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Need some ideas...

May 22nd, 2007 at 09:14 am

I got a wonderful article idea because I keep replying to posts and blogs about usual rules and assumptions about finance and how they don't really apply when you start young/are young.

Like am I worried about paying off the mortgage before retirement? Not exactly. If I take the full 30 years from my last refinance it will be paid off 10 years before traditional retirement age. & neither of us really has a burning desire to retire early. We own our dream home with a fixed low rate. I really don't foresee not having our house paid by 55, nor having the desire to move up.

Today I was commenting on the faulty logic of ROTH IRAs being less favorable in today's dollars. I have a 40-year investment horizon. I should be able to put in $4k/year and take out $1 million plus tax-free in 40 years. Hello. In the meantime I am young and my income tax rate is nil now too. win-win. If your ivvestment horizon is only 10-20 years and you are at the peak of your career income-wise, well then it makes little sense. I'll agree. But as usual I see huge exceptions for being young.

I find myself over and over saying yes, these financial principles make sense when you are in your 40s or something, but the ball game is completely different when you are in your 20s. Of course I would rethink ROTHs if I were in my 40s. OF course I Would work harder to pay off the house sooner if I bought a home in my 40s. Etc., etc.

But I find having a LONG investment horizon changes all the rules.

So is there anywhere else any of you have noticed this?

I think overall I am going to turn this article into more reasons to start investing and taking charge of your finances while you are young!!!

The other obvious one is you can invest less, on an annual basis, for retirement, the younger you start, due to the power of compounding, which really ties into the rest. Why pay off the mortgage early when I have such a long investment horizon, is really what it comes down to. As does all of these. But I figure there are some other things I haven't though of - always helps to have more brains to pick.


ETA: I thought of a good one in the middle of the night and completely forgot. It figures - LOL. Maybe insurance - how you can lock in low rates in your 20s.

2 Responses to “Need some ideas...”

  1. scfr Says:

    I think you're on to something ... Although, if you invested MORE when you are younger, you would be just that much more ahead of the game when you get older. And the younger you are, the less likely you are to be seriously ill or disabled, have children to support or help with college, or parents to help out, and so it's possible you have more discretionary income.

    When you are done writing the article about younger folks, maybe you could write one about how the usual rules & assumptions don't applied if you're self-employed? That's one I've been mulling over lately.

  2. LuckyRobin Says:

    We started so much in our twenties and I think it will make all the difference in the world to our lives as we hit 50 and beyond.

    My mortgage will be paid off by the time I'm 47 if I don't prepay anything. I do think knowing that changes a lot of things about my future investment plans. We've invested in a 401K for 11 years now. I feel pretty far ahead of the game there. Not as far as I would be without the debt or if we invested a higher percentage of income. But being young helps there as there is plenty of time to pay it off and still have a very comfortable pre-retirement period in our fifties. And it also means we are very comfortable having a very aggressive 401K, for at least another 13 years before starting to tone it down. We'd never be comfortable with being aggressive at 50 to make up for starting slow.

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