How to pay for solar?

[Highbeam]

I'm the opposite. I have 100% confidence that SS will be around when I retire. There are too many voters that depend on it and no politician willing to starve an old lady. I am not certain what it will look like and I am certainly not going to depend on it but SS will be there.

 

[Babaganoosh]

Do you like being taxed twice on your money? If the answer is yes than take a 401k loan. Everyone justifies it by saying "Im paying interest to myself" or something to that effect.

Let's look at it this way. When you put in your money the first time is goes in without taxes being taken. Ok great. Pre tax dollars. However when you are paying back the loan you are paying it back in post tax dollars. Your repayment aren't paying the loan dollar for dollar. So for every dollar you pay back you have to make somewhere around 1.35$ give or take.

To me that loses its appeal right there. But wait! There's more. You just had to make a third more money to pay yourself back. Which is bad enough, but eventually the time comes where you have to get taxes taken out of your withdrawals. Now they are going to tax you again. On the same money. Who knows what the rate will be by then. Do taxes ever seen to go down? Rarely.

Now let's add in the loan fee. There's more lost money. Not to mention that most people reduce their contributions to their 401k when they are actively paying back their loans. More lost money there. On top of it all you lose all the possible gains on the sum of the money that you have out of the fund.

Bad idea. Home equity loans are bad ideas too.

Get a part time job for 6 months to a year or use a credit card. Default on a credit card and you will get sued if the balance is over about 1500. It will suck but you always have the option of making a deal with the lender and end up not having to pay the full balance. Default on your home equity loan and lose your house and your solar panels.

 

[Seasoned Oak]

I'm the opposite. I have 100% confidence that SS will be around when I retire. There are too many voters that depend on it and no politician willing to starve an old lady. I am not certain what it will look like and I am certainly not going to depend on it but SS will be there.

Sure it will be around but that dont mean you can live on it.

 

[valuman]

It certainly makes more sense to borrow money for solar installation than to just renovate some rooms. The former can be seen as an investment where you recoup the cost through lower electricity bills. The latter may work the same way but only once you sell the house and the return is much less guaranteed. I would compare the potential loan payments with the kWh-sensitive portion of your electric bill. The difference is the amount of additional expense you will have each month. If that is a reasonable amount I would suggest go for it. You could also calculate your total return. For that you would need to assume an average service life of the solar (e. g. 25 years) and by how much that reduces your electric bill. Don't forget to add in a steady inflation rate of at least 1% to 2% for your bill each year. That will tell you if it is a worthwhile investment.

As for the 401k loan, I would also compare that with the rates for a home equity loan. If you haven't (re)financed lately, with current interest rates you will get additional savings even when upping the principal to accommodate the solar.

This is pretty much spot on, IMO. Our company has negotiated with lenders to provide low interest rates on unsecured loans for our customers to purchase solar and cold climate heat pumps. The typical loan is 2.99% for twelve years with a same as cash loan option for those who are able to take advantage of the 30% federal tax credit. That combination generally provides a $20- $40 per month delta between loan payment and savings on the current electric rate. By factoring in a 3% average annual increase in electric rates, which would appear to be conservative in the current time period, the decision to purchase solar, assuming a good site, is a pretty easy.

 

[Ashful]

...the return on investment (ROI) will be more than most loans (my current system is 10% ROI) after the 30% tax credit...

If you're not getting a LOT higher out of your 401k the last few years, then please let someone else manage it. I think I could have beat that with a blindfold and a dart board, in the last 3 years.

 

[tmarch]

If you're not getting a LOT higher out of your 401k the last few years, then please let someone else manage it I think I could have beat that with a blindfold and a dart board, in the last 3 years
My situation is no longer with a 401K, I rolled that into a IRA so that's where the funds came from to buy my system.

 

[iamlucky13]

401k loan, no, for two reasons. (1) As another poster pointed out, there's other loan sources a homeowner can draw upon. (2) As a separate poster pointed out, you face a double-taxation scenario on 401k loans. Plus, because 401k's are intended for retirement, to discourage other use except in emergencies, there is only a 5 year payback period, and if you don't start paying back within 90 days, it will be treated as a distribution, subject to tax then, plus a 10% early distribution penalty if you aren't retirement age.

In other words, we don't even need to debate realistic rate of return on a 401k to see that taking a loan out for this is not a good idea.

Home equity loan, maybe, mainly if you're looking really long term, or place a high value on renewable energy. Here's some calculations behind my conclusion:

NREL says Minnesota averages 4.5 kWh per day per kW of capacity on a year-round basis for an optimally tilted solar panel:
(broken link removed to http://www.nrel.gov/gis/images/eere_pv/national_photovoltaic_2012-01.jpg)

Assuming a $4/Watt cost, minus the 30% tax credit, plus interest at 4.5% on the loan, your 20 year cost would be $4.25 per Watt of capacity (A 6 kW array would cost $25,500 including interest).

At a current price of electricity of $0.12/kWh and 2.7% inflation rate, over 20 years, you'd generate $5.14 of electricity per Watt of capacity (A 6 kW array would generate $30,825).

The average rate of return would be 0.95%. You're better off buying I-bonds.

On the plus side, the panels probably have quite a few years life left in them at that point and are paid for, so now your investment finally starts to pay off meaningfully. By year 30, assuming continued inflation in power prices, your total return is $8.93 per W of capacity. That works out to 3.7% rate of return. So at this point, it's starting to look like a halfway decent investment over a very long time period.

Also, the perceived cost to you is low, because even during the first year before inflation has driven power prices up, your power savings will on average offset 90% of your loan payment.

I should probably factor in the cost of an inverter replacement at some point in the interim, plus reduced power production over time (usually rated at 80% after 25 years, but quality panels seem to trend closer to 90%), but that's detail to flesh out later.

 

[Jeepman401]

A lot of good points and views. One has to wonder if you took a little out when the market is high and it has another drop like 2008-2009?
Estimating a 4000watt at around $11k installed before credit. Including around $3500 in upgrades that need done anyway, but with solar it qualifies for the credit.

 

[jebatty]

I did a calculation on the ROI for my system as compared to a CD investment, something which would be typical for many people vs the stock or bond market. ROI First year rate of return is 4.5% tax free.

I tend to look at PV as similar to the purchase of a tax free, inflation hedged municipal bond. The PV is a hard asset, not an expense. People willingly fork down a much greater price on an average to luxury motor vehicle, think little of it, and have acquired something which costs money to use and which rapidly depreciates. PV costs virtually nothing to use, provides a near guaranteed return, and retains substantial real value. Plus, it provides the planet, you and me and every living thing, with a breath of fresh air and a bit of stability in a rapidly destabilizing world.

In answer to the question of how to pay for it, the answer is easy: spend one's money more wisely.

 

[BrotherBart]

Meanwhile back at solar...

 

[john193]

An old feller told me a story one time about how all his friends put a lot of money into their 401k and were hoping to use it for retirement. He said some of them didn't live to retirement age and the ones who did either passed shortly after or were so bad off that they didn't get to use the money for much. He said he decided against putting any away for retirement and had a great life being able to buy what he wanted when he wanted. Since he told me that story 10 years ago I haven't saved a penny in 401k. When I left my previous job I pulled my 401k out and paid for my house in cash and no longer have to worry about any house payments or rent.

You can add beneficiaries to your 401k, so your spouse, next of kin, or other beneficiary can have your funds after you. Putting away 5% to 10% of your gross income is attainable. Plus most companies offer 401k matches, which is free money. My company matches 6%, and I cringe when people tell me they don't contribute to their plan. I guess some people can really turn away free money.

 

[Dune]

You can add beneficiaries to your 401k, so your spouse, next of kin, or other beneficiary can have your funds after you. Putting away 5% to 10% of your gross income is attainable. Plus most companies offer 401k matches, which is free money. My company matches 6%, and I cringe when people tell me they don't contribute to their plan. I guess some people can really turn away free money.

Almost no companies offer matching funds any longer. If you are getting 6% match you are doing very well.

 

[Ashful]

Almost no companies offer matching funds any longer.

My limited experience disagrees with this statement. In fact, in half a dozen companies over the last 10 years between my wife and I, there has only been one case in which a match was not standard, and that's because that company substituted a profit sharing plan for their 401k match. Smart companies want to keep their top talent and experienced employees. The best way to do this is to incentivize thru investment growth.

 

[Dune]

My limited experience disagrees with this statement. In fact, in half a dozen companies over the last 10 years between my wife and I, there has only been one case in which a match was not standard, and that's because that company substituted a profit sharing plan for their 401k match. Smart companies want to keep their top talent and experienced employees. The best way to do this is to incentivize thru investment growth.

In the last couple years? 5 years ago, yes, these days, not so much.

 

[iamlucky13]

Meanwhile back at solar...

Good idea.

4 posts on 401k's later...

Never mind.

 

[jebatty]

A little side-tracked here on SS, since the discussion started on how to pay for solar. Just got a $23,782 quote for adding 5.4kW DC rating, microinverter, ground mount, to tie into my existing 6.5kW ground mount array. This will max out the underground wiring to the house. $4300 is for the ground mounts and footings. After the federal tax credit, cost will be $16,647, or $3.08/watt, and it should produce about a 4.6% return, inflation hedged against future rate increases.

How to pay for it? Being retired, 68 years old, and believe that I should be prepared for another long downturn in the markets, I keep sufficient cash equivalents in my retirement account to cover several years, and I will use some of that money which gets a very low rate of return. The income equivalent from the added solar will be a reasonable use of those funds.

 

[drz1050]

Solar is going to do big things in the next 10 years... the current efficiency of these panels is pretty low. The semiconductor industry is beginning to get more interested.

Remember when 256Mb was a big chip?

 

[jebatty]

Lots of memories of "high" prices paid for early computers, hard drives, laser printers. But each one of those purchases was a good investment. For PV, each year delay results in "loss" of about $1000 on my existing PV system. The PV modules themselves are only about 25% of the installed system cost. The rest is hardware and labor, and I doubt those costs are going down, even if PV module cost/watt goes down.

 

[wildcatbb]

35% of the population have little or no retirement savings , who will finance their life ? YOU WILL Another third dont have nearly enough to last them any length of time.

My wife and I discuss this all the time....we are both 34 and put a bunch In retirement each month and question whether it's worth it, then hear some elderly person complaining about having no money. Id say it's worth it to pack it away, I dont want to work till I'm dead!

 

[valuman]

Lots of memories of "high" prices paid for early computers, hard drives, laser printers. But each one of those purchases was a good investment. For PV, each year delay results in "loss" of about $1000 on my existing PV system. The PV modules themselves are only about 25% of the installed system cost. The rest is hardware and labor, and I doubt those costs are going down, even if PV module cost/watt goes down.

And... unlike computer hardware, solar panels will never be obsolete. They make electricity and we will be using electricity as far into the future as anyone I know is able to see.

 

[jebatty]

... retirement savings are worth it ...

Wildcatbb, you are making a great decision. Also never a question between my wife and I. My wife, now retired, was a nurse, and her work also provided health insurance and a defined benefit pension. I was always self-employed with a highly variable income. We and our three children lived on her income plus the minimum amount I likely would make in a year. And then we saved all of my income above that minimum amount. I retired at 59-1/2, she at 63. House fully paid, two rental properties fully paid, a couple of hundred acres of woodlands, and worst case scenario, absent a major illness, is the ability to live on our two social security checks plus her pension. And of course, we have good retirement savings which fund travel, the PV systems, a new used car when needed, and a lot of other extras. Savings pays, and pays.

... solar panels will never be obsolete ...

excellent point. What piece of electronics likely still will be 75% or more productive 30 years into the future after being used 8-16 hours a day, consume no energy, and payback just by sitting there?

 

[Where2]

I'd say it's worth it to pack it away, I dont want to work till I'm dead!

I'm with you there. I spent 14 years doubled down on my retirement investments in my youngest working years at the advice of my parents and because I looked around at all the folks I worked with who hadn't saved enough over the years. They were 10-15 years closer to retirement than I was, and most were fretting about how to ever "afford" to retire?

I find it ironic that most people consider a PV system as an expense. My PV system generated over $50 for me last month without lifting a finger. Conservation measures will only get my wife and I so far in a climate that requires A/C to keep my wife happy. I can either live with the status quo giving a substantial portion of my paycheck to the power company, move my wife to a climate that requires heating, or install a PV system.

Honestly, I haven't seen PV prices drop much since I bought my panels for $0.78/W, or my enphase inverters for $140 each back in 2011/2012. Every ~3MWh I collect pays for a panel and an inverter. The 4.4kW system on my roof generates right around 3MWh every ~6 months. The federal tax incentive roughly paid for my mounting hardware. What I spent for wire, electrical boxes, breakers, and permits, I would have spent on frivolous amusements anyway.

What piece of electronics likely still will be 75% or more productive 30 years into the future after being used 8-16 hours a day, consume no energy, and payback just by sitting there?

Nothing else I've ever bought. The properties I've bought appreciate, but don't spit out monthly dividends like PV systems.

 

[Seasoned Oak]

Seems a no -brainer to have solar in florida after all it is the "sunshine" state.

 

[valuman]

Seems a no -brainer to have solar in florida after all it is the "sunshine" state.

You would think, but the truth is that Florida has relatively poor incentives for solar PV.

Here's a good resource for exploring incentive programs for energy efficiency and renewable energy installations by state and utility. http://www.dsireusa.org/

 

[iamlucky13]

I'd think the 30% federal tax credit and the state average of $0.12 per kWh would be enough to make solar generally worthwhile in Florida, especially as a cooling climate region, unless net metering is only paid at wholesale.

Also, looking on the DSIRE site, it seems some utilities have significantly different incentives than others. Florida Power and Light seems to list a $2/W purchase incentive, which is a massive subsidy.