Here’s What a $2 Million Retirement Looks Like in America - WSJ

[38Chevy454]

+1

“I’m not as good as I once was, but I’m as good once as I ever was.”

I’m no gym rat, but the androgens have fallen. It takes a more conscious effort to keep my boyish physique. [emoji39]

Related to bolded part, as I say "I can still do all the things I used to at half my age, but now it hurts twice as much and takes twice as long to recover"

 

[Yipper]

Mortgages aren't bad at all if the interest you're paying is lower than what you can earn by putting your money in the market. Some people prefer to have no debts however for purely emotional reasons (they simply sleep better) and nothing is wrong with that either.

Exactly - I don't really get the confusion with all these comments about a mortgage impacting my monthly budget. We had zero mortgage for a few years but were presented with a real estate opportunity in mid-2018 that would have required cashing out some taxable investments with painful capital gains taxes associated... so with rates below 3% we decided on a mortgage to fund the real estate purchase. I've recently sold our share in the real estate and have the taxable proceeds invested in i-bonds and TIPS right now. Could I use these funds to pay off the mortgage at any time? Sure can! But why unless I find that I can't beat the 2.75% rate on the mortgage?

 

[brett]

I have never understood why mortgages or HELOC's are bad after retirement.

Seems to me that it comes down to math.

If you a 3 point mortgage or HELOC and you can, or are, realizing 6 percent on your investments you are ahead. Given that your risk exposure is reasonable.

My BIL has been doing this for the past 15 years of his retirement. He has paid for a new roof, multiple vacations, and more by doing this.

He looks at the numbers from a pre tax and an after tax perspective each year.

 

[flyingaway]

I have never understood why mortgages or HELOC's are bad after retirement.

Seems to me that it comes down to math.

If you a 3 point mortgage or HELOC and you can, or are, realizing 6 percent on your investments you are ahead. Given that your risk exposure is reasonable.

My BIL has been doing this for the past 15 years of his retirement. He has paid for a new roof, multiple vacations, and more by doing this.

He looks at the numbers from a pre tax and an after tax perspective each year.

When you have a 50/50 portfolio and your bond fund yield is 2%, does it make sense to pay off the 3% mortgage?

 

[Car-Guy]

Related to bolded part, as I say "I can still do all the things I used to at half my age, but now it hurts twice as much and takes twice as long to recover"

Same here... These days I "plan or think about how to do" the more strenuous physical activities rather than just using brute force and I take my time. Oh, and I have really noticed this year that the summer heat is a killer... I've postpone a number of things until the fall when it's not as hot. (that's my excuse this year anyway and the DW is buying it )

 

[Andre1969]

Same here... These days I "plan or think about how to do" the more strenuous physical activities rather than just using brute force and I take my time. Oh, and I have really noticed this year that the summer heat is a killer... I've postpone a number of things until the fall when it's not as hot. (that's my excuse this year anyway and the DW is buying it )

Yep, same here. About 5-6 weeks ago, I had to replace a sway bar bushing and bracket on my '67 Catalina convertible. The bushing itself was pretty shot, but the bracket itself had rusted, and broken, allowing the bushing to slide inboard, so the sway bar would hit the frame when I went over a bump.

Once upon a time, a job like that would have been no sweat. But I swear, that car beat me up!

 

[Romer]

I think I may have spun this up discussing paying off my Mortgage. I had a 15 year Mortgage at 2.75% with 3 years left to go with a $2800 a month payment.

The market was at its peak (unknown to me) and I had more than I needed to live past 110 years old. So I sold 500 shares of Disney at $191 a share and paid off my mortgage. At the time it was an emotional item as that was one of my personal pillars of being able to retire. It allowed me to lower my risk if the market tanked and it made me feel more confident in pulling the plug, which I did a year later.

I am one to hold investments in a down market and when the market tanked, that is what I did watching the balance of my Disney drop to around $90 a share.

I had been putting the $2800 a month in savings before I retired. When Disney got below $100, I bought back that 500 shares with what I had saved and also paid the taxes from that original 500 share sale.

So, due to no brilliance on my part, my mortgage is paid off, I have reduced my expenses by $2800 a month and as a result I don't have to sell anything in a down market to make up for that. Additionally, My Disney stock share balance is exactly what it was before I paid off my mortgage. As I said, I would have held onto that in a down market. I would still have 18 months to pay off my mortgage now with aa $2800/m payment if I hadn't done that.

It is luck I admit and not why I paid mine off. If I hadn't paid it off, I likely would still be working as that is the way I am wired. Everyone is wired differently and has their own preferences for what they would do. I agree in normal cases, paying off a low interest loan early does not mathematically come out ahead and I am not arguing with that.

My 3 pillars to retire have been for the last 10 years:
1) Pension starts- Full value at 60 ($50K)
2) House Paid off
3) Enough to live life the way I was with a min 20% buffer including inflation until 100 years old (Doesn't include house as that is an additional buffer)

I achieved my 3 pillars last September (2021), but continued to work until I had wrapped up some key things that were important to me and make a clean transition in March 2022. In appreciation, my boss let me switch to part time so my 400 hours of vacation stretched into early August providing low cost healthcare and 401K Matches.

I am not arguing for paying off a Mortgage. Mathematically it isn't the right thing in a normal market. For me, it was the right thing based on my personal set of preferences and what makes me comfortable

 

[cyber888]

Well, talking about debt & mortgages. I don't have a mortgage, but I have a HELOC with a balance of $55K at 4.49% which I pay around $300/month, but I also have iBonds of $55K earning 9.62%.

If inflation persist, iBonds will continue to give out high rates of 7.5% - 9.6%, and the Fed rate may taper off somewhere 3.5% - 4.0%, and my HELOC will be somewhere around 5.25% - 6% .. IBonds should still earn higher interest rate than my HELOC.

 

[daylatedollarshort]

You will always make money if your investment rate, after taxes, is higher than your mortgage rate, after taxes. It is just math. Not having a mortgage may help with cash flow, but it does not increase your income. If, after taxes are accounted for, you have a $100K mortgage at 5%, and invest at 6%, you will make $1K a year on the interest difference. The principal part of your mortgage does not change your net worth. It just changes where the money is, checking account vs. home equity.

If you believe this is wrong, show me the math.

 

[daylatedollarshort]

Not having to Pay ~$2,000 a month in payments (Guess at 25% of our home value @~3.25%), satisfaction, more money to invest, No Debt, to name but a few.

You have less money to invest because if you still had the 25% mortgage you would have that entire mortgage amount to invest. If the paid off mortgage brings you satisfaction and a sense of security then that is the right choice for you. But mathwise, it gives you 25% of the home value less to invest.

 

[daylatedollarshort]

When you have a 50/50 portfolio and your bond fund yield is 2%, does it make sense to pay off the 3% mortgage?

No, but the answer for many of us is to not invest in bond funds paying 2% when one year, risk free Treasuries are paying 3.68%, which is covered in many other threads lately, whether we have a mortgage or not.

 

[Dtail]

No bond funds for me and no mortgage either.

 

[bookman51]

I have not read all the responses, but the profiles are interesting. I still think it a good idea to have the house mortgage paid off and be debt free going into retirement. Their spending generally seems high to me. Happiness and financial security has a lot to do with understanding the difference between "wants" and "needs." My wife and I seldom eat out and we do not have a vacation home. I guess we have tempered our "needs" enough to be both happy and financially secure. I have been retired more than ten years and have never been bored, and I avoid volunteering for things that I do not enjoy. Life is good.

 

[COcheesehead]

When you have a 50/50 portfolio and your bond fund yield is 2%, does it make sense to pay off the 3% mortgage?

The problem in your example is your bonds. There are sooooo many options today in fixed income. I get 2.21% on my money market alone which is virtually risk free. You should easily be able to get 5% on bonds today.

 

[MarieIG]

“Recently”…?

https://www.early-retirement.org/fo...thout-losing-your-ass-ets-15237.html#msg20740

June

 

[brett]

You will always make money if your investment rate, after taxes, is higher than your mortgage rate, after taxes. It is just math. Not having a mortgage may help with cash flow, but it does not increase your income. If, after taxes are accounted for, you have a $100K mortgage at 5%, and invest at 6%, you will make $1K a year on the interest difference. The principal part of your mortgage does not change your net worth. It just changes where the money is, checking account vs. home equity.

If you believe this is wrong, show me the math.

EXACTLY.

After that it comes down to your appetite for risk and your personality. Some people do not want to carry debt of any kind. I understand that.

Buy...there are some retirees who make debt work harder for them than it does for the lender.

 

[Scuba]

This is one concept I have trouble wrapping my mind around. The principal/interest portion of my mortgage is about $1942/mo, so close to that. I can understand the concept of no debt, peace of mind, etc.



But where I tend to balk is the idea of more money to invest. While it would be nice to have that $1942/mo available to invest or do whatever, it would cost me about $448,000 of money that's already invested, to free up that money.



So the way I look at it, I'm trading $448K in money, that can be invested, just to free up $1942/mo? I could just take the $1942/mo out of the $448K.



I guess, once the mortgage is toward the end of its life, it might make more sense to just pay it off. So where you are, in the mortgage cycle might also play on your decision to pay off or not. And, naturally, the higher the interest rate, the more incentive I could see.

This is also how I look at it. The math supports keeping a mortgage if the interest rate is low enough that investment returns are likely to exceed interest costs. For me, the extra liquidity gives me peace of mind, whereas for others, they’d rather have no debt than an extra pile of cash.

 

[luckydude]

You will always make money if your investment rate, after taxes, is higher than your mortgage rate, after taxes. It is just math. Not having a mortgage may help with cash flow, but it does not increase your income. If, after taxes are accounted for, you have a $100K mortgage at 5%, and invest at 6%, you will make $1K a year on the interest difference. The principal part of your mortgage does not change your net worth. It just changes where the money is, checking account vs. home equity.

If you believe this is wrong, show me the math.

You're right, but IMO for most forum members who are FIRE, the extra $1k or 2K or $5k in yearly income from this interest rate arbitrage is, in the grand scheme of things, rather trivial. It's like nibbling at the edges of a big cake. Sure, it's nice to have, but it's really not going to make a meaningful difference to a retiree's financial situation.

I concede that if this interest rate arbitrage is done on a really large mortgage (e.g. 7-figure), the difference could be meaningful. But I doubt anyone on this forum is carrying a, say, $2 million mortgage into retirement. I could be wrong of course.

 

[daylatedollarshort]

You're right, but IMO for most forum members who are FIRE, the extra $1k or 2K or $5k in yearly income from this interest rate arbitrage is, in the grand scheme of things, rather trivial. It's like nibbling at the edges of a big cake. Sure, it's nice to have, but it's really not going to make a meaningful difference to a retiree's financial situation.

I concede that if this interest rate arbitrage is done on a really large mortgage (e.g. 7-figure), the difference could be meaningful. But I doubt anyone on this forum is carrying a, say, $2 million mortgage into retirement. I could be wrong of course.

I used the $100K and a 1% difference to have a simple example in my previous post. In my first example in this thread, I used a $300K mortgage, 6% difference between low fixed rate mortgage and investing in TIPS and I bonds. The difference currently could easily be $18K, which can then be invested each year to make even more money. Even at $500 average for 30 years, that is $15K, plus the investment income on the $15K.

We have a current thread on saving money on buy nothing groups, freecycle sites, deals at Dollar Tree and Dunkin Donuts, so it seems like a lot of posters here would be pretty happy with an extra $1K or $500 a year, and thrilled with the $18K or even more on the mortgage differential.

 

[brett]

Why assume that the spread is 1 point.

I know of at least one retiree who has done significantly better than that over the past 15 years.

We do not do it in retirement.

We did it years ago. Bought in the ditch, sold near the top. It was very worthwhile. We are more risk averse now.

My BIL has been averaging above 4 points for the past 15 or so years. He is conservative and limits his exposure to $300K

 

[ShokWaveRider]

My BIL has averaged 4 points over the past fifteen years.

+1 Us too. NW (Not including increase is home price) has increased every year since retirement.

Having trouble spending more, especially as travel has decreased over the last 3 years. Hopefully that will change. Although DW and I are concerned as I am compromised and DW is too protective.

 

[finnski1]

Yep, same here. About 5-6 weeks ago, I had to replace a sway bar bushing and bracket on my '67 Catalina convertible. The bushing itself was pretty shot, but the bracket itself had rusted, and broken, allowing the bushing to slide inboard, so the sway bar would hit the frame when I went over a bump.

Once upon a time, a job like that would have been no sweat. But I swear, that car beat me up!

Used to have a 66 Bonneville and a 68 Pontiac Executive. Fond memories.

 

[brett]

There is no right or wrong answer.

Simply based on one's aversion to debt, one's risk tolerance, and one' ability to borrow at low rates and realize investment returns at a higher rate.

Whether the gain gets spent or saved is not really issue.

We do not need any more money. We do not live off our equity. That does not mean that we are no longer active in the market or that we do not want our equity to grow.

 

[Car-Guy]

Used to have a 66 Bonneville and a 68 Pontiac Executive. Fond memories.

Ah yes, they were in the class of what we called "land yachts" back in the day. Mine was a Grandville w/455. What a beast!

 

[finnski1]

Ah yes, they were in the class of what we called "land yachts" back in the day. Mine was a Grandville w/455. What a beast!

Hah. My 66 Bonneville had a 389 four barrel. I could actually get almost 17 mpg until I stepped on it and opened up the 2 extra barrels. Then I made frequent stops at the gas station.