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55 - thanks for sharing FIRE wisdom!
Old 03-19-2016, 07:24 AM   #1
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55 - thanks for sharing FIRE wisdom!

I have been lurking around the forum for over a year, trying to soak in the collective wisdom from the forum. THANK YOU - its been a good education for me to learn from all the reference links provided and your different perspectives to consider.

DW and I are 55, and plan to FIRE in 4- 5 years. While that is not 'early' by some standards set here, one of my goals was to have plenty of cushion in the bank as to never worry about working again. Another goal is to finish getting our 2 kids through school and pay off remaining loans. (I know enough people who have pulled the cord too early and suffer the price of poor judgement and negative sequence returns scenario)

DW and I are thinking of downsizing the house to pull up FIRE a year earlier. However, I have been mulling over the merits of keeping a mortgage and taking an annuity that would be more than covered by my cash balance pension (with enough left over for property taxes which are partially capped). The mortgage is a 3.3% note with 25 years left and the pension annuity is 6% (no inflation rider).

Door number two is to sell the house and downsize with no mortgage. Then, either pension annuity or take the cash balance.

Forum thoughts?
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Old 03-19-2016, 07:46 AM   #2
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Well, if you have been lurking for over a year then you have likely seen numerous debates on those two issues.

On the mortgage issue, I think it comes down to your personal makeup and comfort with risk and also how big the mortgage is in relation to your resources. It becomes a tradeoff of using leverage to possibly squeeze out a little spread at the risk that things might go sideways and for some people, sleeping well at night. I do carry a mortgage (and now a car loan) and expect that my investment results will exceed the financing cost but my mortgage was ~10% of our nestegg when I retired so it is not a big bet in my case.

On the second issue of taking your cash balance pension as a lump sum or an annuity, to me it depends on the pricing and what other reliable income streams that you have in relation to your living expenses. In our case, COLAed SS will be about 45% of our living expenses and my fixed pension (with no lump sum option) will be about 18%. That, combined with the flexibility in our living expenses leave me uninterested in buying an annuity but I am quite comfortable with risk and things would have to go sideways in a big way before our portfolio would be unable to cover the other 37%.

Since I think is it very unlikely that we will run out of money, in effect any risk I am taking is ultimately for the benefit (or detriment) of our children and charities.
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Old 03-19-2016, 07:48 AM   #3
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Welcome from out of the shadows.

It sounds from here that your question about downsizing is far more an emotional/lifestyle decision rather than a financial one. If, as you say, you'll "have plenty of cushion in the bank as to never worry about working again," then the downsizing and mortgage/no mortgage question is one of personal preference.

So this 'forum thought' is to do what makes you feel better - and enjoy being FIRED.
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Old 03-19-2016, 09:33 AM   #4
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You can't just look at the percentages. The mortgage payment also includes principle, and with most immediate annuities you do not get the principle back. You have to do it on a cash flow basis.
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Old 03-19-2016, 11:23 AM   #5
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I guess that there is a point there somewhere.... but it is as clear as mud.
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Old 03-19-2016, 11:56 AM   #6
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downsizing besides removing/reducing mortgage, also means less real estate taxes and expenses per year.
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Old 03-19-2016, 12:16 PM   #7
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Downsizing makes the most logic from the standpoint of taxes, insurance and upkeep. However, as Rewahoo pointed out, there is an emotional context to keeping the old homestead where the kids were raised, and where hopefully grandchildren will someday play.

DW and I will likely not know the best option until the time arrives.

Thanks for the feedback!
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Old 03-19-2016, 12:42 PM   #8
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We've chosen the mostly non-COLA pensions as annuities and using the income to pay off a low fixed rate the mortgage option. We looked around at downsizing and ran the numbers. It is interesting because downsizing really didn't save us any money in the long run, in part because our house will likely appreciate at least the same or probably more as any alternative investments where we would place the extra cash. Plus our own home upkeep and entertainment expenses cost much less long term than the HOA fees at the retirement villages we looked at. For now we can't see moving to a much smaller, higher density environment and in the end having it cost more long term than our SFH with yard and trees. We keep looking around, but so far we end up remembering why we bought the house we did years ago and have not found any place we like better.
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Old 03-19-2016, 03:30 PM   #9
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We downsized our big 2 story home in the suburbs to a smaller home in town and love it. Everything is lower, property taxes, heat/cooling, etc. WE also are in walking distance to some things that we weren't before. It is much easier to clean and much faster. It is 1400 sq ft.
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Old 03-20-2016, 12:48 PM   #10
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I think downsizing sometimes means different things for different people. If one has two properties, then downsizes by selling one of them, probably expenses go down drastically. If one has a million dollar house and downsizes to a $300k house, probably expenses will go down substantially. If one downsizes from a $500k house to a $300k house, some money may or may not be saved, depending on other things related to the house such as location, etc.

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Old 03-20-2016, 01:20 PM   #11
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We are closer to the $500 to $300k scenario - that is one of the reasons that I am so uncertain about a downsize. Location is great, HOA fees are low here, and selling involves considering the closing costs. Our mortgage rate will likely never be offered again in this lifetime. I almost would rather stay employed another 6 months to ensure the math works.

Its so close to call that I probably won't know where we are going until shortly before arrival.

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Old 03-20-2016, 01:27 PM   #12
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I would expect that unpredictable expenses will occur in the process of downsizing and if the house is desirable in other ways, proximity to family, nice view or something, etc., I would stay put and skip the downsizing.

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Old 03-20-2016, 06:40 PM   #13
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We basically moved from the burbs to into town. I was sick of cleaning a big house. Even with closing costs and some remodeling we are much better off financially.
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Old 03-22-2016, 04:03 PM   #14
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We downsized 3 years ago in prep for ER. we moved from a 2900 sq ft 2 story home to a 1500 sq ft one story home in an active 55+ community. We love it. We did some serious decluttering in the process. I feel so free. Less really turned out to be more for me and the community is great. I have no problem with boredom, that's for sure! Best of luck in your decisions.
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