Secrets of Early Retirement

[daylatedollarshort]

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.

 

[rayvt]

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Since retiring in 2006, we've withdrawn 1.5 times our mortgage balance, and the portfolio growth since then is also about the same as our mortgage balance.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

 

[rayvt]

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.

 

[eta2020]

"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.

 

[55nout]

Im ERd, my house payment is 238 dollars a month including taxes and ins

 

[BigE]

Not yet retired. Reading this thread while at work. I now officially have "putz" envy!

 

[Running_Man]

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.

 

[samclem]

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:

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.

 

[Running_Man]

Do you drive a BMW?

 

[samclem]

ad hominem?

 

[Running_Man]

ad hominem?

It was just a bad joke, in the book he stated that people with unhappy retirements are more likely to drive a BMW than a Honda. In combination with his study that showed that people that had mortgages were more likely to have an unhappy retirement and that the #1 car in this group was a BMW I thought it was a funny quip, but I didn't really think it through. Just stated that after watching the Last Comic Standing so jokes were on my mind, for some reason at the time I though that was funny but I can see how the intended humor would be missed.

 

[samclem]

It was just a bad joke, in the book he stated that people with unhappy retirements are more likely to drive a BMW than a Honda.

Gotcha. I figured it was a ref to the long-running series of "BMW drivers are jerks" jokes.

I've never owned a BMW . . . but I might still be a jerk.

 

[jerome len]

Here are my three items for a happy retirement......or, as I like to say the three items that make me the luckiest person in the world.
1. My health....without health I have nothing.
2. My family.....with my wife being my best friend.
3. Enough money to put a roof over my head and food on the table....no financial worries.
I have all of these and......if you have them, you too are the luckiest person in the world!

 

[rayvt]

Do you drive a BMW?

I do.

Which has a loan at 1.99%.

Have a mortgage, too, 30 years at 4%.

I'm retired, and quite happy. And collecting ~7% dividend yield on my portfolio of bonds and preferred stocks. Nobody has ever even tried to explain how I'd be happier or better off by cashing out the portfolio to pay off the mortgage and car note.

 

[ERD50]

But you are comparing apples with oranges. How much would you earn if you put your money into CDs which CAN be compared to mortgage. You would loose money

Hindsight 20/20.....

I agree, you need to compare investments with the same risk.

And I don't agree.

All you have to do is understand and accept the difference in 'risk'. After all, what is an Asset Allocation other than having different assets with different 'risk' profiles? So one can decide to trade the relative safety of eliminating the interest payment for the volatility and reasonable expectation of long term returns in the market. They should consider how this fits their overall AA.

Let me ask you this: If you feel this way, do you advocate absolutely zero investment in anything until the mortgage is paid off? It seems anything else is hypocritical, unless you can get zero-risk investment at above your mortgage rate (not likely). That would leave a lot of people out of the market for a long time. Heck, I guess you are saying they should even forego a company match on a 401K, because even with a 50% match, well, stocks can drop that much - there is no guarantee. If you want Apples-to-Apples, isn't that it?

-ERD50

 

[Chuckanut]

I do.
Which has a loan at 1.99%.

1.99% on a BMW??

My Toyota has a 0.9% loan, less than 1/2 your rate. Why are you so profligate?

Of course, compared to my child, who has a 0% loan, we are both rather imprudent.

 

[eta2020]

And I don't agree.

All you have to do is understand and accept the difference in 'risk'. After all, what is an Asset Allocation other than having different assets with different 'risk' profiles? So one can decide to trade the relative safety of eliminating the interest payment for the volatility and reasonable expectation of long term returns in the market. They should consider how this fits their overall AA.

Let me ask you this: If you feel this way, do you advocate absolutely zero investment in anything until the mortgage is paid off? It seems anything else is hypocritical, unless you can get zero-risk investment at above your mortgage rate (not likely). That would leave a lot of people out of the market for a long time. Heck, I guess you are saying they should even forego a company match on a 401K, because even with a 50% match, well, stocks can drop that much - there is no guarantee. If you want Apples-to-Apples, isn't that it?

-ERD50

We are talking about retired people not people working and contributing to 401k.

8 secrets for success from early retirees - Andrea Coombes' Working Retirement - MarketWatch

If I was retired I would not want mortgage unless it beast CD rates just like Wes Moss writes in his book. But yes if you are working max out 401k first.

 

[ripper1]

+1 I refinanced at 3.375% in early 2012 just before I retired (but after I stopped working - I was "on vacation"). Since then my portfolio has averaged a 14.7% annual return so I'm ahead 11.3% a year. Since I retired my portfolio has increased more than my entire mortgage and that is after withdrawals for living expenses.

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.

+2........I also have a 3.375% mortgage at 30 years in 2012. With inflation and effective rate after writeoff this is essentially free money to me. My income sources easily handles this payment and I also could pay off mortgage at any time but I will keep the bank's money...thank you.

 

[foxfirev5]

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

Ha

Exactly. No need to endlessly debate the virtues of a mortgage or other financial paths. To me my home is a I built it, I bought it, I own it and I'm happy. I also use a buckets strategy (shudder) for my investments. In the end, if I'm happy, does it really matter all that much?

 

[ERD50]

We are talking about retired people not people working and contributing to 401k. ....

Yes, but the concept is the same in determining alternatives for how the money can be used.

People can do what they want, but it's not a 'slam dunk' that a retired person is better off w/o a mortgage. Assuming adequate liquidity, assuming a good rate on the mortgage, I'd say it is one of the least important decisions for a retiree.

-ERD50

 

[ripper1]

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.

Well, a better circumstance which we used after I retired was selling my paid off house and putting down 20% on new one and investing the rest.

 

[travelover]

.......... we are both rather imprudent.

Viagra works for that.