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View Full Version : Which is more: your home equity or your savings?


disneysteve
07-05-2006, 08:02 PM
As usual, I don't fit the statistics. I should be used to that by now.

According to The Motley Fool, the equity in most homeowner's homes far outweighs what they have saved.

That certainly isn't true for us. We are both in our early 40s and our savings are nearly double our home equity. Plus, our savings are growing much faster than our home equity so that gap will only widen over time.

How about everyone else?

MickeyMickey
07-05-2006, 08:17 PM
If you count 401(k) and other savings my home equity is about 40% of total net worth. My house is paid off so home equity will become less and less as a %

crjack
07-05-2006, 08:20 PM
I had to really think about it before making a selection. My first thought was automatically our savings (401k's, 529's, etc) but then I stopped to think about a typical sell price of our house so I selected "about the same" as my choice.

In our case it's a good thing and simply a result of living in a high cost part of the country. We also just entered our 40's and started 401k's in our early 20's and college funds as soon as possible when the kids were born. We bought our house 14 yrs. ago though and live in Boston where prices are high. They've always been high and although they are lower now than they were last year the median home price is still outrageous and probably always will be.

We don't plan to sell anytime in the near future but if we did there would be quite a bit of equity in it even in a softer market.

Unless we move out of state for retirement we dont even factor in our home equity as part of our retirement plan so our savings has to continue to grow on a regular basis with deductions from each paycheck. Assuming we stay in the area we will always have to deal with the high price of housing in this house or another.

DawnM
07-05-2006, 08:29 PM
Hmmm....tough question.

How do I count this one? Equity includes the 40% we put down on this house? Then it would have to be equity I guess.

We moved FROM Los Angeles to Charlotte so that helped considerably.

When we were going through the homestudy for the adoption we had to fill out paperwork for "our net worth." The strange thing is that they included the full value of our home into the equation, never asking us how much we still owed on the house. I found that VERY strange.

We do have quite a bit in retirement accounts, 401K accounts, ROTH IRA accounts, and a general savings account.

Dawn

HaleyB
07-05-2006, 08:29 PM
We are in our mid to late 30's.
Our savings is more than our equity.

I think the Motley Fool quote reflects the fact that many Americans do not save at all and live well above their means.

Stein
07-05-2006, 08:38 PM
Early 30's and our savings is about double our home equity, but we have only been in it since November 04. If things continue, it will only be about 2-3 more years before the house surpasses our savings.

disneysteve
07-05-2006, 08:40 PM
I think the Motley Fool quote reflects the fact that many Americans do not save at all and live well above their means.
Though the flipside of that is all the folks buying homes in recent years with 0% down so any savings would be more than the home equity. Especially with the market softening, some folks owe more than their homes are worth, thus negative equity. $1 in savings would be better.

Rozzie
07-05-2006, 08:48 PM
This is a hard one to answer for us. We put down 30% on our home, and then saw a huge jump in the market after we bought. We both however, refuse to believe our home is worth a penny more than we paid for it. (hot topic last night at neighbors, as they want to cash out now and make a easy $50K...) I think our area is over inflated, and fast becoming over built.

So I put savings more...

nowellsl
07-05-2006, 08:48 PM
My house is paid for so it's all equity - my savings doesn't even come close!

graygables
07-05-2006, 08:50 PM
:teacher: House pays off in 5 years, very little in savings...guess the equity wins! We are both self-employed and between gas prices and medical/health insurance costs (and raising kids) savings is on the back burner right now. I know it's not the smartest thing, but it's our life at the moment.

luckofthedraw
07-05-2006, 08:53 PM
For now, we fit the trend, but that's because we purposefully put a huge downpayment on this house, and use HELOC as a safety net. (It's that get out of debt syndrome, ya know). We've never dipped into the HELOC, but it's there if we need it.

Our savings are catching up, but have not surpassed, our equity.

isla bonita
07-05-2006, 08:59 PM
We own 2 homes and both homes have gone up in value unbelievably. Our home in NE is worth 2 times what we have paid and our home in FL has gone up 50 %. Our sav. is good but not nearly that amount.

arminnie
07-05-2006, 09:00 PM
If I still owned my home in Northern California my non-retirement assets might be smaller!

crisi
07-05-2006, 09:20 PM
Our home is paid off, so we have complete equity there....but with 401ks, deferred comp, stock, savings accounts, etc., our savings outstrips our home equity.

We have been very fortunate however.

FreshTressa
07-05-2006, 09:31 PM
There is no way I could save the equity we have gained in our house in the past 8 years.

Over 8 years we have gained about 300k in equity in our houses, while our savings hovers around 50k.

pearlieq
07-05-2006, 09:43 PM
Our home equity is still slightly more than our other assets, but that should reverse in the next 1-2 years.

We are in our late 20's and have about 40% equity in our home.

BLAZEY
07-05-2006, 10:10 PM
We have more equity in our home according to the tax assessment we received a few months ago. I am waiting to get our June 30 statements for many of our retirement and unregistered savings. I am 28 and have been maxing out my retirement contributions since I started working 4 years ago. My DH had no saving and I got him started with RRSP (Canadian Retirement savings) and used I have used his contribution room that he has been accumulating since his teen years. I also started a new job this year and have the maximum that my employer matches deducted from each pay cheque. This just increased with the raise I got June 1. Yah!! :cheer2: We have no kids so we are puting the max in to our retirement and then putting the extra into unregistered investments and liquid savings (ING). We have a Vacation account which doesn't get used enough in my opinion (DH is not a traveller). and I am saving for when I am off work when we decide to have kids.

disykat
07-05-2006, 10:57 PM
We bought our house 8 years ago and will have it paid off in about 5 years. It has more than doubled in value during that time. Because of that, we have way more equity in our home than savings. If it hadn't appreciated, we would have more savings than equity.

dvcgirl
07-06-2006, 04:30 AM
Our home is paid for, so it's all equity. Still our retirement accounts far surpass what our home is worth. We don't fit the mold either....

Lisa loves Pooh
07-06-2006, 04:47 AM
Our home outpaced our ability to save that amount. It tripled in value since we bought it 6 years ago.

Saving that amount in the same amount of time IMPOSSIBLE! Hubby doesn't make enough annually for that to be a liklihood and unless we did some highly risky investments to pull of a ROR (umm--gambling!!!!!)...no way could we save that much.

He invests pretty well in his 401K and it hasn't even caught up yet.

Lisa loves Pooh
07-06-2006, 04:49 AM
We are in our mid to late 30's.
Our savings is more than our equity.

I think the Motley Fool quote reflects the fact that many Americans do not save at all and live well above their means.

I don't think that is fair.

We happened to buy before a boom and at present our home is maintaining value.

I suppose if we lived in a hut so hubby could invest 100% of his income, we'd be doing all right--but in the present time frame--I don't know what we could do differently. :confused3

But to suggest it is solely b/c Americans are living beyond their means...there are just too many variables to come to that conclusion.

And as Steve said--some people went over the heads to buy a home with creative financing.

I am curious if Motley Fool is implying that Home equity is a bad thing. Obviously a home could fluctuate in value--but really...is Home equity all that terrible for people to jump to the wrong conclusion that it must mean you are over your head. :confused3

I would think that the article (which I haven't read) is more implying the incredible inflation of home prices and not necessarily reflecting on poor savings. though I could be wrong.

disneysteve
07-06-2006, 07:28 AM
But to suggest it is solely b/c Americans are living beyond their means...there are just too many variables to come to that conclusion.

And as Steve said--some people went over the heads to buy a home with creative financing.
Yes, I wasn't implying at all that the figures were due to people living beyond their means.

I actually read this info secondhand when it was quoted in a retirement planning special issue of a financial publication. It was talking about how many people (physicians specifically) have so much of their assets tied up in their homes and how they will need to tap some of that equity to live on in retirement.

pongo&perdita
07-06-2006, 07:40 AM
I said savings but I was including my teacher retirement. Without that I suppose equity is higher. We just paid off our home.

catherine

dvcgirl
07-06-2006, 07:53 AM
Yes, I wasn't implying at all that the figures were due to people living beyond their means.

I actually read this info secondhand when it was quoted in a retirement planning special issue of a financial publication. It was talking about how many people (physicians specifically) have so much of their assets tied up in their homes and how they will need to tap some of that equity to live on in retirement.

This is why reverse mortgages are on the rise.....bigtime. Most baby boomers haven't saved nearly enough to support themselves solely on their portfolios and so they will need to tap that home equity. The problem is, you can only pull out a relatively small percentage of your equity. So it will only help out so much.

For example if you own a home that is paid off, and valued at 600K, according the the AARP, you could pull out approximately $162,000 in a lump sum. And, they are an extremely expensive way to borrow money. Many come with high closing costs (as high as 10%!!), monthly compounding of interest, servicing fees and mortgage insurance that rises with the loan balance. As with most mortgages, most people will tack these fees right onto the loan.

And if you listen to the radio, there are predators out there touting these loans as if they are *the* answer to all of your problems. In reality they should be used as a last resort.

DVC Sadie
07-06-2006, 07:54 AM
I jumped the gun and voted for our savings to outweigh our home equity but its a hard call after I actully stopped and weighed them both.

We own several homes that are paid off that we rent out and own a home that we will be paying on for another ten years.

We are already retired and I am 51 while my dh is 44. We have been blessed and worked very hard (sometimes two jobs) so we would be able to save enough to retire.

dvcgirl
07-06-2006, 09:01 AM
I don't think that is fair.

I am curious if Motley Fool is implying that Home equity is a bad thing. Obviously a home could fluctuate in value--but really...is Home equity all that terrible for people to jump to the wrong conclusion that it must mean you are over your head. :confused3

I would think that the article (which I haven't read) is more implying the incredible inflation of home prices and not necessarily reflecting on poor savings. though I could be wrong.

Home equity is a very good thing, but too many people are banking on the house, so to speak, to fund a large part of their retirement. In reality, the only way that the equity helps to significantly fund the retirement is to sell the home and downsize significantly, or to sell the home and rent. However, many retirees find that they don't want to move and so we'll see a bunch of Boomers who are house rich, but cash poor. Many will resort to reverse mortgages....which just aren't a good deal. And we all know what happens when housing values soar....property taxes soar, and insurance costs rise.

I know a *lot* of people who talk about their home equity and how fortunate they are. And sure, any of us who purchased in a hot area before the big boom have seen major appreciation, but that only benefits you if you are willing to unload the home at some point and seriously downsize. Also, people around here still quote their gains using the absolute peak market values from last summer. Around here, and in many parts of Florida we've already dropped 10-15% in my estimation, and we're not finished yet.

Our recent real estate boom is really unprecedented. The only boom that even comes close took place right after World War II with all of those GIs coming home and moving to the exploding suburbs of our nation's cities. This is not something we are likely to see again....for a long, long time. Once we level out....we still have some room to move down in my opinion, we'll see normal appreciation in the 4-6% range.

tar heel
07-06-2006, 09:17 AM
Our savings is more than our home equity.

We live in an area where real estate is very hot and lots of newcomers are moving in. However, there is still plenty of land and lots and lots of new houses. Value gains for those of us already here are steady but fairly modest in a lot of neighborhoods, including mine. Unless you've owned the house for a long time, you're not seeing even close to the 100, 200, 300% increases some parts of the country are seeing. If we put our house on the market today, the asking price would only be about 25% more than what we paid for it nine years ago, but it would probably sell in a just a week or two. We put down between 25 and 30% and have roughly 40% equity after nine years.

Chicago526
07-06-2006, 09:19 AM
I put "roughly the same". They are about equal if you count our 401k. If you take the 401k out, then the house wins by far.

Rozzie
07-06-2006, 09:19 AM
I know a *lot* of people who talk about their home equity and how fortunate they are. And sure, any of us who purchased in a hot area before the big boom have seen major appreciation, but that only benefits you if you are willing to unload the home at some point and seriously downsize. .

For real. I have talked to so many people who think they have "struck oil" with their homes value. Yeah I could dump our home and make $70k in one year, but where would we go?

rparmfamily
07-06-2006, 09:28 AM
For now, our equity far outweighs any savings. We have about $70K easy in our home, we bought 2 yrs ago, before the market caught up in our area of Florida. (I don't live in an overpriced area of Florida, but my area has started to catch up some w/the rest of the state.) DH is active duty military and it would take several years of saving our entire income to match that. We also did a $0 down VA loan thru USAA in order to buy our first home. So, I am part of that statistic.

That said, we are working to fund out retirement by investing in TSP (military's 401K minus the matching, that's another vent!) and plus DH will have his military retirement and medical too. We are about to start an IRA for me (I work very PT and mostly stay home w/the children.)

dvcgirl
07-06-2006, 09:37 AM
For real. I have talked to so many people who think they have "struck oil" with their homes value. Yeah I could dump our home and make $70k in one year, but where would we go?

Well, that's the million dollar question isn't it? Most people want to live in a similar kind of house in the same area where they currently reside. And so, in that case, all the talk of how rich everyone is....well, it's pointless. Also, keep in mind, that 75% of homeowners are still carrying mortages....some of them carry hefty mortgages. Nearly *50%* of retirees carry mortgages...that just blows me away. And don't forget, lots and lots of people have tapped into that equity because they were feeling awfully rich and money was so darned cheap. Home Equity Lines of Credit were dirt cheap....now they're adjusting up monthly and homeowners are scrambling to refi and lock in. Same thing with folks who purchased with risky ARMs.

Don't get me wrong though, one can do well in this market, even as an individual homeowner who isn't an investor. We paid cash for our home in NJ in 2000 and it doubled in value in just four years. In 2004 we took 75% of the profit and purchased a home here in Orlando (again for cash) and invested the initial amount we paid for the house in NJ plus 25% of our profit....all tax free. That's a huge swing, and our portfolio reflects it. We also recognized that it was a once in a lifetime opportunity.

Once in Orlando, our house appreciated as high as 55% (last summer), but now I'd say we're closer to 40%...still incredible, but a drop from the peak nonetheless. However, a move to downsize now, in this particular area would mean serious compromises. We'd have to move out to the boonies, into a townhome situation, or move to a comparable house in a less safe area. Things we aren't willing to do. And so, our first luractive move was an easy one....from one nice house to another nice house in an area with much cheaper housing (especially 2 years ago). And so when all of my current neighbors talk about how their homes are now 1/2 million dollar homes I think just like you do...."that's great....but if you sell it.....where are you going to go?"

arminnie
07-06-2006, 11:02 AM
For real. I have talked to so many people who think they have "struck oil" with their homes value. Yeah I could dump our home and make $70k in one year, but where would we go?I was able to sell a home in Northern CA and move to AR where I had no housepayment. But not everyone can do something like that.

arminnie
07-06-2006, 11:09 AM
But to suggest it is solely b/c Americans are living beyond their means...there are just too many variables to come to that conclusion.

And as Steve said--some people went over the heads to buy a home with creative financing.

I am curious if Motley Fool is implying that Home equity is a bad thing. Obviously a home could fluctuate in value--but really...is Home equity all that terrible for people to jump to the wrong conclusion that it must mean you are over your head.

Another variable:
Suppose I have $500,000 in cash in savings. I buy a house for $400,000 for cash so now I have $400,000 in housing equity and $100,000 in cash.

That's a 4 to 1 ratio of housing equity to savings now, but unless the housing market is especially risky I'm probably about in the same position financially. Just different asset allocation.

disneymom3
07-06-2006, 11:48 AM
For real. I have talked to so many people who think they have "struck oil" with their homes value. Yeah I could dump our home and make $70k in one year, but where would we go?


Yep, this is what I think too. Who really cares how much equity you have in your home if you are not willing to downsize. I mean I suppose that if you were in an emergency situation and did need to sell your house, you would realize some good gains there. We actually looked at selling when DH was unemployed for a time but two things stopped us from doing that--we knew it was a long term solution for a relatively short term problem and we also knew we would either not get at all or only at a bad interest rate a new mortgage when he didn't have a job. I especially worry about the people who are living in highly inflated areas who think they are sitting pretty because of their home values.

That said, we do have more in equity than in savings at this time. We are still building up after that period of unemployment.

barkley
07-06-2006, 01:54 PM
as of right now more in savings-but thats because we sold a month ago and slammed everything into savings (our house tripled in value in 7 years). and despite getting less than awsome interest on it now-i look at the houses i was comepeting against that have lowered their asking 40-80K and figure i'm so much better off.

our realestate market is busting big time-the mls is flooded with people who have to do "short-sales" so i suspect alot of folks who mentaly "banked" on their equity "nest egg" are finding themselves upside down home ownership wise.

beachbunny
07-06-2006, 02:21 PM
Who cares how much equity you have if you're not willing to downsize? I care. I've got X dollars of equity in my house. I have no current plans to downsize, but it's comforting to know it's there if I ever need it.

arminnie
07-06-2006, 02:56 PM
as of right now more in savings-but thats because we sold a month ago and slammed everything into savings (our house tripled in value in 7 years). and despite getting less than awsome interest on it now-i look at the houses i was comepeting against that have lowered their asking 40-80K and figure i'm so much better off.

our realestate market is busting big time-the mls is flooded with people who have to do "short-sales" so i suspect alot of folks who mentaly "banked" on their equity "nest egg" are finding themselves upside down home ownership wise.
Interesting - but not unexpected. I'm not sure if it's hit on my side of the bay (peninsula) yet. I still say my side after living there all of those years I can't help but kind of still think of it as home. I just got back from 8 days in Foster City.

My home sold again while I was there for $200,000 more than I sold it for 5 years ago. It didn't really bother me though as it would have cost me $100,000 to keep it for those five years plus I invested the proceeds after 9/11 (I closed a few days later) so I think I've made more than $100,000 in gains. I don't know if it's "real" yet but my New Orleans condo has gone up about $75,000 since Katrina (high and dry).

So many people think No. Calif. can never go down - when I bought my unit in the early 90s, it had been sitting empty for a year and I got it for $100,000 less in the end.

Florida is probably the place that is going to have the "hardest" landing.

rumrunnergirl
07-06-2006, 06:46 PM
Our home equity is more than our savings because

1) we just started saving after putting 20% down on the house, paying off my van, getting health insurance, etc., and

2) the property values here are soaring so our equity tripled quickly, while our income didn't - unfortunately, LOL.

dvcgirl
07-06-2006, 08:15 PM
Who cares how much equity you have if you're not willing to downsize? I care. Conservatively, I've got over a million dollars of equity in my house. I have no current plans to downsize, but it's comforting to know it's there if I ever need it.

Right, I hear you....having all that equity is wonderful. That's exactly what we had in our home in NJ before we sold it....a little shy of a million. Still, it was only when we decided to move down south that we unlocked a good deal of that equity and invested it into retirement accounts.

I guess my point is that equity is a wonderful thing, but it can't be the only component of a balanced portfolio. And I think a lot of people out there are feeling "house rich" and banking on that money for retirement. There are a whole lot of 40 and 50 somethings out there with a couple of hundred grand in equity with only 25K in their 401K. Unless they sell and downsize significantly, or sell and rent, the house doesn't do them much good at all.

And I also find it interesting just how much it costs us to live in a house that we own outright. We still have a decent montly outlay of cash here....just in utilities, homeowners insurance (ours just went up another 35%!), homeowners association, lawn and pest control (we cut ourselves). We could sell this house, invest the entire proceeds from the sale and rent a comparable home for just slightly more than we spend to run this house.

dvcgirl
07-06-2006, 08:27 PM
So many people think No. Calif. can never go down - when I bought my unit in the early 90s, it had been sitting empty for a year and I got it for $100,000 less in the end.

Florida is probably the place that is going to have the "hardest" landing.

No doubt about it. And people think that home values will just keep on rising. Not likely. We researched the tax records on the property we purchased here in Orlando. It was built in 1990 for $260 thousand, sold in 1992 for $255K...so the original owner lost money. Sold again in 1998 for $260K....so no appreciation at all in eight years.

Now, we buy in the summer of 2004 for $370K and could have gotten $550 conservatively last summer....maybe closer to 600K. Having lived in the Silicon Valley during the tech boom, there is nothing about this recent real estate boom that made sense....at least not in Central Florida. It was almost totally fueled by speculation, and we're seeing the signs of that now. There are newer neighborhoods that are are 3 years old or so with so may "for sale" signs on the streets it's alarming. I'm talking....on one street in a subdivision it's not uncommon to see seven or eight homes for sale. "Investors" would go into these neighborhoods and buy 5 or 6 houses at a time...some of them would flip them before the houses were even completed, sometimes before construction began. It's even worse in the condo market where I think we'll see the biggest losses.

JudicialTyranny
07-06-2006, 09:22 PM
We have more in savings than home equity, but it depends on what is considered "savings".

I consider my IRAs and 401K as "savings", as well as mutual funds and stocks I own outside of retirement accounts. But when you read the dire articles about savings rates in the USA, they don't include these things which distort the statistics.

Another reason we have more in savings is that I chose to have a mortgage even though I could pay off the house. It's not a huge mortgage, but I refinanced when interest rates were near the bottom (5% on 30-yr mortgage).

I took the amount I would have used to pay off the house and put it in some fairly safe investments. With a mortgage rate of 5% (effectively lower because of deductibility of mortgage interest), it was not hard to meet or beat that rate. Especially now with money market rates nearing 5%.

So if I should need that money in the future (such as college tuition), I have it effectively at a fixed 5% tax-deductible rate. If I waited until then to refinance or use a HELOC, who knows what interest rate I'd be paying. That's why I was not a big fan of people paying cash for houses or paying off mortgages back in the early 2000's when interest rates were historically low. Money was cheap and wasn't going to stay that way forever, so locking in the cheap rate seemed like a better move.

ACDSNY
07-07-2006, 12:38 AM
With DD just finished with college and paying for her Sept wedding (250+ guests) and DS away from home and in college our savings are dewindling fast. Thank goodness we have a lot of equity built up. Hopefully in a couple of years we can get back to saving again.

We used to be in the country, but our city is growing so fast it's getting closer and closer to us all the time. I'm sure at some point we'll have to sell our land and move somewhere else so we aren't surrounded by houses. I'm just hoping we can stick it out until we're ready to retire.

beachbunny
07-07-2006, 02:13 AM
dvcgirl: I absolutely agree with you. If you are 40-50 and have $25K in a 401K you'll need to do some serious downsizing to tap into that equity. If I can ask, what made you decide to move to Florida? My DH and I talk about doing that a lot, but for now it is just a pipe dream - woohoo more time for that equity to grow!

dvcgirl
07-07-2006, 05:06 AM
dvcgirl: I absolutely agree with you. If you are 40-50 and have $25K in a 401K you'll need to do some serious downsizing to tap into that equity. If I can ask, what made you decide to move to Florida? My DH and I talk about doing that a lot, but for now it is just a pipe dream - woohoo more time for that equity to grow!

Primarily....the weather. We both just grew tired of winters. And we do love the weather here, especially from October through May. June through September is very hot, but we'll take the heat over the bitter winters.

There is an awful lot of violent crime here in Central Florida though, something that is a little unsettling. Orlando is well on it's way to shattering the city's records for murders in one year. It just seems that everyone here has a gun. And so a typical bar fight or any simple disagreement ends in someone being shot. We recently had a murder where a woman was gunned down walking to her apartment complex. The two thugs shot and killed her for her purse. Ten minutes later they used her credit card to purchase soda and chips at a local convenience store. Thankfully their faces were plain as day on the surveillence camera. Apparently murders are way up in Tampa, Jacksonville and Miami as well. So this is a statewide issue I suppose. Just something to think about...

barkley
07-07-2006, 10:48 AM
Right, I hear you....having all that equity is wonderful. That's exactly what we had in our home in NJ before we sold it....a little shy of a million. Still, it was only when we decided to move down south that we unlocked a good deal of that equity and invested it into retirement accounts.

I guess my point is that equity is a wonderful thing, but it can't be the only component of a balanced portfolio. And I think a lot of people out there are feeling "house rich" and banking on that money for retirement. There are a whole lot of 40 and 50 somethings out there with a couple of hundred grand in equity with only 25K in their 401K. Unless they sell and downsize significantly, or sell and rent, the house doesn't do them much good at all.

And I also find it interesting just how much it costs us to live in a house that we own outright. We still have a decent montly outlay of cash here....just in utilities, homeowners insurance (ours just went up another 35%!), homeowners association, lawn and pest control (we cut ourselves). We could sell this house, invest the entire proceeds from the sale and rent a comparable home for just slightly more than we spend to run this house.

you are'nt kidding-between property taxes, homeowners insurance, pest service (landlord pays for it here), security system (to get a break on homeowners insurance), special property owner bonds, not even taking into consideration any repairs or upkeep-moving from the home we owned to a comparable rental is saving us over $1000.00 per month!

people looked at us like we were nuts giving up our " tax deductions" when we sold and moved into this rental-but we are taking the same amount we would have put out on the tax deductable items and diverting it from dh's paycheck into a deferred compensation retirement account. it lowers our taxable income the same as those deductions did, but we have the benefit of those monies being there and growing until we need them for retirement.

bellarella
07-07-2006, 12:15 PM
As usual, I don't fit the statistics. I should be used to that by now.

According to The Motley Fool, the equity in most homeowner's homes far outweighs what they have saved.

That certainly isn't true for us. We are both in our early 40s and our savings are nearly double our home equity. Plus, our savings are growing much faster than our home equity so that gap will only widen over time.

How about everyone else?

This shouldn't be a surprising statistic at all, considering the recent housing bull market. If you have lived in a "hot" market, you could easily have seen 6 digit gains in your home in a short period of time. That is a hard savings rate to beat. DH and I were fortunate to have bought into a market like that. We also sold before the bubble burst and left that part of the country so our paper profit became real profit.

As for the comfort of equity in a home, I don't get much from it. Equity derived from paying down your mortgage is just your own money that is locked up and not working for you (other than saving you interest payments, which if you had refinanced when they were around 5% would be covered by a HYSA right now), and equity due to market conditions, while "good" equity, is very volitile right now.

I always look at my home as a functional purchase, not an investment.

disneysteve
07-07-2006, 01:18 PM
As for the comfort of equity in a home, I don't get much from it. Equity derived from paying down your mortgage is just your own money that is locked up and not working for you (other than saving you interest payments, which if you had refinanced when they were around 5% would be covered by a HYSA right now), and equity due to market conditions, while "good" equity, is very volitile right now.

I always look at my home as a functional purchase, not an investment.
I agree. I understood the psychological feeling of being debt free, but when my investments are earning 10 or 12 or 15%, I see no reason to pour money into paying off my under 6% mortgage.

Kellydelly
07-07-2006, 01:36 PM
Are you counting your 401Ks and IRAs or other investments as your "savings" or are we talking about a savings account at the bank vs your home's equity? I'm a little confused about which you are referring to :blush: .

barkley
07-07-2006, 01:54 PM
i think of "savings" as monies that i have set aside-some are liquid and i can get to them now, some are retirement funds i would pay heavily to pull out from. dh and i also bought life insurance policies years ago (when we were young and low risk) that now have farily substantial cash surrender values-i see them as savings, because while the kids are young should something happen to one or the other of us there would be funds available-once the kids are raised we may opt to cash them out.

one form of "savings" we have is an old retirement fund at dh's former employer-he was vested at the time he left and we could have drawn it out and rolled it into a higher yeilding investment, but given that by leaving it there he will be eligible to life-time health insurance for us upon his "retirement" (at the then current active employee cost)-it's a better "investment" than the difference in interest.

disneysteve
07-07-2006, 02:26 PM
Are you counting your 401Ks and IRAs or other investments as your "savings" or are we talking about a savings account at the bank vs your home's equity? I'm a little confused about which you are referring to :blush: .
I count everything - checking, savings, money market, bonds, stocks, mutual funds, IRAs, 529, etc. It is all savings in my book.

ClarabelleCowFan
07-07-2006, 02:47 PM
We have a considerable amount of equity in our home, not a dime of unsecured debt but not very much at all in savings.

MrsPete
07-07-2006, 05:06 PM
My home is paid-for, but it's not an expensive house. It's a nice middle-class place -- the type that two-professional families usually "trade up" for an expensive mini-mansion.

Between 401Ks, stocks, and plain old savings, we have about four times the value of our house in savings.

mickeyfan2
07-07-2006, 07:06 PM
Our savings are more than our home is worth.

mickeyfan2
07-07-2006, 07:18 PM
And we all know what happens when housing values soar....property taxes soar, and insurance costs rise.
This is not true everywhere. In the county I live in the houses value is not used to calculate property taxes. They use the value of a house at a specific year for the entire country and that is the number that is used. They can alter the mil rate but not the value. Last year our property taxes only increased about $150. Now our insurance will go up.

MemoryMakers2669
07-08-2006, 12:29 PM
We live in Northern VA, where the housing market is out of control...so our equity is HUGE, in a very short amount of time.

punkin
07-08-2006, 12:58 PM
My house doubled in price over the past 3 years since I bought it. I could never match that in savings. However, with the current real estate boom slowing down, I anticipate parity to be reached in the next 5 years (barring a stock market crash).

NCRedding
07-08-2006, 01:36 PM
We do not live in a hot housing market; there has been steady, but not spectacular growth in our area. Because we choose to live in a fairly moderately priced home, our savings (including our Simple IRAs, and our DD's college fund) is much greater than the value (and the equity) of our home.

barkley
07-08-2006, 04:19 PM
the homes we recently moved from (sold) increased in value over 400-500K in under 7 years, but in just the last 2 months those same houses are selling (more like sitting unsold) for as much as 80K less than they were in the preceding months. the value of a home is only worth what someone will pay for it.

disneysteve
07-08-2006, 04:30 PM
We do not live in a hot housing market; there has been steady, but not spectacular growth in our area. Because we choose to live in a fairly moderately priced home, our savings (including our Simple IRAs, and our DD's college fund) is much greater than the value (and the equity) of our home.
This is our situation. We've been in our home since 1994 and it is only worth just over double what we paid for it back then. Prices haven't skyrocketed here in southern NJ like they have so many other places.

katerkat
07-08-2006, 04:50 PM
We don't own, but our savings for a down payment are about 1/2 of our total savings/investments. We plan on buying the next time the military moves us (unless it's overseas!) and want to have a significant downpayment by then.

arminnie
07-08-2006, 10:48 PM
This is not true everywhere. In the county I live in the houses value is not used to calculate property taxes. They use the value of a house at a specific year for the entire country and that is the number that is used. They can alter the mil rate but not the value. Last year our property taxes only increased about $150. Now our insurance will go up.

In CA your taxes are based on what you pay for your property. It can only go up some tiny amount like 2 or 3% max a year.

My LA home has increased a lot since Katrina (high and dry), but the value was cut in half by the assessor. He was up for re-election.

arminnie
07-08-2006, 11:34 PM
This is our situation. We've been in our home since 1994 and it is only worth just over double what we paid for it back then. Prices haven't skyrocketed here in southern NJ like they have so many other places.

By historical standards doubling a homes value in a little over 10 years is still a big increase. I'm afraid that many people are going to be disappointed in future years when prices do not double every decade.

In the past 50 years there have been two really, really big spikes in housing values. The first was when women entered the work force in much larger numbers and at much larger salaries. Real family income went up dramatically. I used to joke that I didn't know how they were going to pull off another big increase without putting the children to work.

The answer turned out to be really, really creative financing and lower interest rates. Funny thing how when family income doubled housing prices doubled approximately. When interest rates were cut in half housing prices doubled. $1000 worth of p&i will get you a mortgage double what it would 20 years ago.

Some areas have seen unbelievable speculative skyrocketing prices. That type of increase is rarely sustainable. When people can no longer afford million dollar homes (say if interest rates go up another couple of points) and those home prices have to be decreased then it pressures everything lower to decrease also. If I have to sell my million dollar house (I wish) for $950,000 then the guy who's house was worth a little less at $950,000 will be pressured to reduce it as people will gravitate to the most they can get for their money.

It is all about supply and demand. I know someone who owns two homes (next door to each other) on the beach in Malibu - in a very, very exclusive area populated by the likes of Dick Clark and other notables. The supply there is never going to be increased. And those entertainment people earn ridiculous amounts of money and seem to have no problem spending it - not a lot of mortgages there. I doubt there is going to be a big decrease on the beach in Malibu.

But take the average suburban MiniMansion - in many areas there is a lot of land and builders can just keep adding to the supply (especially the speculators). But what if the interest rates (and property taxes) cause the payment to be one or two thousand dollars (or more) higher. At some point people just can't afford it. I remember when a $1500 house payment was huge - not it seems low to lots of people who have three and four and five thousand dollar house payments (and more). The demand is not infinite as people's resources are not.

Can I predict the future price of every home in America? Of course not, but neither can anyone else. Assuming that housing is going to exponentially skyrocket forever is not something to bet the family farm on.

Should your home equity decrease because of housing deflation, it only affects you if you have to sell. It might even help you with property taxes, but never underestimate politicians ability to keep tax revenues up.

I'm not as worried about the people with huge equities as I am about the ones with huge mortgages and second and third and fourth loans. I spent most of my 20s and 30s in Texas when home equity loans were still illegal (not technically illegal, but no one would write them because of the Homestead laws that did not allow the homes to secure a second mortgage). I know when I was looking to buy in CA I was always shocked at people that had owned a home for 20 years in Northern CA but had absolutely no equity because they had so many loans out.

Going to a house closing and having to write a check (as opposed to getting one) as a seller is a very, very painful experience.

gina2000
07-09-2006, 06:00 AM
My savings are larger than our home equity and I think there's an easy answer as to why. We didn't trade up into a large home but are still in our starter home. I think that's pretty unusual in our area. Most people that do buy a bigger home use a good chunk of savings to bring down their monthly mortgage payments and in a rising real estate market, their equity quickly outstrips their savings. Bigger house means larger mortgage payments and less savings. In the extreme it's called house poor. Quite frankly, it's just a reallocation of assets. Many people who own a McMansion have not financed it via an interest only mortgage. They've used CASH. And many financial planners would say that by not trading up you are not maximizing your tax deductions. So there's a positive and negative to everything.

And I do agree that in many instances it's not the original mortgage that's the problem but the second, third and fourth loan against equity.

Most people I know sell once the kids are out of the house and downsize in house size and/or area. It's crazy to pay megabucks in taxes for a school district you are no longer utilizing.

These sort of stats can be used as scare tactics. While they do have some value, they don't necessarily predict the end of the world as we know it nor are they accurate in what they are suggesting. People have sold homes and taken out cash for retirement for years. It's hardly a new concept. And most people with cash from their home sale buy a smaller home in a less expensive area and use the cash to fund their retirement. Why is this such an undesireable thing? It's when they have no cash to fund their retirement that problems occur. Sustaining a life style? Most people don't want to maintain a large home and pay huge school taxes in their retirement. So that's where they downsize and can still maintain the pleasures they enjoy in everyday life.

There's not a boogy man in EVERY corner, gang.

mickeyfan2
07-09-2006, 08:09 AM
In the past 50 years there have been two really, really big spikes in housing values. The first was when women entered the work force in much larger numbers and at much larger salaries. Real family income went up dramatically. I used to joke that I didn't know how they were going to pull off another big increase without putting the children to work.
BTW The number of women working peaked in 2000 and have been going down slowly since.

arminnie
07-09-2006, 08:43 AM
BTW The number of women working peaked in 2000 and have been going down slowly since.
Maybe because so many of us baby boomers are retiring early.:thumbsup2

I recently had a mini-reunion (29 years) with the women from my Stanford MBA class who are mostly between the ages of 50 and 60. Most have had incredibly successful careers, but almost no one is still working - and those 1 or 2 have plans to retire very soon.

One of my friends did not want to come to our 25 year reunion because she was not working (she was caring for her Alzheimer suffering mother - a far nobler task than any career job). I told her not to worry as after 50 it became a badge of honor NOT to work. It meant you had been successful enough to call it a day. Of course many of these women are very active on corporate and non-profit boards.

But there probably are more SAHMs now. That's great too.

CarolA
07-09-2006, 09:19 AM
Since I purchased the money pit condo let's hope I do better with my savings plan LOL!

dvcgirl
07-09-2006, 10:11 AM
Most people I know sell once the kids are out of the house and downsize in house size and/or area. It's crazy to pay megabucks in taxes for a school district you are no longer utilizing.

These sort of stats can be used as scare tactics. While they do have some value, they don't necessarily predict the end of the world as we know it nor are they accurate in what they are suggesting. People have sold homes and taken out cash for retirement for years. It's hardly a new concept. And most people with cash from their home sale buy a smaller home in a less expensive area and use the cash to fund their retirement. Why is this such an undesireable thing? It's when they have no cash to fund their retirement that problems occur. Sustaining a life style? Most people don't want to maintain a large home and pay huge school taxes in their retirement. So that's where they downsize and can still maintain the pleasures they enjoy in everyday life.

There's not a boogy man in EVERY corner, gang.

I agree, people have been downsizing for years as they near retirement and using some of that cash for retirement. However, it's not prudent to have that as your only source of retirement funding. Many older folks get attached to their homes, and they don't want to move. Also, a full 50% of retirees are carrying a mortgage on their homes, so we're not talking about 100% equity for all of these people. Lots of Baby Boomers have been using their homes as ATM machines just like their children, the Gen Xers, have been doing. This is not the case for the Baby Boomer's parents....the Depression Babies. A much smaller proportion of that group carried a mortgage into retirement.

There are a lot of people who justify saving less/spending more because they have seen huge gains in their home equity. "I don't need to worry about maxing out the 401K....look at what my house is worth!!" However, just like those stock options from the late 90s, home equity is all sort of "on paper" until you sell the home and actually put that money in the bank. When talk of home prices come up in our neighborhood our neighbors still routinely quote numbers from the absolute peak of this crazy real estate market, which was the summer of 05'. And there is no way they'd get that amount now...and yet in their heads, that's what they've got. If you know what I mean. I believe we're down a good 15% from that peak already, with much room to move down. Trust me, this doesn't thrill me, it's quite depressing actually. However, I'd be more depressed if all of my "retirement savings" nest eggs were sitting in my home equity, and for us, that's not the case. It could take a full 5 years to get back to that peak number from 05'.

gina2000
07-09-2006, 10:52 AM
I don't disagree with what you are saying but the past suggests that every generation has a cash cow that they bank on. In the 80s it was the stock market til it crashed on Black Monday in 87. Higher interest rates propelled it and a huge correction in the housing market followed it. The stock market recovered and then began another downward spiral in 2000. As we head towards globalization, many of these investment vehicles (and real estate has always been considered an investment, not just someplace to live) tend to go hand in hand with global economic swings. Quite frankly, being nimble is the only way you can preserve capital no matter what investment vehicle you have chosen. It's tough to be nimble in real estate but it also tends to hold value over time even if it doesn't hold peaks.

I also don't disagree with the idea that people should be saving more cash and investing it in liquid instruments. I've always been taught to live below my means. However, people of the depression era remember bank closings and tend not to trust investment vehicles. Socks under mattresses were the savings method of preference for many of them long after the depression was over. Fed regulatory changes have made most investment vehicles safer than they were in the 20s and banks do have FDIC insurance. In a real global depression, however, none of these precautionary measures will stem major losses.

If you are talking about prudence, then spending all your cash whether it be in a liquid asset or in borrowing it from a real estate investment is dangerous. However, the study asks whether you have more asset value in your home or in liquid assets. The opinion that having the majority of one's equity in real estate is more dangerous than investment vehicles is just a determination based on declining real estate values. Tomorrow, it may be something else.

Also, and this may or may not be true in your neck of the woods. Here, expensively priced homes have appreciated in a greater percentage than less expensively priced homes. Having a mortgage on a more expensive piece of property doesn't necessarily mean that you have less equity or less versatility. And since I live in one of the most expensive areas of the US, moving anywhere else nets me a pretty penny. You just did it. Others will too just in a differently priced real estate market.

barkley
07-09-2006, 11:33 AM
In CA your taxes are based on what you pay for your property. It can only go up some tiny amount like 2 or 3% max a year.

My LA home has increased a lot since Katrina (high and dry), but the value was cut in half by the assessor. He was up for re-election.


prop 13 (the rule under which property taxes are based on your purchase price vs. current value) only applies to a very small population in california-and it is lost by those people when they move to a subsequent home.

our property taxes increased by leaps and bounds over the past 7 years (and it would go up anytime you made certain capital improvement on the home that increased the value/sq. footage-one of our neighboring counties is famous for reviewing all the permits issued for remodels-they send the tax assesor out when the final approval is schedualed to be signed off so they can determine the new sq. footage-which includes decks, and make the appropriate adjustments to your property records in order to adjust your property taxes up).

arminnie
07-09-2006, 11:53 AM
prop 13 (the rule under which property taxes are based on your purchase price vs. current value) only applies to a very small population in california-and it is lost by those people when they move to a subsequent home.


Fortunately for me San Mateo County is one of those that doesn't do that - unless you do a major tear down. You see all sorts of people who leave one wall up to keep from calling it a tear down.

Also San Mateo County will let you transfer the basis to another home. It's complicated, but it really helps those trading up not get hit so bad.

But you are right prop 13 doesn't really affect that many people anymore, so I don't know why it gets blamed for every problem in CA.

jeankeri
07-09-2006, 12:03 PM
I choose equity as being higher as I did not count college savings $ in my savings total. If I had, savings would have been higher.

crjack
07-09-2006, 08:23 PM
This is our situation. We've been in our home since 1994 and it is only worth just over double what we paid for it back then. Prices haven't skyrocketed here in southern NJ like they have so many other places.

We bought our house 1992 and we're still here....nice but modest house in size. We had 401k's before we married and purchased our house and we also started college funds when our children were born but our house has still outpaced our savings.

I'm not complaining, mind you, because for us it's a good problem to have. Even though we dont count on our equity as a source of retirement income, our region has always been a high priced area for homes and I think it always will be. It can be difficult to enter into the home market (even more so now than when we bought our home) but it's unlikely to not be able to sell it at a profit....certainly not if you stay in it for any reasonable length of time. Also, smaller homes still sell at a very fast pace in our area. Rents are still very high so starter homes are always attractive to first time buyers. If you have a mid-size home in a good commuter location you can always sell in our area. Over time we have fixed up every room in our home and we're happy and plan to stay but if we ever did need to sell our home size is reasonable and we don't carry huge tax and utility bills that some of the very large homes have. It makes it very appealing to a buyer.

Certainly where you live has a lot to do with market changes. Also, where you plan on staying after retirement????

Julia M
07-10-2006, 06:56 AM
But you are right prop 13 doesn't really affect that many people anymore, so I don't know why it gets blamed for every problem in CA.

I believe Prop. 13 impacts every home buyer, if their property increases in value. Prop. 13 limits how much your property can appreciate (for tax purchases) each year. For example, in my county, taxes are 1 1/2 percent of appraised value. My appraised value of my home should be about 800K (conservative estimate). That means we'd pay about $12,000 in taxes per year. However, we pay $6000, on an appraised value of 395K.

Obviously, if we sold, the new owner would pay on the higher base. But anyone who's been in their home even a few years benefits from Prop. 13

(My parents have a home worth close to a million dollars.....they pad $38000 in 1968 for it. Their tax bill is insane.....maybe $1000 or so!)

Julia

disneysteve
07-10-2006, 07:33 AM
people of the depression era remember bank closings and tend not to trust investment vehicles. Socks under mattresses were the savings method of preference for many of them long after the depression was over.
We recently saw a great example of this. My 75 year old mother moved into a subsidized senior apartment complex last month. At the meeting where she had to present all her financial paperwork to get qualified, the woman in charge was very surprised. She said she is used to dealing with seniors who have a savings account, a checking account and maybe a few CDs. My mother, on the other hand, had stocks, bonds, CMOs, mutual funds, money market, checking, etc. Apparently that is still quite unusual in that age group.

And it is sad because so many seniors are living meager lives because they are keeping what money they have in places where it is earning next to nothing. They could boost their incomes easily and safely just by doing something like transferring their funds to a high yield savings account or buying a CD from a bank outside their local area. But they retain that depression-era distrust of banks.

imsayin
07-10-2006, 07:55 AM
My mother, on the other hand, had stocks, bonds, CMOs, mutual funds, money market, checking, etc. Apparently that is still quite unusual in that age group.

Interesting. I know several people in that age group that have similar investments.

disneysteve
07-10-2006, 07:59 AM
Interesting. I know several people in that age group that have similar investments.
I didn't mean to imply that it described everyone, but at least among the population that moves into this complex, it seems to be more common based on what this woman told us.

arminnie
07-10-2006, 10:06 AM
We recently saw a great example of this. My 75 year old mother moved into a subsidized senior apartment complex last month. At the meeting where she had to present all her financial paperwork to get qualified, the woman in charge was very surprised. She said she is used to dealing with seniors who have a savings account, a checking account and maybe a few CDs. My mother, on the other hand, had stocks, bonds, CMOs, mutual funds, money market, checking, etc. Apparently that is still quite unusual in that age group.

And it is sad because so many seniors are living meager lives because they are keeping what money they have in places where it is earning next to nothing. They could boost their incomes easily and safely just by doing something like transferring their funds to a high yield savings account or buying a CD from a bank outside their local area. But they retain that depression-era distrust of banks.

This would be my 85 year old father and ALL of his friends. My dad is very interested in what I make in the stock market - but he keeps wanting to know "what rate" I get. Then he always reminds me that I could lose it all too.

I manage all of my dad's money. I even give him his spending money. He hasn't written a check (and has never touched an ATM) in years. He will use a charge card though - occasionally. I did move all of his money from a local savings account to an online one and quadrupled his return. He keeps joking that I've stolen his money. I have to print off a statement every few months to reassure him.

What I have done to compensate is that I have far less of my money in liquid assets than I would have. His portfolio is the liquid buffer should we need cash when the market is down.

I have a dear friend who is one of the top money managers in the world. That is not an exaggeration. She manages $100 million and up portfolios for people all over the world. Her husband refuses to have any of his money in anything but CDs.

punkin
07-10-2006, 11:22 AM
Disneysteve, I'm a little surprised that your mother owns CMOs. That is not the type of investment most individuals go for. Are you sure?

JKMJ441724
07-10-2006, 11:29 AM
As usual, I don't fit the statistics. I should be used to that by now.

According to The Motley Fool, the equity in most homeowner's homes far outweighs what they have saved.

That certainly isn't true for us. We are both in our early 40s and our savings are nearly double our home equity. Plus, our savings are growing much faster than our home equity so that gap will only widen over time.

How about everyone else?

My goal is to have my house completely paid for (and it's a moderately priced home for the South). IT will be paid for before my daughter is old enough to drive. I plan to be COMPLETELY debt free in less than 11 years.
But if you are counting our family 401K and other retirement accounts, equity and savings are roughly equal.

disneysteve
07-10-2006, 11:32 AM
Disneysteve, I'm a little surprised that your mother owns CMOs. That is not the type of investment most individuals go for. Are you sure?
She has invested in Fannie Mae securities for years. I know at least since my father passed in '92 and I'm pretty sure they started in those while he was still living. The returns always beat CDs by at least a point or so. We've always found them to be a good, reasonably safe instrument for higher yields with minimal risk.

crjack
07-11-2006, 07:10 AM
With my father (73) his distrust is life insurance.....anything more than the cost of a funeral is excessive! Banks he likes - especially his local branch. For him the comfort level off-sets the tiny interest rate his money earns there.

DVC Sadie
07-11-2006, 08:07 AM
With my father (73) his distrust is life insurance.....anything more than the cost of a funeral is excessive! Banks he likes - especially his local branch. For him the comfort level off-sets the tiny interest rate his money earns there.

My parents who were definitely depression era only carried life insurance until we got out on their own. For some people having life insurance after their children are out on their own is no longer necessary or for some not feasable.

They also had a very diverse investments style and not the norm for people who grew up in the depression.

Chicago526
07-11-2006, 09:23 AM
We recently saw a great example of this. My 75 year old mother moved into a subsidized senior apartment complex last month. At the meeting where she had to present all her financial paperwork to get qualified, the woman in charge was very surprised. She said she is used to dealing with seniors who have a savings account, a checking account and maybe a few CDs. My mother, on the other hand, had stocks, bonds, CMOs, mutual funds, money market, checking, etc. Apparently that is still quite unusual in that age group.

And it is sad because so many seniors are living meager lives because they are keeping what money they have in places where it is earning next to nothing. They could boost their incomes easily and safely just by doing something like transferring their funds to a high yield savings account or buying a CD from a bank outside their local area. But they retain that depression-era distrust of banks.

I wish we could have talked my 90 year old grandma into doing a bit more investing! But on balance I guess she's doing okay. Grandpa (who passed in '89) retired in '80 or '81. All (and I mean ALL) of their retirement savings were in CD's (granted, at those crazy high interest rates the '80's were famous for, but still) and they planed to live off the interest, Social Security, and my grandpa's pension.

So, 25 years later, my grandmother is only NOW starting to live off the principle in her CD's, and that's only because the interest rates are now so low. She own's a nice little two bedroom condo, her only expenses are property taxes, food, utilities, and gas and upkeep on her '92 Chevy (with 10,000 miles on it or something silly like that :) ). So she has been living on interest, SS payments and a pension for 25 years. Now THAT'S frugal living!

disneysteve
07-11-2006, 10:39 AM
With my father (73) his distrust is life insurance.....anything more than the cost of a funeral is excessive!
That really isn't unreasonable. If nobody is financially dependent on you, there isn't any need for life insurance.

dvcgirl
07-11-2006, 11:25 AM
My parents who were definitely depression era only carried life insurance until we got out on their own. For some people having life insurance after their children are out on their own is no longer necessary or for some not feasable.

They also had a very diverse investments style and not the norm for people who grew up in the depression.

We'll let our term insurance run out and not renew it. By then our savings and investments will be more than enough to sustain the survivor.

marcyinPA
07-11-2006, 12:21 PM
Man, I wish I had the amount we have in home equity in my savings account! Our home has more than doubled in value since we bought it 7 years ago. Our savings account has served us well through 2 job lay-offs and several home improvements. We don't have a ton in savings, but we have enough to survive on for about 5 months if my Dh lost his job (again).

We also have a 401K, but I don't usually count that as savings. I know it IS savings, but to me, it doesn't exist!

Marcy

dvcgirl
07-11-2006, 01:17 PM
I wish we could have talked my 90 year old grandma into doing a bit more investing! But on balance I guess she's doing okay. Grandpa (who passed in '89) retired in '80 or '81. All (and I mean ALL) of their retirement savings were in CD's (granted, at those crazy high interest rates the '80's were famous for, but still) and they planed to live off the interest, Social Security, and my grandpa's pension.

So, 25 years later, my grandmother is only NOW starting to live off the principle in her CD's, and that's only because the interest rates are now so low. She own's a nice little two bedroom condo, her only expenses are property taxes, food, utilities, and gas and upkeep on her '92 Chevy (with 10,000 miles on it or something silly like that :) ). So she has been living on interest, SS payments and a pension for 25 years. Now THAT'S frugal living!

Good for your Grandma! She's an excellent example though of how people of her generation could retire at 65 and have a nice long retirement. For one, you mentioned a pension. Many of us won't have that going forward and so we need to make up that shortfall. Sounds like Grandma and Grandpa also saved a bunch and put it into CDs.

Many of the Boomers and the Gen Xers haven't even saved enough to act as a true "pension" let alone have extra savings on top of that. And then of course, there's SS, which your Grandma (thankfully) will never have to worry about. What she was promised is what she'll get until the day she passes. For anyone younger than 50, that surely isn't the case. And for anyone born after 1960, well, we won't even be able to collect until age 67. Plus, we'll either see our taxes go up to sustain the system or we'll see our benefits cut. That's coming....just a matter of when, not if.

Even if your Grandma eats up all of the principle of her CDs, she could always tap that equity as a last resort, which at her age, wouldn't be a bad thing at all. Unfortunately, many of today's early retirees are looking to tap into that equity in their 60s because they just haven't saved enough. Times surely have changed.

Laurajean1014
07-11-2006, 01:22 PM
We are big on saving.

However, we live in a very expensive part of the US and an even more expensive County. Therefore, our equity exceeds our savings, currently. I would suppose if you used data sorted by demongraphics, it would show a possible slide in between regions.

disneysteve
07-11-2006, 01:42 PM
And for anyone born after 1960, well, we won't even be able to collect until age 67.
That isn't entirely accurate. FULL retirement age is 67 but you are still eligible for reduced benefits earlier, at 62 I think.

dvcgirl
07-11-2006, 01:50 PM
That isn't entirely accurate. FULL retirement age is 67 but you are still eligible for reduced benefits earlier, at 62 I think.

Ah, okay, I stand corrected. I thought that they were upping it all the way to 67 for full benefits. However, I do believe that the "62 for reduced benefits" rule will have to change.

I read a really good article that I found linked from a personal finance blog. This author really sums up the coming crisis...how we got here....and how there's simply no getting around it. I think some here may find it interesting...I know you will Steve.

The title of the article is "Retire at your own risk: A Struggle Lies ahead for most of us." by personal finance writer, Teresa Dixon Murray. The first line is...." This is the most difficult sotry I've ever had to write." Read the article and you know why she says this.....very well done.

http://www.cleveland.com/retirement/plaindealer/index.ssf?/base/business/1150619610219901.xml&coll=2

Chicago526
07-11-2006, 01:51 PM
Good for your Grandma! She's an excellent example though of how people of her generation could retire at 65 and have a nice long retirement. For one, you mentioned a pension. Many of us won't have that going forward and so we need to make up that shortfall. Sounds like Grandma and Grandpa also saved a bunch and put it into CDs.

Many of the Boomers and the Gen Xers haven't even saved enough to act as a true "pension" let alone have extra savings on top of that. And then of course, there's SS, which your Grandma (thankfully) will never have to worry about. What she was promised is what she'll get until the day she passes. For anyone younger than 50, that surely isn't the case. And for anyone born after 1960, well, we won't even be able to collect until age 67. Plus, we'll either see our taxes go up to sustain the system or we'll see our benefits cut. That's coming....just a matter of when, not if.

Even if your Grandma eats up all of the principle of her CDs, she could always tap that equity as a last resort, which at her age, wouldn't be a bad thing at all. Unfortunately, many of today's early retirees are looking to tap into that equity in their 60s because they just haven't saved enough. Times surely have changed.

Oh for sure, Grandma is lucky in the respect that SS is (and will be) there for her like it may not be for us, and of course the pension is a big bonus too. DH and I are saving like his pension doesn't exist and that SS won't be there either (in reality, we'll likely get something from both the pension and SS, but since there is no way to know how much, when, and for how long, we can't plan on it). But I'm impressed the way Grandma can make a dollar streach, she can squeeze a penny until poor Abe screams for mercy! ;) And don't think she's depriving herself, either. She lives a comfortable life.

disneysteve
07-11-2006, 02:11 PM
And don't think she's depriving herself, either. She lives a comfortable life.
My mom is the same way. She is quite happy. Goes out to eat, goes on vacations, drives a nice car, lives comfortably, gives gifts to us regularly, etc. And she does it all on about 1/6 of what DW and I earn.

mickeyfan2
07-11-2006, 02:38 PM
http://www.cleveland.com/retirement/plaindealer/index.ssf?/base/business/1150619610219901.xml&coll=2
Good article.

dvcgirl
07-11-2006, 02:57 PM
Good article.

It is good isn't it? And I know that you are very savvy with respect to this stuff Mickeyfan...and very prepared. We are very prepared too, but reading articles like that surely can make me wonder if any of us can be prepared enough. I guess all we can do is just keep doing what we're doing. There just aren't a whole lot of rays of sunshine on this topic. And while some see articles like this as "the sky is falling" scenarios, I'd really have to disagree.....I think that they're probably right on the money.

mickeyfan2
07-11-2006, 03:00 PM
It is good isn't it? And I know that you are very savvy with respect to this stuff Mickeyfan...and very prepared. We are very prepared too, but reading articles like that surely can make me wonder if any of us can be prepared enough. I guess all we can do is just keep doing what we're doing. There just aren't a whole lot of rays of sunshine on this topic. And while some see articles like this as "the sky is falling" scenarios, I'd really have to disagree.....I think that they're probably right on the money.
Thank you for the compliment. I don't know if anybody can be completely prepared. The future is always scary. But the way we look at it if everybody else in the us has X and we have 2X then we have to be in a little better shape.

jeankeri
07-11-2006, 05:26 PM
Thanks for the link to the article. I just got all my quarterly statements yesterday; think I'll put my balances in the retirement calculator and see how I'm doing...