Author Topic: "Borrowing" for investing during retirement  (Read 3033 times)

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"Borrowing" for investing during retirement
« on: February 10, 2013, 06:42:27 PM »
Wondering if any of you do this, do a balance transfer for the amount of money you have available on hand  to invest with at 0% for X months. Then park the amount that you have in a high yield savings (so you'll have the amount liquid at time to pay back). And put the borrowed money into another investment. This can be tied up past the X months because you are going to pay it off with amount in savings. Anyways using this you could for the X months, be collecting on twice the amount that you have.

This kills your credit score I'm sure, but for people in retirement, where they shouldn't be needing to buy another house (hoping it is paid off, or at least have mortgage terms already set), why wouldn't this be a good strategy? I mean it's similar to how the super rich live off of borrowed money against their "net worth".

I know college students do this sometimes but since they are early in life, their credit score comes into play more so than at end of career.

Or do the same with taking a line of credit on their homes, instead of that crazy reverse mortgage thing. Since the interest/fees on a home equity line of credit is anywhere from 0-3% (where I am). And if you can earn more than the fees, why not take out a line of credit and make sure to pay it back.

I'm considering this as an option in addition to using a property as a "rental". Once the house is paid off, keep renting it out as well as taking out a line of credit on it. Wouldn't this give you another source of income? It makes owning a rental all that much more attractive if this is possible. I don't know the laws around this so it may not be possible :S

this is a little opposite of "mustachism" since you are taking on a debt, but a debt that has minimal fees/none. And if you know you can pay back what is owed, why isn't this an option?

Nords

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Re: "Borrowing" for investing during retirement
« Reply #1 on: February 10, 2013, 10:54:47 PM »
http://en.wikipedia.org/wiki/Stoozing

You've also rephrased that perpetually popular debate question "Should I pay off the mortgage or invest the money?"

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Re: "Borrowing" for investing during retirement
« Reply #2 on: February 10, 2013, 11:13:00 PM »
hm if it's so common, why don't I see people advising it for retirement, or at least in the blogs I've read, no one's really mentioned it as an option. Why?

arebelspy

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Re: "Borrowing" for investing during retirement
« Reply #3 on: February 11, 2013, 07:07:34 AM »
hm if it's so common, why don't I see people advising it for retirement, or at least in the blogs I've read, no one's really mentioned it as an option. Why?

It's not worth the time involved for the small amount you'll make at the risk free interest rate.

I did it in college for some free money.  I don't bother nowadays.

If you have to hustle like that when ER'd, maybe you should have chosen the other answer in the "one more year?" debate.
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Nords

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Re: "Borrowing" for investing during retirement
« Reply #4 on: February 11, 2013, 09:21:54 AM »
hm if it's so common, why don't I see people advising it for retirement, or at least in the blogs I've read, no one's really mentioned it as an option. Why?
My first thought is that you need to read more blogs, or at least repost your question on Early-Retirement.org.  Here's a self-serving example that I've kept going for over eight years:
http://www.early-retirement.org/forums/f28/covering-a-mortgage-without-losing-your-ass-ets-15237.html

The debate is popular, but the tactic itself... not so much. 

The fundamental answer, though, is that people don't feel comfortable taking on the debt just to leverage their investment returns.  We do it (both with our home and our rental property) because my federal pension income covers the payments.  However I'll be paying a mortgage until I'm 80 years old, and it's quite possible that the mortgage's lifespan will exceed my cognitive longevity.

Sacadoh

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Re: "Borrowing" for investing during retirement
« Reply #5 on: February 13, 2013, 09:25:25 AM »
I am UK based. I borrow at 1.5% from HSBC within a flexible mortgage to pay into my pension (40% tax relief going in) & ISA (0% tax on income) pots. I plan to borrow up to 100k cap this way - my credit line goes to 150k.

I will pay off my mortgage either through bonuses or ultimately from my 25% tax fee cash lump sum (permitted in UK) when I choose to retire meaning I maximise the tax advantages. I will keep the ISA credit balances above morgage debt balances at all times and keep an eye on things to ensure I can cope with stock market volatility.

Anyone with a UK investor do this, or think I am barmy.

I think it is sensible to make use of very cheap credit provided the leverage can be managed.