Key to affording retirement in New Normal is to liberate “time.” Leaving last 15 years of career free of mortgage payments provides time and money for a retirement account. Millennials with ordinary jobs can retire in comfort and security.
The Retirement Puzzle
Millennials and Gen Z are puzzled, discouraged and pessimistic about the future: Without secure jobs, steady pay raises, and company pensions in the New Normal, how can they possibly afford to retire? Especially since Financial Planners insist they’ll need five times their annual income in “the bank” (saving and Investment accounts) at retirement!
It’s impossible to scrimp that much from the monthly budget. Even fully funded 401(k) plan, Roth IRA, and similar accounts are no guarantee. The stock market can go into a prolonged slump at the worst time. Home appreciation looks good on paper but isn’t real until cashed in, and presuming the market doesn’t go into a slump first.
This is not only a financial problem, it’s a personal and emotional one as well, weighing heavily on them. Like Alice in Wonderland, they’re running as fast as they can but don’t seem to be getting anywhere. It’s no wonder they’re not optimistic, stressed and anxious by the uncertainty of it all.
This isn’t the first time Americans have faced stagnant wages and lack of company pensions. Thankfully, earlier generations came up with a practical solution that could be employed today. The purpose of this web site is to share that strategy with you.
Fresh Approach
The solution starts with taking a fresh approach to the problem. Instead of trying to find more money, the key is to save more time. Instead of budgeting your salary better, the solution is to budget your career better.
In the Old Normal, with steady pay raises and company pensions, people could afford to make monthly payments, pay interest expense, for their entire career. All they needed was a rainy-day fund.
In the New Normal, without steady pay raises and company pensions, people can’t afford to spend all their earnings on monthly payments, especially interest expense. They need to leave time and money for a retirement account of their own. More specifically, they need to leave 15 years of career to invest in themselves.
They can do this by paying off big debts with 15 years left in career. Earnings that previously went to monthly payment can then go to saving and investment accounts. None bigger than the mortgage payment.
As their biggest monthly expenditure, transforming former mortgage payments into investment capital will naturally have the biggest impact. Not only big, but since mortgage payments usually reflect a homeowner’s income and standard of living, the resulting retirement account will likewise reflect the amount they need to support that standard of living in retirement.
That’s what earlier generations did, especially those prior to the industrial boom that followed WW II, back when not many had Defined-Benefits pension plans. They aimed to allocate no more than 20-25 years of career to these big monthly payments, leaving the rest for a retirement account.
They expected to live 10 years in retirement, which is why a retirement account based on 10 years of former mortgage payments would suffice. Since Millennials and Gen Z are going to live 20 years in retirement, they’ll need an account based on 15 years of former payments.
20 Years in Retirement
Expecting to live about 10 years after age 65, earlier generations needed to transform 10 years of former mortgage payments into investment capital in order to build a retirement account that was three-times their annual income.
In contrast, Millennials and Gen Z are expected to live a good 20+ years past age 65. In order to support 20 years of retirement, they’ll need an account that’s five times their annual income. It’ll take 15 years of former mortgage payments in order to build a 5X retirement account
In the Old Normal, back when most people had guaranteed pensions, an account that large seemed unnecessary, preposterous even. Not now – now, it makes perfect sense.
As large as a retirement account that’s 5X annual income is, as compared to a rainy-day fund, it still isn’t big enough to pay 100 percent of living expenses for 20 years in retirement. Fortunately, it doesn’t need to! That’s because Social Security and other income will cover half of living expenses. The other half will be paid by a retirement account built on 15 years of former mortgage payments. Indeed, Millennials and Gen Z don’t need to earn a great deal more, they simply need to spend less of their current income on monthly payments, and more of it on a retirement account of their own.
In practice, in order to liberate the last 15 years of career for a retirement account, the mortgage needs to be paid off by age 50-55 (no matter how many times the homeowner moves).
Given how often people move and how much they need a 30-year mortgage in order to stretch their budget, paying it off before age 65-70 seems unrealistic. It also runs contrary to conventional wisdom. The real estate industry won’t like it either.
It would indeed be unrealistic if people had to repay the full mortgage payment for 180 months. Thankfully, they don’t! They only need to repay the principal scheduled for those 180 payments, which is a small fraction of the monthly payment.
After all, since a 30-year mortgage is front-loaded with a preponderance of interest expense, it leaves little principal in the monthly payment. (People aren’t buying a home during the first 10-15 years as much as renting money.) Simply give the principal back to the lender sooner, and they’ll immediately remove those payments from the original schedule. That simple!
For example, if Millennials and Gen Z repay the principal scheduled for 10 years in only 6 calendar months, the other 9 1/2 years of payments disappear. Presto!
Do it time and again over the next couple of years and recapturing 15 years of scheduled payments, makes it relatively easy to pay off the mortgage by age 50-55. A homeowner who is 35, for instance, will be mortgage-free by age 50.
Transforming 10-15 years of monthly debt payments into investment capital makes it one of the best investments you can make.
Sadly, many people miss out on this opportunity because they think the original schedule is a requirement, not realizing it’s only a list of minimum payments.
For more insights, see https://www.nesteggstrategy.com/Strategic-Repayment
Tip: Intending to repay principal with money that’s left over from the monthly paycheck is a trap – there’s never anything left!
The secret is to write the first check to “saving and investment” accounts. This is known as the “Pay Yourself First” principle. This tenet comes from the book, “Richest Man in Babylon,” by George Clason, published in 1933, and still in print today. (Dale Carnegie Institute ranks it among the “most important business preachments of modern times.”)
Re-Allocate Career
Time is the only resource there isn’t enough of. Once it’s gone, it’s gone forever. This makes time more precious than money.
Therefore, the secret isn’t the best way to budget your money but the best way to budget your time, your 40-year career (at best). More specifically, how much should be allocated to repaying debt on big acquisitions, and how much should be reserved to invest in yourself.?
The biggest debt, for most people, is the home mortgage. Your parents and grandparents could spent their entire career on mortgage payments, because they didn’t need a retirement account of their own, a rainy-day fund was all they needed. That wasn’t true for earlier generations, however. That’s why they allocated no more than 20-25 years of career to mortgage payments, leaving 15 years of former mortgage payments to become investment capital.
Fifteen years is the magic number, because it will build a retirement account that’s five times annual income, big enough to pay half of living expenses for 20 years in retirement, until age 85. With the other half paid by Social Security and other income, Millennials and Generation Z can retire in comfort.
Eureka!
Indeed, Millennials and Gen Z need to allocate their careers different than their parents and grandparents. Allocating no more than 20-25 years to mortgage payments and rest of career to investment capital, which earns compound income, are the keys to affording retirement.
Nest Egg Strategy
Being mortgage free by age 50-55, liberating the last 15 years of career for a retirement account, is the “Nest Egg Strategy.”
It represents a sea change in how one’s biggest investment fits into their long term financial planning, a re-vision. Those in science, medicines, and technology, as well as the professions, can continue on as usual. However, average people with average jobs, those without steady pay raises or company pensions, need to make a course correction.
Big changes in the New Normal have negated the old borrow-dear, repay-cheap strategy. For example:
A) Demise of company pension plans for people with ordinary jobs, complicated by end of secure jobs and pay raises higher than increases in cost of living.
B) Tide no longer lifting all boats, not providing greater income to pay the debt on big-ticket acquisitions.
C) Living twice as long as earlier generations, Millennials and Gen Z will need a retirement account that can provide half of living expenses for 20 years in retirement, until age 85.
D) A retirement account that’s five times their annual income will be needed to provide that much money for that long.
E) Using less of existing income on monthly payments and interest expense, the mortgage in particular, will the source of funds for that retirement account.
F) Thus, no more than 20-25 years of career can be allocated to mortgage payments, 15 years preserved for saving and investment accounts.
G) Hence, the mortgage needs to be paid off by age 50-55 in the New Normal.
Indeed, the Old Normal is not returning. Things “won’t work out” the way they used to. It’s time to take charge and allocate less of your earnings to mortgage payments.
Owning a home is still a great investment. Appreciation makes it even more so. The difference now is it needs to be “managed.” In the Old Normal, you could put the mortgage papers in a drawer and forget about them. It would all work out in the end.
So long as they had a company pension plan, people weren’t concerned with the time and money spent on mortgage payments, it would look cheap in the long run. Time was on their side. Besides, interest expense was tax-deductable.
However, without steady pay raises and guaranteed pensions, that entire framework doesn’t hold up.
Most people have a limited career, 40 years at best. The more of one’s precious career that’s spent on exorbitant interest expense the less available for their financial security.
Indeed, instead of spending 30-40 years on mortgage payments, the revised strategy is to limit them to 20-25 years, preserving the last 15 years of career for saving and investment accounts that will be enough to afford 20 years in retirement.
With your own retirement account, the resale value of your home is icing on the cake.
This is the “Nest Egg Strategy,” a proven idea whose time has come again. It may be a simple solution but complex problems are often resolved by simple solutions. There’s even a law for it, “Occam’s Razor: The simplest solution is usually the right solution.”
In addition to working on the macro level, the Nest Egg Strategy also works on the micro level, simple arithmetic.
(1) Since mortgage payments reflect our income and standard of living, the retirement account they build will also reflect the amount needed to maintain that lifestyle during 20 years of retirement.
(2) 180 former mortgage payments (15 years) is the ideal number of deposits into these accounts, because they’ll make up the bulk of the 5X retirement account.
(3) It also works because it gets you out of paying interest expense and starting to earn interest income. This income comes in two waves:
First wave is earning compound income when the saving and investment accounts are being built. Second wave is earning compound income on the 5X retirement account once its built and during the 20 years of slow withdrawals. In fact, compound earnings will be greater than the capital that was deposited. (Earning money while you sleep is only one reason Albert Einstein thought compounding was the 8th wonder of the World.)
Simply put, the Nest Egg Strategy isn’t based on fancy whiz-bang but on simple arithmetic, getting it to work in your favor.
Recap: 15 years of former mortgage payments + compound income = 5X annual income = 50 % of living expenses = 20 years of retirement. The truth is always simple!
Proof: Median household income in 2023 was $6,167 per month, about $5,000 after payroll taxes. This means they can pay about $1,500 per month in Principal & Interest payment (plus taxes and insurance). Depositing former mortgage payments of $1,500 K for 180 months, earning a mere 4 percent, will build a $394,000 retirement account. Which is 5.3 X of a $74 K annual income.
A $394 K account will permit withdraws of $2,560 per month for 20 years. Given that this homeowner is not paying payroll or SS taxes, that’s about half of their actual $5,000 per month living expenses. Bingo!
Yeah, But … : Despite its obvious merits, many will argue against the Nest Egg Strategy. Such objections are only natural, since it challenges a game-plan that worked so well in the Old Normal.
Yeah, But …
It’s only natural to question changes to a strategy that worked so well for so long, especially when it concerns one’s home, and their money.
With a rising tide lifting all boats, people enjoyed steady pay raises, rising home prices, and company pensions across the board. Hence, what was once expensive monthly payments became cheaper over time, “borrow-dear, and repay-cheap.”
Truisms and rules of thumb grew up around those circumstances, “conventional wisdom.” So long as they worked, there was no need to question them, no need to re-examine the underlying circumstances, whether some are now less true, or whether some have become downright counterproductive in the New Normal.
For example:
But I can’t afford to pay off the mortgage by age 50-55.
But, I’ll repay with cheaper dollars
But, my 401(k) plan and home appreciation are all I need.
But, I need the tax deduction.
But, I plan to move to new house in five years.
But, appreciation will make up for the interest expense.
But, shouldn’t I keep a low mortgage.
But, money in the house is idle equity.
But, isn’t the stock market a better investment.
But, stretching it out is only way to afford monthly payment.
But, “gotta buy now” or never.
Since the underlying circumstances have changed for many of these truisms, it’s indeed time to reevaluate them. In particular, since wage increases that are higher than Cost of Living increases, i.e. “real” pay raises, was the cornerstone of “borrow-dear, and repay-cheap” strategy, it throws the entire prospect of repaying “cheap” into question when average people with ordinary jobs aren’t getting real pay raises. (Those in science, medicine, and technology, along with finance, law, and other professions are the exception to the rule.).
One reason the underlying circumstances have changed is the underlying philosophy, the theory of those who strongly influence these circumstances have changed. That’s why it is more useful to consider these philosophical changes than parse all the empirical details behind each of these “Yeah, But …” objections. (Besides, details change but philosophy stays the same.)
For example, conventional wisdom fails to account for how corporations no longer think it’s their mandate is to raise the standard of living of ordinary employees. Nor, to consider the effect of their operations on the local community. Maximizing profits has become their only responsibility. Accordingly, even though profits have soared, “real wages” have been stagnant for decades. Indeed, Wall Street would fire any CEO the next day if they tried to increase wages commensurate with profits. And it won’t get any better so long as it’s the prevailing philosophy among corporate leaders and leading Business Schools.
It wasn’t always this way. Philosophy after the Great Depression and WW II was “everyone is better off when working people are better off.” Which manifest itself in company pensions for ordinary employees.
Ultimately, the “bean counters” decided that an obligation for defined-benefits 20-30 years down the road was more than companies should risk. So, corporations switched to a one-time contribution to a 401(k) plan, absolving them from any further obligations.
Two problems with defined-benefit pensions losing out to 401(k) plans; First, only 1/3rd of these plans are fully funded. Second, there’s no guarantee the Stock Market will be strong when its time to retire. Worse, it might even suffer a crash from excessive exuberance on dubious “instruments,” as it did in 2008.
In addition, it seems a good deal of corporate profits are due to financial engineering, not new products and services. The last major new product was the IPhone in 2007, for example, the rest has been improvements to old products, including EV autos. But, how long can that be sustained?
A 401(k) is a prudent choice, without question, but it’s not a sure thing when it comes to paying half of living expenses during 20 years of retirement, especially when most plans are underfunded. Better that a 401(K) plan be a complement and supplement to a “cash nest egg,” money in the bank.
Despite all these changes, all the King’s Horses and all the King’s Men continue to give the same advice they did back when ordinary employees had real pay raises and company pensions. They pretend not to know the New Normal has made that advice obsolete, and that’s it’s here to stay. Worse, they’re silent on a replacement for the borrow-dear, repay-cheap strategy to retirement.
They apparently don’t want to rattle the real estate industry, their bread and butter. After all, the industry can make more money when people pay interest expense and make mortgage payments for their entire careers.
Indeed, since a benevolent economy and employers aren’t going to look out for Millennials and Gen Z, they need to look out for themselves. Simply put, they need to leave time and money from a limited career to invest in themselves!
Taking the first step on the road less traveled is the hardest, requiring courage. Yet, the potential is far greater than hoping the borrow-dear, repay strategy makes a miraculous come-back.
It also avoids some downright counterproductive “Yeah, But …” objections: “I can’t afford to pay off the mortgage by age 50-55,” and “I’ll repay the mortgage with cheaper dollars,” are top the list. Follow either one and a retirement account for average people with ordinary jobs is highly unlikely.
(There’s are grains of truth in many of these truisms, i.e. but they mustn’t be accepted without question. Each must be evaluated relative to one’s personal situation.)
See a critique of each “Yeah But …” argument at http://www.nesteggstrategy.www/yeah-but
Sacred Space
In addition to financial rewards, the Nest Egg Strategy provides personal, emotional and psychological benefits that many believe to be even more important. It restores hope and optimism for a brighter future, lifting a cloud off their hearts and minds.
That’s not surprising since home is far more than a mere dwelling or financial investment. It’s your refuge and sanctuary. It’s where the dark aspects of the world are kept out and the best of earthly delights are let in. Both of which are key to one’s health and happiness.
After all, home is where life is celebrated with family and friends, where you’re blessed by sweetness, beauty, and love! It’s where you get rest and recreation essential to restoring your vim and vigor. It’s where you enjoy peace beyond measure! And where your children enjoy love so deep their hopes shall remain forever unbounded!
If a reverence for something makes it sacred, “Home is indeed Sacred Space!“
The Nest Egg Strategy also ensures your refuge and sanctuary will never be “underwater,” never at risk of foreclosure. Peace of mind!
(Learn more about “Home as Sacred Space.”)
A Pound of Crop
Farmers are fond of saying “a pound of crop is worth a ton of theory.” The “pound of crop” in this case is the amount of money it’ll actually mean to you, the size of retirement account you can expect for transforming 15 years of former mortgage payments into investment capital. Furthermore, how much you can withdraw every month in retirement.
Use the online calculators, found on the tab above, to learn both answers. (You can change all the variables, such as number of former mortgage payments or how long you want the account to last.) (Link to calculators)
No personal or financial information is collected, saved, sold or otherwise infringe on your privacy. (The data cannot even be carried from one calculator to another. You must input the data manually.)
Donate: These calculators are provided as a community service. To help offset the upkeep and maintenance of this web site, a small donation would be appreciated. You can make a one-time $8 donation via PayPal/Donate. (PayPal/Donate is the only entity that knows your identity and captures your payment information.)
Home Appreciation
Some will surely wonder why they should go through all the trouble of the Nest Egg Strategy when home appreciation might be faster, take no effort, and the rate has been extraordinary, unparalleled! Indeed, the “return on investment” has been astonishing.
Even so, you can’t count on appreciation as your retirement account. It may be icing on the cake, but it’s not the cake itself.
Indeed, appreciation equity looks good on paper but it isn’t real until it’s actually cashed in. It may take many years before it can be spent at the local grocery store. Until then, it may look good on paper, and you may be able to borrow against it, but it’s not real money.
For another, appreciation is fickle, it goes up and down for reasons out of your influence or control. An endeavor is a calculated “risk” when you can influence the factors. When you can’t, and may not even know what they are, it’s a “gamble.” In this case, banking on appreciation for retirement is a gamble, a matter of luck!
Furthermore, a 10-15 percent appreciation rate can’t be sustained. Sooner or later, it needs to come in line with the earning power of homeowners. With pay raises at only 2-3 percent, it’s likely that appreciation will go back to traditional level of 2 points above the general inflation rate. The Federal Reserve also has something to say about a healthy rate of appreciation.
Worse, the market could actually fall, which it has done many times after reaching unreasonable heights. Homeowners could find themselves “underwater,” owe more than the house is worth on the open market, at risk of foreclosure.
Not least, chasing an appreciation rate is following the wrong star. The dollar amount of appreciation is the real prize. And, that’s entirely a function of the real estate market in your neighborhood, not how the mortgage is “leveraged.” It doesn’t matter whether you financed 90 percent or the house is owned free and clear, whether your “return on investment” is 10 percent or 90 percent, the dollar amount of appreciation will be exactly the same.
Thus, no use in going out on a limb to maximize a “rate of return” when the real prize is the dollar amount of appreciation due to the market in your neighborhood. Besides, it isn’t worth biting your bottom lip for years on end.
Indeed, with a retirement account of your own, you can always use appreciation to spoil the grandchildren!
About Us
The Nest Egg Strategy was “re-discovered” by John Cunningham, a financial consultant in commercial real estate projects with more than 30 years of experience in solving financial riddles and mysteries.
It all started back in 1990 when John discovered the “true cost” during the first 10-15 years of scheduled mortgage payments was actually 10 times higher than the stated interest rate, when measured on a cash basis. That is, if there was $10 of interest for every $1 principal during in the front of the repayment schedule, it meant it’s true cost was 1,000 percent to repay that $1 of principal. Therefore, the aim was to eliminate as many of these payments as possible.
To that end, John published “Unscramble Your Nest Egg,” which offered a unique “principal acceleration” plan based on the actual distribution of interest expense, not the stated interest rate. Attacking it that way, the “Cunningham Plan” was far more effective than typical mortgage “prepayment” plans.
Since then, with the plight of Millennials and Gen Z in the New Normal, the aim shifted to liberating the last 15 years of mortgage payments so the time and money can be used for a retirement account instead. In other words, it shifted from “saving” interest expense to transforming former mortgage payments into investment capital. Same arithmetic, different objective.
Rather than making a business out of it, John decided to share it with the world. In addition to a book on Amazon, he created this web site so Millennials and Gen Z would have easy access and pass it along to their friends. Finally, and importantly, they could use the online calculators to learn “what’s in it for them.”
Printed books are a thing of beauty, but web sites can fly through the air at the speed of electricity.
Even though everything you need to know is contained in this web site, many people would like to know more detail. Hence, a 115 page book, “Nest Egg Strategy.”
Three topics are greatly expanded: (1) Detailed explanation of how an amortized mortgage is actually put together, so you know how to take it apart. (2) Reasons why the New Normal isn’t going back to the Old Normal. (3) Customs and traditions that reflect home as a refuge and sanctuary, sacred space.
(Available on Amazon online, or bookstores via Ingram.)
Book
“This book could go a long way to easing America’s retirement challenge. Well written and wise.” Honorable Richard D. Lamm, Former Governor or Colorado
Donate
There is no charge for using these calculators, or any other aspect of this web site. They’re free, offered as a community service. A small donation to help offset the upkeep and maintenance of this web site would be appreciated, though. You can make a one-time $8 donation via PayPal/Donate. (PayPal/Donate is the only entity that knows your identity and captures your payment information.)
Thanks!
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“Toot Your Horn.”
How the Millennial Generation and Gen Z “goes” in the coming decades, especially for those who “work for a living,” is indeed how the entire country will go.
People need money in their pocket to feel like they’ve got a stake in the future of Democracy. Otherwise, it’s every man for themselves.
Link your friends and family to this web site. They’ll be astonished how much their mortgage payments are worth as “alternative earnings,” a cash nest egg for retirement. This will bring renewed hope and optimism for the future!
Disclaimer: Note: This website is used with the understanding that it does not constitute financial, legal, accounting, or professional advice. Although the data should prove useful, neither we or any party assumes liability for the accuracy, merchantability, or fitness of this data. All warranties, expressed or implied, are excluded.