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Firecalc--accounting for mortgage?
Old 10-29-2018, 08:50 PM   #1
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Firecalc--accounting for mortgage?

Hoping someone can provide me with some pointers. We have a mortgage at a reasonably low rate that we intend to take into retirement. What is the best way to reflect the mortgage in firecalc. Given that it's limited in term and not subject to inflation, I would expect that the mortgage will impact the success rate, but not sure what the best method to assess that effect would be.
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Old 10-29-2018, 08:59 PM   #2
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Hoping someone can provide me with some pointers. We have a mortgage at a reasonably low rate that we intend to take into retirement. What is the best way to reflect the mortgage in firecalc. Given that it's limited in term and not subject to inflation, I would expect that the mortgage will impact the success rate, but not sure what the best method to assess that effect would be.
I would think you can reflect the yearly mortgage expense in the "Other Income/Spending" tab under "Off chart Spending" - showing an expense starting from xxx year on line 1 and showing income in xxx year when the mortgage ends on line 2. For both lines, you unclick the inflation adj box.
Perhaps not perfect, but a start.
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Old 10-29-2018, 09:03 PM   #3
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I would think you can reflect the yearly mortgage expense in the "Other Income/Spending" tab under "Off chart Spending" - showing an expense starting from xxx year on line 1 and showing income in xxx year when the mortgage ends on line 2. For both lines, you unclick the inflation adj box.
Perhaps not perfect, but a start.
so in this scenario, I would lower our annual expenses by the amount of the mortgage in the initial tab?
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Old 10-29-2018, 09:59 PM   #4
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Yes, exclude your mortgage from the spending amount on the Start Here page. Include your annual mortgage payments as non-inflation adjusted off chart spending... offset by a non-inflation adjusted pension when mortgage ends.

Or you could instead just reduce your nestegg as if the mortgage was paid and exclude mortgage payments from spending... as if you paid it off before retiring.
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Old 10-30-2018, 04:40 AM   #5
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If it were me I would do a couple of things:
#1) Do both of the steps listed above to ensure that the results are sufficiently close to each other.

#2) Try a run with no mortgage at all (ie assuming it is already paid off). Your results should be a bit better. If not, then perhaps you have a sign error somewhere.

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Old 10-30-2018, 07:31 AM   #6
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If it were me I would do a couple of things:
#1) Do both of the steps listed above to ensure that the results are sufficiently close to each other.

#2) Try a run with no mortgage at all (ie assuming it is already paid off). Your results should be a bit better. If not, then perhaps you have a sign error somewhere.

-gauss
#2 depends on a number of factors. Could be better or worse, I don't see that as a validation of anything.


The approach that pb4uski described is the right way to go about it, though even that isn't perfect. If you do a 30 year run with a 30 year mortgage, you never see the drop in spending. Plus you might bot have been able to get your current mortgage rate at each starting year in FIRECalc history, so I'm not sure that's totally valid.

I kinda go with a general outlook - say you have 10 years left on the mortgage, are the returns on your AA higher than your interest rate for most 10 year periods in history? I'd measure your 'risk tolerance' against that.

In general, pay-off or not, if you have a decent rate and a decent sized mortgage, is unlikely to make a big difference either way.

-ERD50
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Old 10-30-2018, 07:49 AM   #7
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#2 depends on a number of factors. Could be better or worse, I don't see that as a validation of anything.


The approach that pb4uski described is the right way to go about it, though even that isn't perfect. If you do a 30 year run with a 30 year mortgage, you never see the drop in spending. Plus you might bot have been able to get your current mortgage rate at each starting year in FIRECalc history, so I'm not sure that's totally valid.

I kinda go with a general outlook - say you have 10 years left on the mortgage, are the returns on your AA higher than your interest rate for most 10 year periods in history? I'd measure your 'risk tolerance' against that.

In general, pay-off or not, if you have a decent rate and a decent sized mortgage, is unlikely to make a big difference either way.

-ERD50
Thanks ERD, that #2 confused me too. Iím modeling 40 yrs and we recently bought, so have almost 30yrs at a pretty good interest rate. Itís a big chunk of spend and seems like over that time horizon, weíre better off keeping the mortgage and having $ invested. Maybe that doesnít hold true if asset allocation shifts as you get older.

Between this and our property taxes that have capped increase thatís below average inflation, itís a big chunk of spend that isnít subject to inflation. I may go back to the Fido calculator and see if I can model it better with that.

In general, this is one of the many buffers weíve built in that Iím assuming will help us to the positive side, but trying to get a feel for the magnitude of the different buffers.
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Old 10-30-2018, 08:07 AM   #8
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30 out of the 40 years. Why not just accept the mortgage payment during the 40 year analysis as a "safety factor"/"design allowance"/measure of conservatism and sharpen the pencil in other areas where you've rounded up. Or, if you usually shoot for 100% safety, maybe settle for 90 or 95% safety.
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Old 10-30-2018, 08:13 AM   #9
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I use the manual spending section in Firecalc and account for our mortgage there as part of our annual expenses. And in the year it pays off, I enter the new annual spending amount without the mortgage.
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Old 03-02-2019, 12:06 PM   #10
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Dtail suggests the following:
I would think you can reflect the yearly mortgage expense in the "Other Income/Spending" tab under "Off chart Spending" - showing an expense starting from xxx year on line 1 and showing income in xxx year when the mortgage ends on line 2.

I'm confused why you would enter an off-chart income line after the mortgage is done. Suppose I'm estimating my spending at $100K PLUS I have to pay my mortgage for 5 years after I retire. I get that I should enter the mortgage as an off-chart, non-inflating expense. But once it's paid off...why would I enter an off-chart income? Can someone say it again but use different words? I've re-read this thread (and a few others) a few times! Thanks in advance!
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Old 03-02-2019, 01:18 PM   #11
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Dtail suggests the following:
I would think you can reflect the yearly mortgage expense in the "Other Income/Spending" tab under "Off chart Spending" - showing an expense starting from xxx year on line 1 and showing income in xxx year when the mortgage ends on line 2.

I'm confused why you would enter an off-chart income line after the mortgage is done. Suppose I'm estimating my spending at $100K PLUS I have to pay my mortgage for 5 years after I retire. I get that I should enter the mortgage as an off-chart, non-inflating expense. But once it's paid off...why would I enter an off-chart income? Can someone say it again but use different words? I've re-read this thread (and a few others) a few times! Thanks in advance!
Because... it's paid off. You no longer have that expense.

By entering it as 'income' in the year it is paid off, you are 'tricking' FIRECalc - it now offsets the expense with an equal income, and they cancel out.

It would be clearer if you could enter an end date for the expense. But you can't, so this is the work-around. Make sense?

-ERD50
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Old 03-02-2019, 03:11 PM   #12
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FWIW, when I posted this I hadn’t realized that there is a manual spend option in firecalc. If you have expenses that you expect to fluctuate during retirement, I highly recommend paying to support the platform so you have access to this option. Almost all of the other calculators I’ve found assume static spend or attempt to model it for you.
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Old 03-02-2019, 05:53 PM   #13
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FWIW, when I posted this I hadnít realized that there is a manual spend option in firecalc. If you have expenses that you expect to fluctuate during retirement, I highly recommend paying to support the platform so you have access to this option. Almost all of the other calculators Iíve found assume static spend or attempt to model it for you.
The Fidelity calculator does provide some flexibility for input for variable spending.
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Old 03-02-2019, 07:43 PM   #14
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Because... it's paid off. You no longer have that expense.

By entering it as 'income' in the year it is paid off, you are 'tricking' FIRECalc - it now offsets the expense with an equal income, and they cancel out.

It would be clearer if you could enter an end date for the expense. But you can't, so this is the work-around. Make sense?

-ERD50
I agree that the workaround works, but it is ridiculous that they don't have a separate line or section where you can put in your annual mortage payments and the year that the mortgage ends... and the program just include an additional fixed cash outflow from inception to the end year.
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Old 03-02-2019, 08:30 PM   #15
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The Fidelity calculator does provide some flexibility for input for variable spending.
Yes, the fidelity calculator is great. The one thing neither tool does well is account for the fact that most mortgages are not inflation adjusted.
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Old 03-02-2019, 08:50 PM   #16
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The workaround in FIRECalc does... just uncheck the inflation adjusted box for the off-chart spending and for the offsetting "pension".

Or another workaround is to reduce your portfolio by your mortgage and reduce you spending by your mortgage payment... as if you paid of your mortgage at the beginning of retirement.... that wokrs real well if you don't have many years of mortgage payments left.
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Old 03-02-2019, 11:21 PM   #17
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I had a thread on this same question a few months ago. What I ended up doing was reducing spending by the amount of the yearly mortgage payments. Then I put in non-inflation adjustment spending in the amount of the mortgage. Mortgage is less than a year old and the plan is for 30 years so I just assume it will continue for the entire time.

I found that doing it this way did increase the success of the plan.

Carpediem - the problem with your solution which is what I was originally doing is that the mortgage amount is increased by inflation each year when I have a fixed rate mortgage. Over 30 years that makes a significant difference.
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Old 03-03-2019, 08:12 AM   #18
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What I ended up doing, to see the impact of inflation, was to adjust down the mortgage each year in my spending model, relative to my inflation assumptions. This was the easiest way for me to see the real change over time and then gave me a total spend I could enter in the manual spend portion of firecalc.
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