Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 08-06-2008, 09:24 PM   #21
Full time employment: Posting here.
 
Join Date: Oct 2003
Posts: 961
Quote:
Originally Posted by cute fuzzy bunny View Post
Except that inflationary pressure exerts equally on your investments and the loan.
Eh, not if you're investing in TIPS. I'd gladly put LT TIPS into a deductible IRA or Roth vs paying down the mortgage. And then pray for inflation.

I'd also gladly put money into a 529 [most likely the guaranteed tuition type] than pay down the mortgage. That is until the gov't takes away the tax free earnings on the 529.
__________________

__________________
ats5g is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-06-2008, 09:43 PM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Funny, I originally typed "and the loan, unless you invest in TIPS or another safe CPI indexed investment" and then erased the last bit because it muddied the water and didnt produce a happy result. We're just terribly unlikely to have 10-15 years worth of super high inflation and if that doesnt materialize, you'll be eating it on the ~2% real payout.

A frequent error is to crow about inflation eating away at the value of the loaned dollars without taking into consideration that the same inflation is eating the invested principal at the same rate.

You cant get the thing to work unless you take the mortgage money and put it in equities, stay in the house a good long time, keep a big emergency stash, and break out the brass balls and stay in your asset allocation no matter what.

Seems to me to be a lot of aggravation to net a percent or two on a couple of hundred grand.
__________________

__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 08-07-2008, 06:11 AM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
My rule is pretty simple. If your mortgage is below 4.5% keep it. If it is above 6.5% pay it off, if it is between those two numbers do whatever makes you feel best.
__________________
clifp is offline   Reply With Quote
Old 08-07-2008, 09:31 AM   #24
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
I think the difficulty is that the vast majority of people have something in the 5-6% range.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 08-07-2008, 10:27 AM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,409
My rule is rent.

It seems I never follow my rule - with a paid up mortgage pre Katrina and a 5.75% 30 yr post Katrina.

But at least I have a rule.

heh heh heh - Don't read books! Pssst - Wellesley, etc. etc.
__________________
unclemick is offline   Reply With Quote
Old 08-07-2008, 07:19 PM   #26
Recycles dryer sheets
 
Join Date: Feb 2008
Posts: 147
FWIW I paid off our mortgage at the earliest opportunity, after selling back some company ownership. Always had maxxed IRA's and 401K's. Didn't do a lot of math to justify the decision. It was a guaranteed 6+% return, simplified my recordkeeping, and meant my family would always have a roof. I would only consider mortgage debt for investment property, and probably will shy away from that, given a propensity for simplicity in financial affairs.
__________________
headingout is offline   Reply With Quote
Old 08-10-2008, 11:53 AM   #27
Recycles dryer sheets
Gardnr's Avatar
 
Join Date: Jul 2008
Location: ENE MO - near STL
Posts: 424
Quote:
Originally Posted by cute fuzzy bunny View Post
Its a nice hedge if you're still earning a living through wage adjusted earnings or have an inflation indexed pension.
This is my situation (military pension; COLA adjusted, of course) and thus why I've elected to not prepay the mortgage any more. It's currently scheduled to pay off in 2025 and I have an $88,000 balance at 6% fixed. My pension supplies 67-80% of my required income.

If rates drop down again to where I could get 6% or lower on a 30 yr, I'm considering refinancing my balance to spread it out and lower my payment, thus reducing my required draw on assets for the income required over what my pension supplies. I really think the hedge on inflation angle is valuable.

I could also go one step further and take cash out on the refi up to an 80% LTV. It makes sense if I really believe the inflation hedge theory.

Of course who knows when/if we'll see rates drop down again to that level so if may be a moot point.

Thoughts anybody? I know all the standard arguments for/against paying off the mortgage so please don't cover that ground again. I'm just interested in thoughts on the inflation hedge angle that CFB points out.
__________________
Gardnr is offline   Reply With Quote
Old 08-10-2008, 09:00 PM   #28
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,619
Quote:
Originally Posted by Gardnr View Post
This is my situation (military pension; COLA adjusted, of course) and thus why I've elected to not prepay the mortgage any more. It's currently scheduled to pay off in 2025 and I have an $88,000 balance at 6% fixed. My pension supplies 67-80% of my required income.
Thoughts anybody? I know all the standard arguments for/against paying off the mortgage so please don't cover that ground again. I'm just interested in thoughts on the inflation hedge angle that CFB points out.
CFB and I have been batting this around for over four years now:
http://www.early-retirement.org/foru...not-14632.html
http://www.early-retirement.org/foru...ets-15237.html
http://www.early-retirement.org/foru...ney-30644.html

COLA pensions are one of the niches optimized for success at investing the mortgage money, although it still requires a tolerance for the volatility of a high-equity asset allocation. You also don't want to be paying more in mortgage interest than you're earning in bonds, so your bond allocation goes to zero. But then your military pension is the equivalent of TIPS or I-bonds so you probably don't want to be holding bonds anyway.

The bet strategy works best over a 30-year stock market, but it's also handy when CD rates exceed your mortgage. We have a 5.375% mortgage and I'm really gonna miss those PenFed 6.25% CDs when they roll over in another 18 months.

If rates drop down again you may not only want to refinance, you may want to start over. Our 30-year mortgage will be paid off in 2034, when I'll be 74 years old...
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 08-10-2008, 09:18 PM   #29
Recycles dryer sheets
Gardnr's Avatar
 
Join Date: Jul 2008
Location: ENE MO - near STL
Posts: 424
Quote:
Originally Posted by Nords View Post

COLA pensions are one of the niches optimized for success at investing the mortgage money, although it still requires a tolerance for the volatility of a high-equity asset allocation. You also don't want to be paying more in mortgage interest than you're earning in bonds, so your bond allocation goes to zero. But then your military pension is the equivalent of TIPS or I-bonds so you probably don't want to be holding bonds anyway.

The bet strategy works best over a 30-year stock market, but it's also handy when CD rates exceed your mortgage.
Yep, exactly what I was thinking in terms of allocation. I can stomach the high equity allocation.

I am planning on some portion in cash equivalents (ala the bucket strategy) to supply the income I want over and above the pension amount, but I haven't settled on just how much yet. Still working through that.

Quote:
If rates drop down again you may not only want to refinance, you may want to start over. Our 30-year mortgage will be paid off in 2034, when I'll be 74 years old...
Yep, that's what I was referring to by the cash out refi on a new 30 yr mortgage. I'll have to keep it in mind and watch mortgage rates for a good execution point. Maybe I can beat you and go out to 76 yrs old!
__________________
Gardnr is offline   Reply With Quote
Old 08-10-2008, 11:19 PM   #30
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Quote:
Originally Posted by Nords View Post

COLA pensions are one of the niches optimized for success at investing the mortgage money, although it still requires a tolerance for the volatility of a high-equity asset allocation.
Or you could pay off the mortgage, let all of the inflation stuff work in your favor instead of neutralizing it, pick any asset allocaion that you like, and drink a shitload of pina coladas with no concerns whatsoever.

Over 30 years of ironman investing you might be up a little bit. Might even cover the cost of all that pineapple juice and sweetened coconut milk....coco lopez is recommended...
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 08-11-2008, 01:35 AM   #31
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,619
Quote:
Originally Posted by Gardnr View Post
I am planning on some portion in cash equivalents (ala the bucket strategy) to supply the income I want over and above the pension amount, but I haven't settled on just how much yet. Still working through that.
We keep two years' expenses in a CD ladder going out as long as seems reasonable for the yield curve. (Currently about three years.) We replenish the ladder in up years and consume it in down years. The nice thing about PenFed is that they give the same great rates in smaller CDs so that there's less penalty for breaking one during a semi-decennial bear market. Hasn't happened yet but we'll give this current environment another 18 months.

Quote:
Originally Posted by cute fuzzy bunny View Post
Or you could pay off the mortgage, let all of the inflation stuff work in your favor instead of neutralizing it, pick any asset allocaion that you like, and drink a shitload of pina coladas with no concerns whatsoever.
Over 30 years of ironman investing you might be up a little bit. Might even cover the cost of all that pineapple juice and sweetened coconut milk....coco lopez is recommended...
All of that money was burning a hole in our pockets in 2004, but four years later I can forecast a lower-volatility trend in our investor psychology. We unexpectedly won the rental lottery when our parents-in-law moved out, and soon those home improvements will be paid off from the tenant's cash flow. But in a couple decades I'll probably be a more conservative investor. I'll be hiking my jams up to my armpits and grumbling at those dang boogie-boarding grommies to get off my wave.

A typical Hawaii mortgage is pretty sizeable, and ours is a sixth of our ER portfolio. If past investment returns are prologue then when our mortgage is paid off we'll need a swimming pool for the coco locos. I'll be happy if our 5.375% nets 6% after taxes... for three decades.

But mortgage arb is a relatively benign vice compared to the trouble we could get ourselves into. It soaks up a lot of UncleMick's testosterone poisoning and gives me pause when I consider what it'd take to do angel investing right. I'm not sure if I'll ever be ready to take that step, let alone trading options.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 08-11-2008, 04:30 AM   #32
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
Quote:
Originally Posted by mergeberger View Post
I was having a retirement discussion with my coworker the other day about spending money in the short term to save money in the long term. I believe liabilities like car payments, mortgage, and other bills should be paid off to a manageable minimum to go into retirement. My coworker has a mortgage that he pays very little into the principle, placing that money instead into an IRA. He believes the IRA is a better investment right now. But I say he's only prolonging his liability, which will bite him down the road. What's your thoughts?
How old is the coworker?

IMO - one key issue depends the person's age. If the coworker is 25... I think holding the mortgage and investing in a IRA is the correct approach. On the other hand, if the coworker is 65... paying off the mortgage would be a priority.

There are a number of variables to consider... including the financial sophistication of the person.

If the person has a large amount of money (other assets) relative to the mortgage principal... then the amount they will gain from investing borrowed money is relatively low (why do it... little benefit). On the other hand if the relative amount of the mortgage principal is high compared to other assets, they are risking their home to invest in the market.


Personally... The older I get, the more important it is for me to own my home free and clear.
__________________
chinaco is offline   Reply With Quote
Old 08-11-2008, 09:21 AM   #33
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Quote:
Originally Posted by Nords View Post
But mortgage arb is a relatively benign vice compared to the trouble we could get ourselves into.
I do have to remember that you spent many years in a tin can, underwater, with a live nuclear reaction happening up the hall. Investing risk is pretty low on the totem pole.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 08-11-2008, 06:37 PM   #34
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,619
Quote:
Originally Posted by cute fuzzy bunny View Post
I do have to remember that you spent many years in a tin can, underwater, with a live nuclear reaction happening up the hall. Investing risk is pretty low on the totem pole.
Good point-- my hedonic treadmill is perpetually uphill...
__________________

__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Transitioning from semi-retirement to retirement? RDamien FIRE and Money 0 06-17-2008 02:01 PM
Paritioned portfolios of Target Retirement 20XX for each decade of retirement chinaco FIRE and Money 11 03-15-2007 06:06 PM
Retirement Accounts and Early Retirement heebygeeby Young Dreamers 9 03-14-2007 04:56 PM
Duration of retirement and size of retirement fund Cool Dood FIRE and Money 9 06-28-2006 09:34 AM
Retirement rate in retirement nellieb FIRE and Money 5 09-11-2005 02:14 PM

 

 
All times are GMT -6. The time now is 08:33 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.