I want to talk about a home equity retirement plan. A home equity retirement plan means that you’re separating the equity from the interest in your house. Now, if you’re upside down financially, this plan is not for you. There are many plans out there that may be good for somebody else, but not for you.  Understand that I talk about concepts. I cannot make a wise decision specifically for you until I understand your whole situation. . . until I know your financial life. But see if this makes sense to you. Let me give you an example. . .

I have a daughter and my daughter has an interest-only loan that she got a couple years ago. She pays $2,100 a month for an interest-only loan. If she wanted to take a thirty-year amortized mortgage she’d be paying $3,200. There’s $1,100 difference between those loans. So, now she separates that money. She puts those extra thousand dollars away every month in her side account. She’s able to save that money every month. At the end of 30 years, based upon a rate of return that the S&P 500 has done over the last 25 years, she will have over two million dollars in the bank. This is a lot better than paying that $500,000 dollar mortgage, don’t you think? This is the power of separating home equity. This is not a short-term plan, It’s a long-term plan, and If done properly you will have a tax free income for the rest of your life. For a first time home buyer this is a no brainer, and everyone should look at this option. The equity is safe, liquid, and has a rate of return.

Do not do this plan on your own or with an unqualified planner. Many planners say they understand this concept but it takes special knowledge and training. To contact a planner in your area email me at aklfinancial.com or on this website. 

Alan

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People always ask why I’m so down on government retirement plans. The most dangerous thing you can do is put your money into a government sponsored plan. These plans are so full of limiting regulations. There are limits to how much you can put in, how long you have to keep it in and when you can take your money out. You get a little bit of a tax break, but to me, it makes a lot more sense to pay taxes on the seeds rather than the harvest.

The conventional thinking that you should put your serious money into a 401K, an IRA or some kind of government sponsored plan is solely based on the assumption that you will be in a lower tax bracket after your retire. What if that’s wrong and you discover that you’re in a 55% or 65% tax bracket during your retirement years? What if you had to pay taxes at a 68% tax bracket? Back in 1960, taxes were as high as 89%. You need to develop a consistent stream of tax free income. That’s what the wealthy and affluent have always done. It’s about the net return you keep, not the gross return you earn.

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