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Old 07-30-2014, 08:57 AM   #41
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We paid off our home well before I retired early.

But one of the first things we did after retiring was to sell the house. After a fair amount of travel we decided to rent until we found a place-a condo.

Once we started looking I realized that the math did not make sense. The condo we rent is giving the owner a pre tax three percent return. But an assessment wiped out that return for eight years. After 40 years or so of owning, renting seems like a reasonable solution for us. Besides, we are making far, far more money on our investments than we would have on capital appreciation of our home.

We could buy next year after we return from travel. Or we could not. But after being brought up with the 'own you home' syndrome it did not take us long to become relatively happy renters. We came to the same conclusion when looking for a vacation home in which to spend the winters. The math did not work, in some instances there were tax considerations, and we did not wish to be tied down to one location.
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Old 07-30-2014, 09:00 AM   #42
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So for those of us who have paid off houses and good credit (many people here) you recommend us to mortgage out our houses and invest money into equities?
I would think having a paid off house would allow one to be somewhat more aggressive in their investing, such as by increasing their AA of stocks, or adding an REIT fund. IMHO, for most of us that would be a wiser move than mortgaging a paid off house and investing the money in the stock market.
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Old 07-30-2014, 09:02 AM   #43
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We paid of house in 5-6 years. That was long time ago

I think having no mortgage gave us piece of mind and enabled us to be much more aggressive in our AA. That is in addition to fact that Homestead protects our house from credits and hence serves as Asset Protection within portfolio.
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Old 07-30-2014, 09:09 AM   #44
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A doctor in a high risk specialty in a state without any asset protection for personal residences may never want to have a paid off house. Or maybe someone has a business with a high ROI like Fishingmn that needs the capital. Or maybe a mortgage helps a household keep their realized income low and under the 400% poverty level, meaning $10K in ACA subsidies. In real estate bubble markets, renting can be cheaper and much less risky than owning an expensive house destined to go down six figures in value.

I can't see a general rule being helpful. One could say don't use credit cards either but then people who aren't stupid enough to run up thousands of debt in depreciating consumer goods just because they have a high limit might lose thousands of dollars a year on miles and cash back points.
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Old 07-30-2014, 09:10 AM   #45
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Originally Posted by samclem View Post
From the article:

Quote:
Q: In the book there are 18 habits of happy retirees. Can you narrow your book down to three pieces of advice?


A: No. 1 is financial. Tackle your mortgage. It's such a critical component to all this. Happiness rises as years to pay off mortgage go down. Thus, tackling of the mortgage is really critical.
That's his top advice? Dumb. This is another book I won't need to read.
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So for those of us who have paid off houses and good credit (many people here) you recommend us to mortgage out our houses and invest money into equities?
I'm not sure if your followed the entire thread, but the author of the piece cited by the OP indicated that having a paid off mortgage is "really critical" to a happy retirement and I'm just agreeing with samclem that the author's view that a paid off mortgage is critical to a happy retirement is balderdash and explaining why I think it is balderdash.

I'm not recommending anything, but for those who can stomach the minimal risk and who aren't in effect betting their house on it, I think it is a good idea and it has worked out well for me over the years. And it really isn't equities, it is really a 60/40 mix of equities and fixed income. It seems silly to me to think that a prudent mix if investments can support a retirement of 30-40 years but can't similarly support a 15 year mortgage, especially since a mortgage doesn't inflate.

I plugged into firecalc assets equal to my refinance, spending equal to my mortgage payments with no inflation and a 60/40 asset mix - as if I took the refinance proceeds and put it into a 60/40 low cost fund and had the fund make the mortgage payments. Firecalc indicates a 90.7% success rate. The worst case outcome is that the fund would break before the mortgage is paid off and I would have to ante up an amount equal to about half of my refinance proceeds. On average after the mortgage is fully paid off I'll come out ahead by an amount equal to 2/3rds of my refinance amount. Best case is that I'll have 3 times my refinaced proceeds left in the fund after paying the mortgage off. A 90% chance of coming out ahead and a 10% chance of not sounds like a pretty reasonable "bet" to me given that I am by nature an averages player and am not risk averse.

If someone's home equity were 50% of their investable assets I wouldn't recommend it but in my case it is only 10% so it is low hanging fruit to me.
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Old 07-30-2014, 09:30 AM   #46
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If someone's home equity were 50% of their investable assets I wouldn't recommend it but in my case it is only 10% so it is low hanging fruit to me.
I would also add that the person would have to have the investment smarts and attitude of somebody like a pb4uski.
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Old 07-30-2014, 10:47 AM   #47
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Your posting question exposes my conflicting attitudes and thoughts. When I refinanced several years ago, I did not have the assets to pay off my house. Now that I can, I will not do so. But if it were paid off, I would never consider taking equity out of my house to invest in equities. You could make the case it is the same scenario, minus any transaction costs.


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This is almost a universal mental bias- a preference for whatever we already have. I have it also, it is comforting.

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Old 07-30-2014, 12:15 PM   #48
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USAToday: Wes Moss reveals the secrets of happy retirement

Having a paid off house and income streams seem like the way to go. Now I have to figure where to settle down.
I went to the link (and imho Mr. Moss is quite photogenic so thanks for that ). I think this paragraph is interesting re paid-off house:

Quote:
Who are people who retire early? In my opinion, it is someone in position to retire at 62. That's early. Sixty-five is traditional age. I like to see people able to do it at 62, when Social Security kicks in.
Note he is indirectly saying to take SS at 62. If one's nest egg is in untaxed accounts, as virtually all of ours is in a traditional IRA, having to take out enough to make mortgage payments (plus enough to pay the deferred income tax on the withdrawals) could trigger taxes on the SS payments being received (not to mention affecting the ACA subsidy some receive but I don't think that is a factor in his discussion). So the earnings on the $$ invested other than in a paid off house would have to be high enough to offset any tax on the SS income, right? So maybe that is Mr. Ross's reasoning.

There should be a second article about secrets to earlier retiree happiness. But the mortgage question is not a no-brainer even if one waits to retire til 62 and takes SS then.
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Old 07-30-2014, 01:20 PM   #49
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I also think it depends on where in the spectrum of retirement you are. I think if you're a couple of years away, focusing on paying down the mortgage is helpful because the time for compounding is much less, but the effect on reducing your expenses (the other half of the equation we at ER.org get, but many others miss) is huge.

For someone like me, still 5+ (and probably more) away from retirement, living in a home that is probably not our "forever" residence, with a 5/5 ARM that's only one year in, paying it down quickly doesn't make much sense. First, the tax deduction helps keep us in the 25% bracket. Second, the 2.875% interest rate vs. "expected historical return" on our portfolio (around 8% incl dividends) with - as mentioned - at least five more years until retirement mandates (to me) that we stay our present course.

While enticing to potentially pay off the mortgage in four or so years (fund tax-advantaged accounts, then apply all else to principal), it doesn't make sense to me to lose those years of additional accumulation and especially compounding while we have stable income in order to possibly lower expenses in the future. Maybe we'll be in the same house... but I doubt it.

Of course, when the market returns -10% over the next five years, I'll regret this decision.

And if we're still in the same house in six years, we'll re-evaluate based on the interest rate change.
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Old 07-30-2014, 01:21 PM   #50
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My secret to successful early retirement is mirrored in today's Pepper ad Salt cartoon in the WSJ. A middle aged man is saying:

" I've decided to enjoy my money now and become a burden to society later."
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Old 07-30-2014, 03:28 PM   #51
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This is almost a universal mental bias- a preference for whatever we already have. I have it also, it is comforting.

Ha
That idea was the subject of a research experiment on a Nova show, Mind Over Money. Study subjects would pay $6 for a coffee mug before they owned it, but after being given the mug for free they wanted $9 to sell it:

NOVA | Mind Over Money

I found it an interesting discussion on how tulip, stock and housing bubbles form as well.
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Old 07-30-2014, 04:42 PM   #52
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+1 I realize that living in retirement with a mortgage is not for everyone and that's fine, but so far it has worked out great for me. My comfort is I could write a check and lay off my mortgage at any time I chose to.
+1 Ditto. You prompted me to take a look at my figures.

Since retiring in 2006, we've withdrawn 1.5 times our mortgage balance, and the portfolio growth since then is also about the same as our mortgage balance.

So in essense, our investments have grown 2.5 times the mortgage balance. We also could pay off that mortgage any day that we chose -- along with a large capgain tax bill.


Meanwhile, my 70 year old neighbor who paid off their house works part-time as a janitor. I'm sure his happiness at not having a mortgage payment is a great comfort to him when he's driving to work at 6AM, as he passes our house with the big mortgage and me just putzing around all day long.
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Old 07-30-2014, 04:54 PM   #53
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Your posting question exposes my conflicting attitudes and thoughts. When I refinanced several years ago, I did not have the assets to pay off my house. Now that I can, I will not do so. But if it were paid off, I would never consider taking equity out of my house to invest in equities.
I would. In fact, that's how I got the seed money to start serious investing, 20 years ago.

"So for those of us who have paid off houses and good credit (many people here) you recommend us to mortgage out our houses and invest money into equities?"

No. For you (you being someone who is retired with no mortgage) it is too late. The time to start investing is long before you retire, when you have a low mortgage payment that you can pay out of your paycheck. Then you don't have problems about pulling money out of your investments in a bear market to pay the mortgage.

The danger and risk of having a mortgage is being unable to make the monthly payment. If that isn't a problem or risk for you, then yes, have a mortgage AND have equity investments. You can't pull money out of you house and invest it if you can't safely make the payments with money that isn't tied up in the investments.
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Old 07-30-2014, 05:14 PM   #54
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"So for those of us who have paid off houses and good credit (many people here) you recommend us to mortgage out our houses and invest money into equities?"

No. For you (you being someone who is retired with no mortgage) it is too late. The time to start investing is long before you retire, when you have a low mortgage payment that you can pay out of your paycheck.
That's my statement. BTW I am not retired and I just elected to have no mortgage since age 35-36. And no I will not work as janitor when I turn 70 since Dividend yield on my portfolio is more then I currently spend.

I think haha got it right. Everybody adores what they have and what decisions they made.
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Old 07-31-2014, 07:39 AM   #55
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Im ERd, my house payment is 238 dollars a month including taxes and ins
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Old 07-31-2014, 08:30 AM   #56
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Not yet retired. Reading this thread while at work. I now officially have "putz" envy!
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Old 07-31-2014, 08:33 PM   #57
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I'm not sure if your followed the entire thread, but the author of the piece cited by the OP indicated that having a paid off mortgage is "really critical" to a happy retirement and I'm just agreeing with samclem that the author's view that a paid off mortgage is critical to a happy retirement is balderdash and explaining why I think it is balderdash.

I'm not recommending anything, but for those who can stomach the minimal risk and who aren't in effect betting their house on it, I think it is a good idea and it has worked out well for me over the years. And it really isn't equities, it is really a 60/40 mix of equities and fixed income. It seems silly to me to think that a prudent mix if investments can support a retirement of 30-40 years but can't similarly support a 15 year mortgage, especially since a mortgage doesn't inflate.

I plugged into firecalc assets equal to my refinance, spending equal to my mortgage payments with no inflation and a 60/40 asset mix - as if I took the refinance proceeds and put it into a 60/40 low cost fund and had the fund make the mortgage payments. Firecalc indicates a 90.7% success rate. The worst case outcome is that the fund would break before the mortgage is paid off and I would have to ante up an amount equal to about half of my refinance proceeds. On average after the mortgage is fully paid off I'll come out ahead by an amount equal to 2/3rds of my refinance amount. Best case is that I'll have 3 times my refinaced proceeds left in the fund after paying the mortgage off. A 90% chance of coming out ahead and a 10% chance of not sounds like a pretty reasonable "bet" to me given that I am by nature an averages player and am not risk averse.

If someone's home equity were 50% of their investable assets I wouldn't recommend it but in my case it is only 10% so it is low hanging fruit to me.
This book I feel is being characterized incorrectly. It is not the most important financial advice or how to retiree early, it is how to be a happy retiree. And in his study overwhelmingly the one characteristic of the most happy retirees is the fact they have no mortgage. No where does he say this is the best financial advice, although I think many here are equating total money with happiness. And in my run-in's with average retirees, the payoff of the mortgage is almost always met with joy by the people paying it off, so I won't argue with his point, even if I wouldn't plan on implementing that particular aspect.
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Old 07-31-2014, 09:08 PM   #58
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It is not the most important financial advice or how to retiree early, it is how to be a happy retiree. And in his study overwhelmingly the one characteristic of the most happy retirees is the fact they have no mortgage.
1. Characteristics of "happy retirees" ≠ "things you should do to be a happy retiree"
Examples: Most happy retirees are female. I will not get a sex change.
Most happy retirees are over 70. I'm not over 70, and I won't try to rush there.
Most happy retirees are drawing social security. I won't try to achieve this characteristic at the first opportunity.

But in his own interview the author says:
Quote:
Q: In the book there are 18 habits of happy retirees. Can you narrow your book down to three pieces of advice?


A: No. 1 is financial. Tackle your mortgage. It's such a critical component to all this. Happiness rises as years to pay off mortgage go down. Thus, tackling of the mortgage is really critical.
So his #1 tip for becoming a happy retiree is a financial tip, and it's only a so-so one, certainly not the most important financial tip for having a happy retirement.

Then there's the whole issue of root causation: The retiree with the resources to pay off his/her mortgage (and no need to hock the house to fund living expenses) probably has more resources in retirement accounts and savings. On the other hand, a retiree who is low on savings won't have the resources to pay off his mortgage (or he would be foolish to reduce his pile of liquid assets to pay it off). So maybe the richer retiree is happier because he has more resources, not because his house is paid off.


Retirement, and life, is too short to waste reading so-so books.
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Old 07-31-2014, 09:56 PM   #59
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Old 07-31-2014, 10:08 PM   #60
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ad hominem?
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