Lisa99
Thinks s/he gets paid by the post
- Joined
- Aug 5, 2010
- Messages
- 1,440
...other than to give it to you!
The volatility of the market of late has me concerned so I re-ran some numbers in Firecalc which leads to my question.
The background:
Today we're investing all excess cash into index funds. A subset of the investment is $24k/year which is DCAed in VG on a bi-weekly basis. We also have 3 rentals, all of which have mortgages since we're in a high tax bracket and do not want to pay income tax on the rents received.
My question:
FireCalc says that we will have $5k more to spend per year in retirement if we have one of the rentals paid off in the year we retire (5 years from now). To do this would require channeling the $24k from Vanguard to paying extra on the mortgage (mortgage is 7%).
We paid $125k for the rental and have invested another $10k so we're in it for $135k. Total cash flow once paid off will be $10,392/year which includes the management fee and taxes which is a 7.7% return on our money. ($10392/$135,000 = 7.7%)
So, with a 7.7% return (if I've done the math right??) and with FireCalc saying that we'll have $5,000 more in retirement income than if we put the money into the market, is paying off the mortgage the right thing to do purely from an investment return decision?
My question boils down to: am I looking at the options for excess cash in the right way and are my return calculations being done correctly?
Thank you as always for your guidance.
The volatility of the market of late has me concerned so I re-ran some numbers in Firecalc which leads to my question.
The background:
Today we're investing all excess cash into index funds. A subset of the investment is $24k/year which is DCAed in VG on a bi-weekly basis. We also have 3 rentals, all of which have mortgages since we're in a high tax bracket and do not want to pay income tax on the rents received.
My question:
FireCalc says that we will have $5k more to spend per year in retirement if we have one of the rentals paid off in the year we retire (5 years from now). To do this would require channeling the $24k from Vanguard to paying extra on the mortgage (mortgage is 7%).
We paid $125k for the rental and have invested another $10k so we're in it for $135k. Total cash flow once paid off will be $10,392/year which includes the management fee and taxes which is a 7.7% return on our money. ($10392/$135,000 = 7.7%)
So, with a 7.7% return (if I've done the math right??) and with FireCalc saying that we'll have $5,000 more in retirement income than if we put the money into the market, is paying off the mortgage the right thing to do purely from an investment return decision?
My question boils down to: am I looking at the options for excess cash in the right way and are my return calculations being done correctly?
Thank you as always for your guidance.