cute fuzzy bunny
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Perceptions are funny arent they?
I was starting to think you're trolling me for bringing this much beaten dead horse up so often.
I've ALWAYS said that everyone should do their own math. I've even on occasion presented scenarios in support of both decisions. So far I've never seen you air a scenario that isnt pro-mortgage, although you do give lip service to "do your own math".
I've only stated facts as facts, and tried not to muddy the water or use extreme examples. For example, calculating this as a 30 year scenario when hardly anyone in the US stays in a home for more than 10 years. Or fudging in mortgage interest savings without factoring in income tax on the increased withdrawal.
I didnt read the article, but I'm betting the writer had non retirees in mind, and I agree with him if thats the case. If you're drawing a big salary and paying a lot of income tax, pulling a mortgage and putting your money into the stock market makes a world of sense. If you're increasing your withdrawal rate 30-50% to pay a mortgage, and you're paying taxes on that increased withdrawal, and support of that higher withdrawal is dependent on after tax rates of stock return that are higher than 5-6%, then I question that decision.
If you're retired and have a substantial heap of money and investments, and you're paying 5-6% on a mortgage (the national average right now), while making 3-4% on a similar amount of bonds, you're crazy. Thats a fact. 5>4. 5>3. 6>4. 6>3.
Azanons point is quite valid. If you're issuing a bond to the bank with your house as collateral, and then using the free cash gained from the bond to invest in the stock market, you're investing on margin. Gambling. Historically over a 30 year period, that is a winning proposition. Thats a fact. Historically over a 10 year period, its not always so. Thats a fact. In the meanwhile, if you're using part of that gain to buy bonds or bond funds, you're losing money in the arbitrage. Thats a fact. But investing in stocks and keeping a bond on your home is far riskier than not. Thats a fact. Therefore, comparing paying off a mortgage to investing in stocks is not an equal comparison. Thats a fact.
If you want to put the mortgage money in the market and hope that the expected average annual 6-8% pretax earnings beats your mortgage, and that risk feels good to you, then do it. But thats an opinion on where the future markets are going. Considering Morningstar has the overall market 12% overvalued, and that is the highest its been since early 2000...I wouldnt want to make that bet right now.
If you can find a low risk instrument that gets you a quarter or half percent after taxes to offset your mortage and squeak a few dollars out of that arbitrage, then do it.
However, it is my OPINION that for most ER's with a large investment portfolio and a mortgage, they'd probably be better off paying the mortgage from their bond portfolio and reducing their SWR. I ran those numbers for myself, and I've posted a lot of reasonable scenarios using firecalc that showed that in the vast majority of cases you're better off without the mortgage. In fact, I proposed a scenario where someone without a mortgage can retire on $100k less than someone with one, maintaining the same lifestyle. With no more or less risk than having the mortgage, according to the historic numbers you rely on.
So what we're saying is we'd rather have to get more money before retiring, then put a home and the portfolio at considerable increased risk in hopes of ekeing out a marginally higher long term rate of return? I'm afraid I've misjudged this whole thing, because that just sounds way too enticing for me to pass up. Fortunately its monday and my credit union is open so I can call them up and get me a mortgage.
As far as calling in the risks of homeownership and saying that paying off the mortgage is not risk free...well, you have those risks with or without a mortgage, there is no difference. Hence they cancel on either side of this equation. Unless you want to suggest that you might default on the mortgage if something bad happened to home values or godzilla steps on your house. You can also always take out a mortgage. You can also hold a HELOC like I do, just in case. More muddying of the waters...
May I propose that the reason you keep bringing it up is because you're uncomfortable with your own decision and are looking for some support and validation, rather than some problem with my reasoning?
I was starting to think you're trolling me for bringing this much beaten dead horse up so often.
I've ALWAYS said that everyone should do their own math. I've even on occasion presented scenarios in support of both decisions. So far I've never seen you air a scenario that isnt pro-mortgage, although you do give lip service to "do your own math".
I've only stated facts as facts, and tried not to muddy the water or use extreme examples. For example, calculating this as a 30 year scenario when hardly anyone in the US stays in a home for more than 10 years. Or fudging in mortgage interest savings without factoring in income tax on the increased withdrawal.
I didnt read the article, but I'm betting the writer had non retirees in mind, and I agree with him if thats the case. If you're drawing a big salary and paying a lot of income tax, pulling a mortgage and putting your money into the stock market makes a world of sense. If you're increasing your withdrawal rate 30-50% to pay a mortgage, and you're paying taxes on that increased withdrawal, and support of that higher withdrawal is dependent on after tax rates of stock return that are higher than 5-6%, then I question that decision.
If you're retired and have a substantial heap of money and investments, and you're paying 5-6% on a mortgage (the national average right now), while making 3-4% on a similar amount of bonds, you're crazy. Thats a fact. 5>4. 5>3. 6>4. 6>3.
Azanons point is quite valid. If you're issuing a bond to the bank with your house as collateral, and then using the free cash gained from the bond to invest in the stock market, you're investing on margin. Gambling. Historically over a 30 year period, that is a winning proposition. Thats a fact. Historically over a 10 year period, its not always so. Thats a fact. In the meanwhile, if you're using part of that gain to buy bonds or bond funds, you're losing money in the arbitrage. Thats a fact. But investing in stocks and keeping a bond on your home is far riskier than not. Thats a fact. Therefore, comparing paying off a mortgage to investing in stocks is not an equal comparison. Thats a fact.
If you want to put the mortgage money in the market and hope that the expected average annual 6-8% pretax earnings beats your mortgage, and that risk feels good to you, then do it. But thats an opinion on where the future markets are going. Considering Morningstar has the overall market 12% overvalued, and that is the highest its been since early 2000...I wouldnt want to make that bet right now.
If you can find a low risk instrument that gets you a quarter or half percent after taxes to offset your mortage and squeak a few dollars out of that arbitrage, then do it.
However, it is my OPINION that for most ER's with a large investment portfolio and a mortgage, they'd probably be better off paying the mortgage from their bond portfolio and reducing their SWR. I ran those numbers for myself, and I've posted a lot of reasonable scenarios using firecalc that showed that in the vast majority of cases you're better off without the mortgage. In fact, I proposed a scenario where someone without a mortgage can retire on $100k less than someone with one, maintaining the same lifestyle. With no more or less risk than having the mortgage, according to the historic numbers you rely on.
So what we're saying is we'd rather have to get more money before retiring, then put a home and the portfolio at considerable increased risk in hopes of ekeing out a marginally higher long term rate of return? I'm afraid I've misjudged this whole thing, because that just sounds way too enticing for me to pass up. Fortunately its monday and my credit union is open so I can call them up and get me a mortgage.
As far as calling in the risks of homeownership and saying that paying off the mortgage is not risk free...well, you have those risks with or without a mortgage, there is no difference. Hence they cancel on either side of this equation. Unless you want to suggest that you might default on the mortgage if something bad happened to home values or godzilla steps on your house. You can also always take out a mortgage. You can also hold a HELOC like I do, just in case. More muddying of the waters...
May I propose that the reason you keep bringing it up is because you're uncomfortable with your own decision and are looking for some support and validation, rather than some problem with my reasoning?