MESA or JB

[Chairman]

I work for a major employee benefits consulting firm (one of the big three) as a pension consultant.

And you just told someone in an earlier post they could save for retirement or buy a boat......Great investment advice if you don't want to save for retirement buy something that goes down in value.....Bet you tell someone not to payoff there house because they can write off the interest and leasing a car is the way to go.....

 

[Smarta$$]

ALL pensions plans (defined benefit and defined contribution plans) are a form of deferred compensation. Can you get that 401k money without incurring a penalty? NO. Not until 59.5. It is deferred compensation, because that benefit LOWERS your current compensation (ie they pay you less wages due to the benefits). I am not talking about your 15% you contribute and lowering your pay by 15%, I am talking about your total salary being lower because of the 401k, ie no 401k they have to pay you more otherwise people won't work there.



I work for a major employee benefits consulting firm (one of the big three) as a pension consultant. My wife also works there as one. I know what I'm talking about. I also know, unlike you, what companies like mine TELL your company as to HOW TO MANAGE their benefit plans.

I love your made up 80% number. Let me ask you this smartass, if 80% of Americans are too dumb to invest in an IRA, what makes you think they can invest a 401K (I guess the default is some money market cash account and they can count on that 0.25% annual return)? 401ks are here because corporations SHIFTED the investment risk from THEM to YOU (defined benefit plans are dying). You've been DUPED into thinking its "better" for you. And who is talking of day trading an IRA? Trade it like your 401k, buy a set of market indexed ETFs and rebalance quarterly. The IRA simply gives you the ability to change things at a moments notice versus waiting till market close for your 401k. Are pilots that stupid they can't figure out the stock market? Is that what you're saying?

Please expend to me tax advice pretty please? Buying an ETF is somehow a bad "tax" decision in an IRA (you know a TAX DEFERRED vehicle like a 401k)? Oh and also smartass an ETF is a major market index not some individual stock, its a lot like a mutual fund, except I can sell it whenever I want unlike a 401k mutual fund which settles after the markets close. It also is a simple $5 commission and not a 0.3% load built into a mutual fund (0.3% doesn't sound like a lot, but you get hit with it EVERY time you rebalance or move money in). I guarantee you for every "growth" mutual fund you can find a similar ETF (QQQ for example). In your prospectus they're required to show you they even show the stocks supporting the mutual fund.

As for not having time to manage your money and to "work", then who is the stupid one here? So your largest asset you simply chalk it off to let time pass by? I flew with plenty of people who were interested and discussed plenty of things market related.

You never answered why if management are idiots, do you trust your largest asset with their investment decisions (since they pick the funds you can invest in)?

Yes, I AM saying that the majority of Americans (and pilots) are not smart enough, reliable enough, or cannot commit the time to effectivley manage anything similar to daytrading. As far as ETF's that reflect a market index, there are several funds, available in my 401k, that return greater net returns than the broader market indexes, even after considering fees.

Also, companies have tried to convince us that 401ks are better for us than defined benefit plans. They no longer provide defined benefit plans, so we have no choice. That does not mean that they succeeded in making us believe we are better off without them, we just have no recourse to get them back.

We can argue simantics about deferred compensation. I know that my company almost immediately deposits money into MY account. That money is MINE, and it is MINE now. It is however earmarked for retirement, but that is not a problem because I would use it for that purpose anyhow. It is a good system to have that money earmarked specifically for retirement, because a VERY high percentage of Americans lack the self discipline to save that money for retirement. It is good public and employer policy to help give those people a nudge to help them save.

As far as giving up salary, again that is false for many reasons... Again, that money is mine, and it is mine NOW. It is earmarked for retirement, but we have already covered that. Second, if that money was diverted from OUR retirement accounts to OUR paychecks, many would not put that money toward retirement, including the IRA's you speak of. Again, already covered that. Further more, we can, should and will eventually have our 401k contribution increased from the company, while maintaining (and likely increasing) our other areas of total compensation since we are well behind our peer groups at other similar careers. So no, we are not giving up one to get the other.

As far as tax differences, I WILL NOT GIVE YOU ADVISE. You have been entirely divisive and condecending. You act like you know it all, and know what is best for US. You can learn your tax mistakes that hard way. I DON'T care. The good news is that most people here seem to be correctly blowing you off, and your terrible advice will hopefully have a minimal affect on other readers.

It is a free country, and unfortunately you will probably feel the need to open your mouth further, but I would prefer you just went back to ruining your own personal retirement account instead of trying to give bad advice to others while attepting to demonstrait your vast knowledge to people who never asked for your opinion.

 

[CitationLover]

And you just told someone in an earlier post they could save for retirement or buy a boat......Great investment advice if you don't want to save for retirement buy something that goes down in value.....Bet you tell someone not to payoff there house because they can write off the interest and leasing a car is the way to go.....

"Buying a boat" is clearing a facetious comment and sarcasm. Point is it's your money, do with it whatever you want.

 

[CitationLover]

And you just told someone in an earlier post they could save for retirement or buy a boat......Great investment advice if you don't want to save for retirement buy something that goes down in value.....Bet you tell someone not to payoff there house because they can write off the interest and leasing a car is the way to go.....

Actually paying off your house is a dumb thing to do, you lose a tax shelter and if you run into problems and need money you have a large illiquid asset to try and unload.

versus

Saving the money you would use to payoff your mortgage, invest it, then if you have problems you have a highly liquid asset you could fall back on. Especially with 4% interest rates in 30yr fixed mortgages.

 

[Chairman]

Actually paying off your house is a dumb thing to do, you lose a tax shelter and if you run into problems and need money you have a large illiquid asset to try and unload.

versus

Saving the money you would use to payoff your mortgage, invest it, then if you have problems you have a highly liquid asset you could fall back on. Especially with 4% interest rates in 30yr fixed mortgages.

Ok you can't really work a calculator so I will not take financial advice from you. If writing of interest is so good at 4% why not write it off at 12%. Would you not be sheltering more from taxes? Let me tell you how a write off actually works

You make 80k
You pay 10k in mortgage interest

Your taxable income is now 70k.

You are in 25% tax bracket

You save $2500 in taxes

If your house is paid off yes I pay the government $2500 leaving you $7500 to invest any way you like that you are not paying the bank. I fear for the pensions you consult for...

 

[CitationLover]

Ok you can't really work a calculator so I will not take financial advice from you. If writing of interest is so good at 4% why not write it off at 12%. Would you not be sheltering more from taxes? Let me tell you how a write off actually works

You make 80k
You pay 10k in mortgage interest

Your taxable income is now 70k.

You are in 25% tax bracket

You save $2500 in taxes

If your house is paid off yes I pay the government $2500 leaving you $7500 to invest any way you like that you are not paying the bank. I fear for the pensions you consult for...

You clearly don't understand but here goes......

Decision one: pay off $250k mortgage
Decision two: keep paying 4% mortgage and invest $250k

Did you miss the part about investing the payoff amount instead of paying off your house? On one transaction you are getting 4% for your money (paying off mortgage) on the other transaction you simply need to beat a 4% return to stay ahead. I think 4% is reasonable to beat. The tax savings are gravy.

Did you also miss the point about liquidity? Say the day after you pay off your house you get hit by a bus and need money fast for bills. How's that house going to do it for you? Can you sell your house in a week? Month? Year? If you instead saved the money, it's as simple as withdrawing money from a bank.

How about but those poor souls who paid off their house in 2007? What a great return on your money that was! It's only worth 33% less of what it was then and it's even more illiquid now than then. What a great combination!

 

[CitationLover]

Btw chairman the above is referred to as an interest rate swap. You're swapping a fixed interest rate for a variable one.

Ignore a house, say you get a 0% loan on a $20k car and you have $20k in cash. Do you pay cash for the car and get 0%? Or do you take that money and do with it whatever you want and try and beat 0%? You just got a 60 month float of $20k.

Obviously the higher the mortgage rate is the harder the justification is. Using your 12% example, probably unlikely you will beat 12% in the market and thus it makes no financial sense, you pay off the mortgage.

 

[Chairman]

You clearly don't understand but here goes......

Decision one: pay off $250k mortgage
Decision two: keep paying 4% mortgage and invest $250k

Did you miss the part about investing the payoff amount instead of paying off your house? On one transaction you are getting 4% for your money (paying off mortgage) on the other transaction you simply need to beat a 4% return to stay ahead. I think 4% is reasonable to beat. The tax savings are gravy.

Did you also miss the point about liquidity? Say the day after you pay off your house you get hit by a bus and need money fast for bills. How's that house going to do it for you? Can you sell your house in a week? Month? Year? If you instead saved the money, it's as simple as withdrawing money from a bank.

How about but those poor souls who paid off their house in 2007? What a great return on your money that was! It's only worth 33% less of what it was then and it's even more illiquid now than then. What a great combination!

Those poor souls who had there house paid off in 2007 are most likely sleeping better than those struggling to get out from there under water house. And how did those people who didn't pay off there house do in the market between 2007 and today about even. Plus if you are not going to leave the money alone for 5 years it should not be tied in an investment that is what a 6-12 month emergency fund is for. If that is what your getting at then I agree with you. But as a someone who has found himself on the unemployment line more than ones I can say with out doubt having no debt works better and more people are out of work than in a hospital recovering from being hit by a bus. The point you are missing with your math is taking risk into account. If your house was paid off would you borrow 200k to invest.....Same difference and maybe you would but I think most people would not. I am not saying not invest I have funded my 401ks and IRA's for both my wife and I but we do it as we aggressively paid down the house. As for the tax write off you can invest much more with a paid off house that without and if you can guarantee greater than 4% each and every year you are in good shape....However no one can guarantee that unless you look at the average over a long term not just any given year. And that money I invest and leave alone

 

[CitationLover]

Those poor souls who had there house paid off in 2007 are most likely sleeping better than those struggling to get out from there under water house. And how did those people who didn't pay off there house do in the market between 2007 and today about even. Plus if you are not going to leave the money alone for 5 years it should not be tied in an investment that is what a 6-12 month emergency fund is for. If that is what your getting at then I agree with you. But as a someone who has found himself on the unemployment line more than ones I can say with out doubt having no debt works better and more people are out of work than in a hospital recovering from being hit by a bus. The point you are missing with your math is taking risk into account. If your house was paid off would you borrow 200k to invest.....Same difference and maybe you would but I think most people would not. I am not saying not invest I have funded my 401ks and IRA's for both my wife and I but we do it as we aggressively paid down the house. As for the tax write off you can invest much more with a paid off house that without and if you can guarantee greater than 4% each and every year you are in good shape....However no one can guarantee that unless you look at the average over a long term not just any given year. And that money I invest and leave alone

Investing money involves risk, sure it does. So does buying your house off and holding an illiquid asset with substantial appreciation risk. My math completely takes risk into it and in my opinion gives you better cash flow management.

Agree completely with being diligent over the long term, that's the only way you can succeed. I'll take the history of the S&P with an 8.80% rate of return since its creation versus 4% any day.

Don't take my word for it, google Ric Edelman. He's been rated by Barron's as one if the best personal financial advisers in the country since 2004. Read what he thinks on the subject.

 

[dhc8fo]

Ignore a house, say you get a 0% loan on a $20k car and you have $20k in cash. Do you pay cash for the car and get 0%? Or do you take that money and do with it whatever you want and try and beat 0%? You just got a 60 month float of $20k.

No. Because if you had the ability to pay in cash you wouldn't be paying the same price as you would by financing it at 0%....therefore you are paying less upfront and now you have more money to put somewhere useful. You said it yourself earlier...they will get theirs one way or the other.