Why can I not stop thinking about paying off my mortgage?!?!

[mathjak107]

At a 0% real return, over 30 years the safe withdrawal rate on a TIPS ladder is 3.33% (100 / 30 years = 3.33%). TIPS have their pros and cons, but the math is the math. At 1.3% the SWR is 4%, at 3% the SWR is 5%.

Safe Withdrawal Rate (SWR) with Treasury Inflation Protected Securities (prospercuity.com)

That does assume nothing left. That is what safe withdrawal rate means - how much you can safely withdraw each year before running out of money, not how much you can safely withdraw each year and still leave your portfolio intact or worth more than when you started after you die.

Perhaps I missed it, but can you please quote the part of the Kitces article that has the safe withdrawal rates on TIPS because I didn't see TIPS even mentioned in the article. TIPS real returns are known in advance and they don't have sequence of returns risk, so any articles on stocks and bonds and historical averages have nothing to do with the SWR on TIPS. They perform similarly to I bonds, only without the annual limits, and few other differences, like taxation.

He just provides a real return that mathematically was needed for 4% to have passed the already worst case scenarios .

It doesn’t matter what the investment is , the math is dependent on a 2% real return the first 15 years.


The failures all happened when returns fell below

 

[daylatedollarshort]

He just provides a real return that mathematically was needed for 4% to have passed the already worst case scenarios .

It doesn’t matter what the investment is , the math is dependent on a 2% real return the first 15 years.


The failures all happened when returns fell below

There are no sequence of returns risk or worst case scenarios with TIPS. Say you had $1M invested in 30 year TIPS with a 0% real yield and there was no inflation. Over 30 years you could take out $33.3K every year, $1M / 30 years = $33.3K. Your safe withdrawal rate would be 3.33%. The first 15 years are the same as the last 15 years.

Real return means the annual percentage of profit earned on an investment, adjusted for inflation. If there is no inflation or your remaining principal adjusts to account for inflation, then your withdrawal rate can be the same, in inflation adjusted dollars.

 

[mathjak107]

The problem is the cpi is not a real cost of living index , it is a price change index on loads of goods and services you may never use .

So trying to base your spending on cpi increases is likely not close to one’s personal cost of living .

The cpi does not consider how many times we buy an item , nor the quality of the item as higher end goods tend to have bigger price increases but last longer .

As humans we tend to make a lot different substitutions as well .


Location is a big factor also so averaging out the 1200 mini economies that make this country up with the cpi may be way off from one’s own location.

So personal cost of living can be quite different from a cpi adjustment so yes , sequence risk always exists

 

[daylatedollarshort]

The problem is the cpi is not a real cost of living index , it is a price change index on loads of goods and services you may never use .

So trying to base your spending on cpi increases is likely not close to one’s personal cost of living .

The cpi does not consider how many times we buy an item , nor the quality of the item as higher end goods tend to have bigger price increases but last longer .

As humans we tend to make a lot different substitutions as well .

So personal cost of living can be quite different from a cpi adjustment so yes , sequence risk always exists

That is not what sequence of returns risk means. Sequence of returns risk means the risk that an investor will experience negative portfolio returns very late in their working lives and/or early in retirement. You changed the subject entirely now from sequence of returns risk impacting TIPS safe withdrawal rates (it doesn't) to how accurate is the CPI.

CPI inflation not matching ones personal inflation rate is a different issue and, yes, of course it exists with any CPI inflation adjusted income stream, including Social Security. But in context of this thread, the CPI issue does not exist with offsetting a fixed rate mortgage with TIPS because the mortgage is fixed, not CPI adjusted. A low, fixed rate mortgage combined with an offsetting amount of TIPS is a good inflation hedge. The mortgage stays the same, the TIPS income goes up with inflation. The higher the inflation, the more the investor makes on the spread. If you have a 3% mortgage on a $200K loan and inflation goes to 13%, you profit by $20K a year.

 

[mathjak107]

The sequence of return risk is effected by real personal inflation, which causes more spending in some years then others.

Sequence of return risk is just as much effected by inflation driven spending as it is market returns and rates .


More spending then planned = more sequence return risk.

It is each years real return as it comes in , that makes up that sequence risk

 

[daylatedollarshort]

Sequence of return risk, as defined by Forbes, is "the risk that market declines in the early years of retirement, paired with ongoing withdrawals, could significantly reduce the longevity of a portfolio. Timing is everything, and in retirement early market declines, particularly if they are paired with rising inflation, can have a huge effect on how long a nest egg can sustain a retiree." - https://www.forbes.com/advisor/retirement/sequence-of-returns-risk/

You can make up your own definitions if you want, but that doesn't really pertain to any of the points in this thread about paying off a mortgage or inflation hedges.

 

[mathjak107]

It pertains to tips having zero inflation risk and simply dividing how much you have in tips and dividing by 30 years for predicting a withdrawal rate since actual inflation adjusted draws will be different in some years as opposed to others

 

[RetiredHappy]

Regarding the earlier post Medicaid not being able to touch the house, it is not that straight forward. While Medicaid cannot put a lien on the house, it does put a lien on it when passing through the estate, i.e. if husband goes on Medicaid and wife is still alive, wife can remain living in the home. When the wife passes on, Medicaid will get their money from the house to pay back money spent on the husband while on Medicaid. The only way around it is to put the house in a irrevocable trust and there is a 5-year look back period.

 

[mathjak107]

Regarding the earlier post Medicaid not being able to touch the house, it is not that straight forward. While Medicaid cannot put a lien on the house, it does put a lien on it when passing through the estate, i.e. if husband goes on Medicaid and wife is still alive, wife can remain living in the home. When the wife passes on, Medicaid will get their money from the house to pay back money spent on the husband while on Medicaid. The only way around it is to put the house in a irrevocable trust and there is a 5-year look back period.

The problem is in many states when the house is in a revocable trust it isn’t a case of Medicaid putting a lien on it .

It is a case of the house value becoming part of the assets that have to be spent down just to qualify for Medicaid.

When held in personal name , unless the house is over a certain value it is not part of spend down to qualify

 

[daylatedollarshort]

It pertains to tips having zero inflation risk and simply dividing how much you have in tips and dividing by 30 years for predicting a withdrawal rate since actual inflation adjusted draws will be different in some years as opposed to others

If you withdraw 4% the first year, CPI inflation goes up 1% the next year, the principal on the TIPS is adjusted by 1%. That is how the math works on the zero real yields.

I can't really add more to this. I think most posters here own I bonds and understand how the inflation adjustment works.

 

[RetiredHappy]

The problem is in many states when the house is in a revocable trust it isn’t a case of Medicaid putting a lien on it .

It is a case of the house value becoming part of the assets that have to be spent down just to qualify for Medicaid.

When held in personal name , unless the house is over a certain value it is not part of spend down to qualify

Different issue but also a problem. Don't trust SGOTI, go to an elder law attorney if someone is thinking of going that route.

In our case, we believe in paying for services and playing games to get other tax payers to pay for care when one has the money is ethically wrong.

 

[livingalmostlarge]

Keep it. But if you really want to then pay it off because it's all personal.

 

[daylatedollarshort]

It pertains to tips having zero inflation risk and simply dividing how much you have in tips and dividing by 30 years for predicting a withdrawal rate since actual inflation adjusted draws will be different in some years as opposed to others

Another explanation, perhaps clearer than mine, of the 0% real yield = 3.3% SWR, 1.3% real yield = 4% SWR here - TIPs vs total return portfolio in retirement - Bogleheads.org.

 

[mathjak107]

But when your personal inflation rate does not match the adjusted rate which it never does all bets are off on the math being the same.

Many have seen 15% -20% in rent hikes alone

 

[RunningBum]

But when your personal inflation rate does not match the adjusted rate which it never does all bets are off on the math being the same.

Many have seen 15% -20% in rent hikes alone

When you bring up rent in a discussion about mortgage and inflation in your 9th post in 24 hours, I think it's a sign that you've beaten this topic to death, no?

If mathjak doesn't take the hint, maybe everyone else can stop replying to him?

 

[Mulligan]

When you bring up rent in a discussion about mortgage and inflation in your 9th post in 24 hours, I think it's a sign that you've beaten this topic to death, no?

If mathjak doesn't take the hint, maybe everyone else can stop replying to him?

Ya, Im not so concerned about rent inflation. Personally I love inflation with my COLA’d pension. And unlike his concern about peoples personal rate being well above it, mine is well below it. In fact this past year has been a one time historical deflation year for me with a cola boost slapped on the other way.

 

[daylatedollarshort]

When you bring up rent in a discussion about mortgage and inflation in your 9th post in 24 hours, I think it's a sign that you've beaten this topic to death, no?

If mathjak doesn't take the hint, maybe everyone else can stop replying to him?

Point taken.

 

[ncbill]

Regarding the earlier post Medicaid not being able to touch the house, it is not that straight forward. While Medicaid cannot put a lien on the house, it does put a lien on it when passing through the estate, i.e. if husband goes on Medicaid and wife is still alive, wife can remain living in the home. When the wife passes on, Medicaid will get their money from the house to pay back money spent on the husband while on Medicaid. The only way around it is to put the house in a irrevocable trust and there is a 5-year look back period.

Or to gift the home to a child who has been caregiver for at least the last 2 years...yes, you'll need the help of an eldercare attorney for that.

Wish I had known about that exemption when mom got sick...could have made sure my younger sibling got the home.

 

[The HalfBreed]

And let's not forget if housing prices TANK, like they did a few times in the past Decade +

 

[daylatedollarshort]

And let's not forget if housing prices TANK, like they did a few times in the past Decade +

If you don't plan on selling, how would lower market values impact a mortgage arbitrage?

 

[Chuckanut]

And let's not forget if housing prices TANK, like they did a few times in the past Decade +

I doubt housing prices will tank overall (IOW, go down more than about 10%). There is such a huge shortage of housing in the country that it's hard for me to see this happening and sticking.

 

[iloveyoga]

One of the non-monetary advantages of having a paid off mortgage...I never think or worry about a mortgage.

 

[almost there]

Honestly its just piece of mind. Having to owe someone, or having someone owe you something sucks. The end.

 

[Mulligan]

Honestly its just piece of mind. Having to owe someone, or having someone owe you something sucks. The end.

I understand your thinking and respect it. But, hey ya get used to it. I have been in some kind of monthly payment home or credit debt one way or another continuously since 1986. And I retired in 2010 and life is good. One of these days I will eventually wipe it all out!

 

[almost there]

I understand your thinking and respect it. But, hey ya get used to it. I have been in some kind of monthly payment home or credit debt one way or another continuously since 1986. And I retired in 2010 and life is good. One of these days I will eventually wipe it all out!

I have neighbors like that. Never saved anything or invested. But get around $20k a month from city and state pensions. They seem to have no worries. Travel, new high end cars etc. Things like interest rates, market returns, inflation, Roth conversions, Tax torpedo's, SS etc. are nothing at all to them. Just a different way to go. While its still going...