciation or the tax benefits -– but no matter how you slice it, owning a home doesn’t come anywhere close to making financial sense.”