My Dave Ramsey moment

[pb4uski]

.... Since mortgage is a fixed legal obligation, wouldn't a better benchmark be Bond or CD returns?

IMO, it all depends on where the money to pay off the mortgage comes from and whether or not you adjust your AA... the relevant rate for the mortgage payoff decision is the rate that the money used to pay off the mortgage was earning.

So if you keep the same AA then the relevant rate is the expected rate of return for the portfolio. OTOH, if you change your AA then the relevant rate is the rate on the component that you reduced.

For example, prior to December 2019 my AA was 60/35/5. The 5% cash was established shortly after I retired and was a security blanket thing and I had regularly rebalanced to 60/35/5. The cash was in an online savings account the earned an attrative rate but had gradually declined to 1.7% in Dec 2019 (and is now only 0.6%).

I decided that I no longer needed the security blanket of having 5% in cash and to use that 5% to pay off our 3.375% mortgage. Since the 5% cash was no longer there my revised equity allocation would be 60/(60+35) = 63.2%, which I rounded to 65%, making my new AA 65/35/0. So in that situation, since i changed my AA, I traded not earning I 1.7% for not paying 3.375%.

If I had paid off the mortgage, kept the same AA and rebalanced to 60/35/5 and we assume that in the long run that a 65/35/5 portfolio earns 7% then the relevant rate for the mortgage payoff decision would be 7% compared to 3.375%.

It all comes down to the old economic principle of comparing marginal revenue to marginal cost. The marginal revenue is avoiding the 3.375% on the mortgage, the marginal cost is the 1.7% or 7% given up depending on whether I changed my AA or not.

 

[68bucks]

How does a person get Covid $'s while on SS?

 

[blueskyk]

I have done some part-time "fun" jobs since but it was the ability to learn to communicate and work as a team that was worth far more than the price of admission ($99).

^^^^This. After a DR class together, DH and I finally got hooked up to our financial sled and started pulling in the same direction. Looking back, working together financially was a real turning point for us that reaped benefits far beyond the $.

We still have our CC tho - didn’t agree with DR on that one...

 

[SpinDoctorTX]

How does a person get Covid $'s while on SS?

Oh my- something I can answer for once! We did. We paid no taxes last year b/c our taxable income is dinky so our deductions- just standard- were refunded. Income was super low- just DH SS (he took at 62) and my sm. pension, total abt. 35k. We both rec'd stimulus checks too. All other spending came out of liquid assets- that ended up rising yr. over yr.

 

[68bucks]

Oh that's right I forgot they just sent out money to everyone with income below a certain level, whether they needed it or not. Thanks for reminding me. We obviously didn't get it.

 

[SpinDoctorTX]

Oh that's right I forgot they just sent out money to everyone with income below a certain level, whether they needed it or not. Thanks for reminding me. We obviously didn't get it.

Yes. Spending of liquid assets had no effect (except on our happy lives, anyway). Until I take my SS (at 70 during 2030), we are gonna look poor to the IRS. I've got familial longevity and have planned to age 99 for us both just in case. GGM, GM died at 101, DM is still very spry at 84 driving from Houston to KY every year- sometimes as many as 3 times. DH has taken better care of his body than his ancestors, so he is a "who knows?". My super conservative calcs. have me leaving $ on the table even with a (to us) high spend rate.

I suspect most in here did not get any stimulus money. Being a part of the peanut gallery works just fine for me, though. Sadly, our entire travel budget is just sitting around, waiting for Nov. when we will have our snowbird cat-sitter back. DM didn't make her summer trip this year, but she is coming for the holidays no matter what.

 

[ShokWaveRider]

No Debt, No fret.

 

[Nick12]

Rather go to bed without dinner than rise in debt. Slaves to debt is what describes the USA.

 

[HawkeyeNFO]

Rather go to bed without dinner than rise in debt. Slaves to debt is what describes the USA.

"I will gladly pay you Tuesday, for a hamburger today" - Wimpy Wellington