Retirement Planning


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Retirement Planning

THE MILLION DOLLAR MORTGAGE

A compelling reason to rid yourself of your mortgage is the following example. Some people do not consider their mortgage an investment. This is a huge mistake! An 8% mortgage for 30 years is really a million dollar investment, ... but for the lender not you!

The lender reinvests your monthly payment each month (aka deemed reinvestment) at the same rate (or greater) of interest and thus your mortgage is worth over a million dollars ( $1,093,573.34 to be exact) to the lender. Just imagine, if you did not have to make the mortgage payments but invested the monthly payments in a mutual fund that paid 8% per year. You would be a millionaire in 30 years. The MORTGAGE2 program has a unique feature of allowing the user to make all the monthly payments zero and show how the payments would accumulate to an amount in the future if invested in an 8% mutual fund.

(Screenshot 1)

HINT: By selecting annual compounding and fiddling with the monthly payments one can use the program to calculate how much to stash away each month so that you know how much your retirement nest egg will be in 30 years. The initial Principal selected is not important, you let it (principal) vary so that you can pick the appropriate interest rate with annual compounding and choose the amount of monthly contribution (which would normally be your mortgage payment) and calculate the accumulation for the next 30 years.

EXAMPLE: Lets say you wanted to put away $1000 per month for 30 years growing at 12% per year (a conservative mutual fund) and find out how much it would be worth at the end of 30 years. Change the compounding to annual, enter 12%, 30 years for the amortization period and $1000 per month as the payment. The Principal will be automatically calculated as $101,869.87 Forget about the principal as it means nothing once the payments are changed to zero inside the SPREADSHEET/amortization schedule.

(Screenshot 2)

Change all the payments to zero in the amortization schedule (change the first payment and then copy it down automatically to the 360th payment) and the accumulation after 30 years is $3,052,013.07 which is a comfortable nest egg to retire on.

(Screenshot 3)

It is interesting to note that the SPREADSHEET is nothing more than an expanded Present Value/ Future Value calculation. The lump sum of $101,869.87 deposited now, in an account and allowed to grow at 12% per year with annual compounding for 30 years would accumulate to $3,052,013.07 which is equivalent to depositing $1000 per month for 30 years if it appreciated at 12% annually.

(Screenshot 4)