Retirement Puzzle


Solution to Retirement Puzzle


Even before the Pandemic Unemployment of 2020, Millennials were puzzled at how they could ever afford retirement?

They didn’t have the secure jobs, steady pay raises, and guaranteed pensions of their parents and grandparents. Beset with stagnant wages, Student Debt, housing costs, health care, and cost of raising children there’s no money for savings. Living five to ten years longer than their parents, they’ll need even more than ever. Many were hoping the good ole’ days would be back. Improbable before, impossible after the Pandemic. A new action plan is needed.

Actually, it’s an old action plan that’s needed, a tried and true one. The Depression/Greatest Generation surmounted the Great Depression with certain habits and practices. Importantly, they built a safety net of their own.


New Action Plan.
At the heart of this safety net was a cash nest egg that could pay half of their living expenses in retirement! With half of their expenses covered, they felt the other half could be stitched together with other plans, especially after the introduction of Social Security.

Such a nest egg was too big to be built by frugality alone, or scrimping from the monthly budget. They had to leave enough time and money from their careers for saving and investment accounts. How much is “enough” time and money?


One-Third Rule
Enough time is one-third of career! Which is about 15 years of a normal career. In order words, you can spend about 25 years buying and paying for big purchases, such as a home, saving the last 15 years for yourself.


25 Percent!
Enough money is 25 percent of annual income. In age when living expenses take every dollar, it seems impossible to free that much money from the monthly budget. Not only is it possible but even probable, if you know where to look. The clue is 25 percent of income is about the same as a normal mortgage payment. The key is to unlock 15 years of mortgage payments!


Master Stroke
Like so many great mysteries, the solution is surprisingly simple – instead of making mortgage payments until age 65-70, pay it off by age 50-55!

This one stroke frees 15 years (one-third of career) and unshackles 25 percent of income from the expense side of the budget, and puts it into saving and investment side. All your goals and objectives are met in one fell swoop.

The fact the mortgage payment and ideal investment capital are both typically 25 percent of income is no coincidence. Since the mortgage payment was relative to their income and lifestyle, it only makes sense that a cash nest egg built on that income will also be relative to their lifestyle and living expenses in retirement.

Plus and minus adjustments may be necessary. For some, the mortgage payment is less than 25 percent because their income has grown while the payment has not. They can simply adjust their deposits to 25 percent of income, irrespective of the mortgage payment.

For others, the mortgage payment was more than 25 percent when they started out. Subsequent pay raises brought it back down to 25 percent, so the ratios of the Nest Egg Strategy are back in balance.

Every homeowner will make tweaks according to their personal situation and aspitations.


5 X Nest Egg
Not only is it good theory, it’s also good in practice. Invest 25 percent of income over 15 years and the resulting the nest egg will be five times their annual income. This is precisely the amount Financial Planners have long insisted everyone have in the bank at retirement. For example, a homeowner who makes $4,00 per month will need a $240,000 cash nest egg.

There’s a good reason for a 5X nest egg.  Reason is because that’s how much is needed to pay half of living expenses in retirement, the heart of a safety net. The other half paid by Social Security, 401(k) plans, and other retirement plans.


A retirement account of your own takes the pressure off 401(k) plans. Your living expenses are covered regardless whether the market is up or down. It becomes a back-up, supplemental income; extra money for travel and leisure, or spoiling the grandchildren.


Refuge and Sanctuary
Paying off the mortgage by age 50-55 has personal and emotional rewards, as well. Home is more than just a financial investment, after all. Home is your refuge and sanctuary! No place is more important to your health and happiness. Home is where you celebrate life with family and friends. It’s where contentment runs so deep the hopes and dreams of children shall remain forever unbound. Home is Sacred Space! 

Your refuge and sanctuary will always be safe, regardless of whether the market goes down, because the Nest Egg Strategy ensures your loan balance will be less than resale value, never “underwater.” Peace of mind is priceless!


Nest Egg Strategy
Trying to build a retirement account in the New Normal by continuing the financial practices of the Old Normal isn’t going to work. It’s virtually impossible to make mortgage payments for one’s entire career and still have enough money left over for a cash nest egg that’s 5X their annual income.

In contrast, leave the last 15 years free of mortgage payments, and there will be enough time and money to build a cash nest egg that’s 5X your annual income. This is the “Nest Egg Strategy,” a simple idea whose time has come again. The truth is always simple!

The Retirement Puzzle is solved!


Pound of Crop…
… is worth a ton of theory. The following example shows why the time-value of money, compound earnings, is your most important ally.

For example, a homeowner who qualifies for a mortgage payment of approximately $1,000 per month earns about $4,000 per month. In order to maintain their standard of living after retirement, they’ll need about $3,000 per month (mortgage free). Half of which is $1,500 per month. The cash nest egg needs to pay that amount for 20 years.

15 years of former payments will accomplish that objective. Deposits will total $180,000, ($1,000 x 180 months) but actual balance will be $240,000, a 33 percent increase on account of compound earnings! 

A $240,000 nest egg will allow withdrawals of $1,500 per month for 20 years. Reason it can pay out for that long is once again compound earnings. The balance is increasing by virtue of compound earnings at same time that monthly withdrawals are slowly decreasing it. This allows for withdrawals that amount to $360,000 ($1,500 x 240 months.)

Overview is deposits of $180,000 and withdrawals of $360,000, a 100 percent increase due to compound earnings. Time-value of money may have fell out of favor during the Debt Strategy, but laws of arithmetic are never out of date.

Some think that a compound earnings rate of 4 percent, for instance, is too low and therefore too slow to be of much value. Balderdash, quite the opposite! Half of the $360,000 in the previous example, which is half of the living expenses paid over 20 years, is due to that 4 percent compound earnings. Turns out that the old fashioned way is not only the surest way, but it’s also the fastest way as well.


Easier than it Seems
People are so accustomed to shooting for the lowest monthly payment in order to maximize borrowing power, stretching payments until age 65-70, that most don’t give a second thought to anything else. And, seldom does anyone recommend anything else. They just assume it would be too expensive.

That’s not true, however. A 30-year old can simply start with a 20-year mortgage and pay it off by age 50, for instance, leaving 15 or 20 years of career for saving and investment accounts.  (The difference in borrowing power or monthly payment might be only 15 percent.)

Those with an existing 30-year mortgage can buy back 10 or 15 years of payments by accelerating repayment of principal. Not much principal needs to be repaid since there’s so little in the first 10 years of a 30-year mortgage.

Refinancing is yet another option. Many are tempted to reduce the monthly payment. Better option is to use lower interest rate to get a shorter term mortgage.

Sometimes it’ll take a combination of these tactics to get the pay-off schedule down to age 50-55. Whatever it takes, recapturing 15 years of your career is priceless. Time is the one thing in life that can’t be replaced; once it’s gone, it’s gone forever. 


See for yourself!
Go to Domus calculators (on this site) and see how much your mortgage payments are worth as investment capital. Importantly, how much you can withdraw every month from this cash nest egg in retirement.


A Last Word
The key is for Millennials to build a safety-net of their own. Leaving the last 15 years of career to invest in themselves is the sure-fire way to accomplish it.

Pay off the mortgage with 15 years left in your career and the stage is set. Since mortgage payments are typically 25 percent of income, converting them into saving and investment accounts will create a cash nest egg that’s five times their annual income. Which can pay half of living expenses in retirement. Thus, the safety-net that Millennials are looking for.

That’s not all! They’ll also be undoing the Recession of 2020, Covid-19 pandemic, and global warming. At the same time, Millennials will be redoing a number of political, economic, social, and cultural institutions. It’s too early to know how it will all shake out but it’s clear the post-pandemic world will be noticeably different.

If all goes well, the Millennial Generation will deserve to be called the next Greatest Generation.



Drill Down


Yeah But, …