Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 09-16-2017, 09:02 AM   #61
gone traveling
 
Join Date: Mar 2015
Posts: 3,508
Quote:
Originally Posted by freedomatlast View Post
Of course not, and the balance of the mortgage is not ALL of his portfolio.
Right. So what is the compelling rationale for requiring that a mortgage payoff be compared to a guaranteed-return investment?
joeea is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-16-2017, 11:28 AM   #62
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,379
Quote:
Originally Posted by joeea View Post
Right. So what is the compelling rationale for requiring that a mortgage payoff be compared to a guaranteed-return investment?
First, it's an individual choice so it's not required at all. It's up to each person to determine how much risk they want to take in their portfolio.

The fact is, if you've paid off your mortgage, you're no longer paying that mortgage interest, and that is pretty much a guaranteed return. Now, if interest rates drop, you could've refinanced your mortgage to a lower rate (at a refinance cost), so there is some play in that "guaranteed" rate.

With that in mind, if you want to keep the mortgage and invest the money in high risk stocks, that's your choice, but you can't ignore the fact that you are taking a lot more risk. If you want to invest it in the S&P index, there's still some risk. VG Wellesley, still a bit of risk. You may find this an acceptably small risk to take to get a better return. Others may not. Either way is fine, IMO, but don't kid yourself -- you are taking more risk if you invest in anything not guaranteed.

People who want to keep the same level of risk are right to compare a mortgage rate to a guaranteed rate. People who want to leverage their house value to invest that money at the same acceptable risk as their rest of their portfolio are right to compare it to their overall return rate. Hedging in between seems fine too. IMO what's wrong is to insist that someone else has to approach it the same way that you do.
RunningBum is offline   Reply With Quote
Old 09-16-2017, 11:46 AM   #63
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ivinsfan's Avatar
 
Join Date: Feb 2007
Posts: 7,830
The OP is 61 and has 29 years left on a 350K mortgage...he'll be 90 if he doesn't pay early. In his shoes I'd throw some extra money on the early end to try and cut down some of the interest and move the pay-off date closer to 80-85...even if he relocates or one of them passes, they still will save some interest and have less lump sum payout when/if they sell.
ivinsfan is offline   Reply With Quote
Old 09-16-2017, 11:54 AM   #64
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 30,124
I think that it is rare that people match their mortgage with bonds or similar fixed income investments so similarly, it would be rare the the approriate rate to compare paying off the mortgage to would be the rate of return on fixed income investments. More likely, if someone was to pay off their mortgage then their overall AA would stay the same so the rate comparison is the overall investment return rate. I believe that those who chose to carry a mortgage recognize that the decision is slightly riskier but are willing to accept the risk. Also, in many cases the amount at play (the mortgage) is not terribly significant so if the gamble goes sideways the implications are not risking failure overall. (In my case my mortgage is less than 10% of my portfolio).

In the OP's case they only have tax-deferred funds so taxes are the biggest factor in the decision and IMO it would be unwise to do a huge withdrawl and pay a boatload of taxes just to pay off the mortgage.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 09-16-2017, 11:58 AM   #65
gone traveling
 
Join Date: Mar 2015
Posts: 3,508
Quote:
Originally Posted by RunningBum View Post
With that in mind, if you want to keep the mortgage and invest the money in high risk stocks, that's your choice, but you can't ignore the fact that you are taking a lot more risk.
I don't think anyone ever proposed that choice ("high risk stocks").

Instead, most suggest that, rather than depleting your investments, just keep them invested according to your current Asset Allocation plan - just as you would for any other monies.

Quote:
People who want to keep the same level of risk are right to compare a mortgage rate to a guaranteed rate.
No. People who want to keep the same level of risk would just keep doing what they have been doing all along.

Conversely, people who feel compelled to change their level of risk could take money out of their portfolio (which is already within their asset allocation plan), and put it all in the walls of their house by paying off the mortgage. They are exchanging money within their portfolio to pay off a low-interest loan that they already have.

Quote:
IMO what's wrong is to insist that someone else has to approach it the same way that you do.
I agree. Nobody should insist that anyone else do what they do. I don't know anyone who would disagree with that.
joeea is offline   Reply With Quote
Old 09-16-2017, 12:13 PM   #66
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,379
Quote:
Originally Posted by joeea View Post

No. People who want to keep the same level of risk would just keep doing what they have been doing all along.
Going into debt, or staying in debt, in order to be able to invest more in the market adds to your risk. There's no denying that.

If you invest that at the same AA as what you've been doing because it is a totally acceptable risk to you, that's fine, but it's still a risk. It's like weighing the risk of swimming in the ocean and being attacked by a shark. You may feel the risk is perfectly acceptable and feel fine swimming 4 times a week. If you then decide to swim 5 times a week, you're increasing your exposure so the risk is a little greater, but you may still feel perfectly fine with it. Not sure just how good that analogy is, but it's the best I can think of while watching football right now.
RunningBum is offline   Reply With Quote
Old 09-16-2017, 02:48 PM   #67
gone traveling
 
Join Date: Mar 2015
Posts: 3,508
Quote:
Originally Posted by RunningBum View Post
Going into debt, or staying in debt, in order to be able to invest more in the market adds to your risk. There's no denying that.
That depends. There are different kinds of risks.

Would you take your last $100k of retirement savings to pay off your mortgage at age 65, and expect your risk to be reduced?

Quote:
If you invest that at the same AA as what you've been doing because it is a totally acceptable risk to you, that's fine, but it's still a risk. It's like weighing the risk of swimming in the ocean and being attacked by a shark. You may feel the risk is perfectly acceptable and feel fine swimming 4 times a week. If you then decide to swim 5 times a week, you're increasing your exposure so the risk is a little greater, but you may still feel perfectly fine with it. Not sure just how good that analogy is, but it's the best I can think of while watching football right now.


Given the real-world risk associated with shark attacks, swimming once more per week doesn't add any appreciable risk, so I'm guessing that wasn't the analogy you wanted to make. College football?

But my point is that leaving things as they are (i.e., not paying off a mortgage) doesn't add to your risk. And taking a chunk of your retirement assets to pay off a low-interest mortgage may reduce one risk while increasing another.

For most folks, I suspect the financially better choice is to live with a low-interest mortgage and keep the assets invested per your asset allocation plan. But if that keeps you up at night and you aren't taking out too big a chunk of your retirement assets, then do it.

I think this is the difference between good and better.
joeea is offline   Reply With Quote
Old 09-16-2017, 03:42 PM   #68
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,379
Quote:
Originally Posted by joeea View Post
That depends. There are different kinds of risks.

Would you take your last $100k of retirement savings to pay off your mortgage at age 65, and expect your risk to be reduced?
No I wouldn't, because that would be the equivalent of being 100% in guaranteed income, which has inflation risks. Plus I wouldn't have any funds for irregular expenses, like if my car needed major repairs.

And if I had $200K in savings with a 50/50 AA and a $100K mortgage, I wouldn't pay off the mortgage and go 100% stocks.

I had been thinking about which side extreme cases like this would support since they tend to make the answer more obvious, but hadn't really gotten around to it. It supports your point, so I guess I'll concede.

I'm still not going out and getting a mortgage though. I don't think the difference is big enough to go to the trouble. I lean toward being a little more aggressive with my AA with a paid off house, but I don't explicitly factor it in.
RunningBum is offline   Reply With Quote
Old 09-16-2017, 04:26 PM   #69
Thinks s/he gets paid by the post
 
Join Date: Sep 2014
Location: The Great Wide Open
Posts: 2,851
I have enough income to cover my mortgage, it has only 7 years left out of 15. Part of my mortgage at 4.375% was a refinance of my 4 unit apartment building mortgage at 7.875%.

One of the advantages/techniques/strategies of real estate investing , if and only if one chooses to go this route, is to refinance every 5 years. One can refinance 80% of appraised value, which may include appreciation and 5 years of mortgage payments and do a taxfree cash out. That taxfree payout can be spent, reinvested as a down payment for another real estate property, or stuffed in a mattress.

Debt, as mentioned earlier, is a personal decision. Some loathe it, some love it, I am in the indifferent group. As with anything financial, there are a lot of tools to use, and mortgage debt is one of them.
Winemaker is offline   Reply With Quote
Old 09-18-2017, 06:21 AM   #70
Full time employment: Posting here.
 
Join Date: Aug 2015
Posts: 870
When I give it more thought, if one includes their mortgage as part of their AA risk, then the higher the percentage of NW (based on savings invested plus the savings equivalent of guaranteed income) that the mortgage is, the more it makes sense to carry the mortgage. If it is a small percentage then it really doesn't matter, as the difference to ones income or investment earnings is far less. One of the reasons that that I lean towards carrying a mortgage is that the percentage of my retirement income that is guaranteed, ie not dependent on investments, is high, about 72%, with only 40% needed for enhanced basics, including the mortgage. So it is just plain easy for me to carry one.

As an example, if I use the 4% guideline against my guaranteed income from SS and pensions plus invested amounts, my NW could be $4m. So a $400k mortgage would be 10% of "NW". Or conversely assuming $4m throws out $160k/yr of which $115k is guaranteed, so then $13k/mo income with a $2000/m P&I is not going to cause me any distress, as it is 17% overall or only 20% of guaranteed, or 37% of essential income for enhanced basic living. So even a 50% temporary hit against the 60% investments that are equities in a 60/40, is a drop of maybe $13k the years of the drop. Hardly game changing.

With the money not ties up in the house, so I can earmark more money for riskier down the road investments now (at age 60), knowing the swings will only impact discretionary spending. Having a mortgage only increases that amount as that would be part my bonds investment in a 60/40.

In theory, of course. Make sense?
Perryinva is offline   Reply With Quote
Old 09-18-2017, 06:11 PM   #71
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 7,670
Quote:
Originally Posted by pb4uski View Post
I think that it is rare that people match their mortgage with bonds or similar fixed income investments so similarly, it would be rare the the approriate rate to compare paying off the mortgage to would be the rate of return on fixed income investments.
Our fixed rate mortgage is somewhat offset by mostly non-COLA pensions. The pensions won't go up much with inflation but then the mortgage payments and interest rate won't change either. Over time the interest on the mortgage will decrease and when the mortgage is paid off the pension money will just be extra income in the budget. The pension income won't be worth as much as today because of inflation but whatever the payments are worth in the future can go towards discretionary expenses since the mortgage will be paid off.
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
daylatedollarshort is offline   Reply With Quote
My 2 cents
Old 09-18-2017, 10:56 PM   #72
Recycles dryer sheets
 
Join Date: Oct 2013
Posts: 63
My 2 cents

Banks are not going to give you a loan when you are retired so keep you power dry and do not pay off the mortgage. I have friends who wanted to move to a single level home and found it difficult to get a load to buy the new home. Lenders only want to lend to people who are working or people who do not need the money.
Good luck in your decision.
jw72 is offline   Reply With Quote
Old 09-19-2017, 05:56 AM   #73
Full time employment: Posting here.
 
Join Date: Aug 2015
Posts: 870
Actually, they want "guaranteed " income plus assets. So a solid annuity makes getting a mortgage the same as a paycheck, as do solid pensions and SS. If you FIRE young, living totally off dividends and earnings, then you are correct; getting a mortgage will be much more difficult, especially if you have large buckets of cash.
Perryinva is offline   Reply With Quote
Old 09-19-2017, 10:18 AM   #74
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 3,584
Quote:
Originally Posted by Perryinva View Post
This is where I agree with pb4uski completely. Did you have a mortgage most of your life before retirement? When a job loss coupled with the mortgage could have been a disaster? Where you on pins and needles with that situation? That is what I don't understand. Either you can afford to own the home or not. I've had a mortgage or two most of my adult life. I dont worry anout it, ever. I monitor rates and when they drop, I refinance. I've refinanced at least 8 times in my life. Minimize unnecessary costs. In retirement, where there is no possibility of "job loss", and wealth accumulation should feasibly allow puchase of the home outright, a mortgage should be of even less concern. If you have to struggle to be retired and make your mortgage payment you are either living above your means or shouldn't be retired. I don't see the point in tying up $100s of 1000s of dollars in a at best, not easily almost inaccessible investment that at best makes 2.7%., based on my current 3% loan. Guaranteed? No, but that's a weak argument, as in the last 20 years I've easily beat that by 3 -30% per year.


Exactly my view. YMMV
Scuba is offline   Reply With Quote
Old 09-19-2017, 10:19 AM   #75
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 7,670
Our local credit unions will approve mortgage loans if we show a history of periodic withdrawals from savings / retirement accounts to show "income". So moving extra money from investments to .001% yielding checking accounts = loan approval, keeping the extra money in stock and bond investments = no loan approval. It seems a bit crazy but it is what it is. Net worth means nothing to them.
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
daylatedollarshort is offline   Reply With Quote
Old 09-19-2017, 10:23 AM   #76
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 3,584
Quote:
Originally Posted by daylatedollarshort View Post
I was not trying to make a comprehensive analysis in my post - just pointing out that paying off a mortgage often reduces income by close to the same amount. There are often posts here about how can anyone go into retirement with a mortgage without looking at the offsetting decrease in investment income.


Excellent point. I also place a high value on liquidity. We could completely pay off our mortgage and HELOC now, but would prefer to have the money accessible instead. Our mortgage is at 3.375% and HELOC is variable, at 3.99% now. If HELOC rate goes to 5%, will consider paying in full.
Scuba is offline   Reply With Quote
Old 10-09-2017, 06:03 PM   #77
Recycles dryer sheets
 
Join Date: Sep 2016
Location: Lincoln
Posts: 125
The answer to whether to pay off the mortgage is so unique to every situation. We want to pay ours off but would not pull the entire amount due ($186k) from IRAs or we would be slammed with big taxes. We live in CA and what we are doing instead is pulling about $20k per year out of IRAs to get it down within 5 years to Zero. We will still have $7000 a year in Real Estate taxes (including some random local bonds attached to the real estate). We want to have a very clear picture of our net worth and our discretionary income. With the budget we have, we need $98k in after tax income right now. Once we pay off the house, we'll be able to drop the annual budget to $74k a year (yes, $2,000 a month is just for our Principal and Interest on our mortgage). Our note is a 10 year, 2.75%. It will be paid off in 5 years as our plan is executed. Then the BIG extended family vacations will commence. Yahoo!
Travelfreek is offline   Reply With Quote
Old 10-09-2017, 06:49 PM   #78
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 23,616
Quote:
Originally Posted by Travelfreek View Post
.... We will still have $7000 a year in Real Estate taxes (including some random local bonds attached to the real estate). ...
And you have those with or w/o a mortgage.

Quote:
Originally Posted by Travelfreek View Post
....We want to have a very clear picture of our net worth and our discretionary income. ...
Isn't that clear, with and w/o a mortgage? A mortgage is a fixed payment.

Quote:
Originally Posted by Travelfreek View Post
...With the budget we have, we need $98k in after tax income right now. Once we pay off the house, we'll be able to drop the annual budget to $74k a year (yes, $2,000 a month is just for our Principal and Interest on our mortgage). Our note is a 10 year, 2.75%. It will be paid off in 5 years as our plan is executed. Then the BIG extended family vacations will commence. Yahoo!
So you are saying that you can afford "BIG extended family vacations" after you took your liquid funds and sunk them into your home? I don't understand. Seems there would be essentially the same amount of $ available either way?

If you are looking at cash flow after the pay-off, it seems like you are ignoring the cash flow you could have from the cash you used to pay off the mortgage. Am I missing something? 2.75% is a fantastic rate - is that a fixed rate? Can I buy it from you?

-ERD50
ERD50 is offline   Reply With Quote
Old 10-09-2017, 09:10 PM   #79
Recycles dryer sheets
 
Join Date: Sep 2016
Location: Lincoln
Posts: 125
Quote:
Originally Posted by ERD50 View Post
And you have those with or w/o a mortgage.







Isn't that clear, with and w/o a mortgage? A mortgage is a fixed payment.







So you are saying that you can afford "BIG extended family vacations" after you took your liquid funds and sunk them into your home? I don't understand. Seems there would be essentially the same amount of $ available either way?



If you are looking at cash flow after the pay-off, it seems like you are ignoring the cash flow you could have from the cash you used to pay off the mortgage. Am I missing something? 2.75% is a fantastic rate - is that a fixed rate? Can I buy it from you?



-ERD50


We want to be 100% debt free. Then we can use the $24 k a year that used to go to prin + interest for fun money or charity or both! We will always have prop taxes + insurance plus utilities (minus electricity since our solar panels generate all of our electric needs). A lot of our desire to be debt free stems from the peace of mind it will give us.

We are both financially conservative. Our cars are paid for. We paid cash and budgeted in advance for our 2 kids' 5 year college degrees at state college. No student loans. We don't like owing money. Period. We have a good amount of money in IRAs but have to keep taxes in mind as we pull it out. We have pensions that provide over 100% of our expenses. It's a bit of a balancing act.

We missed the Roth IRA boat altogether as we needed to tax shelter our incomes by the time Roths came on the scene.

We retired at age 60 and 59 1/2 (not so early as many of you). I love this forum. We are different from each other but the same in many ways. We all value financial independence!

We got the 2.75 10 year note last October on the internet - the best rate I could find from a St Louis MO company called US Wide Financial. The best thing about it besides the low rate was it was a no cost loan!!!! I kid you not. We sold a rental property in Michigan my husband inherited at that time and decided to roll the 120k equity from that into our principal home to begin the payoff process. We got the new note as a refi on our house which had 26 years to go on it's 30 year note at 3.50%. So, once we paid off both cars and put a big equity pmt on our house, we decided to set up a plan to have it paid off in 5 years. We started off owing $390 k 5 years ago, then $220k last year and now we are at $185k owed. We knock $40 k a year off the balance between regular pmts and the $20 k yearly lump sums.

Our next goal is to manage our taxable income once my husband starts collecting SSA. We won't be itemizing by then so this will get interesting.
Travelfreek is offline   Reply With Quote
Old 10-09-2017, 09:27 PM   #80
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 30,124
The $20k a year from IRAs that you will be using to pay down the mortgage.... what is that invested in now? How much did it return in 2016? Over the last 12 months?
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Downsizing: carry a new mortgage or buy outright? BBQ-Nut FIRE and Money 10 12-05-2014 06:23 AM
When is a carry-on not a carry-on? Rich_by_the_Bay Travel Information 56 12-18-2009 08:19 PM
How much life insurance do you carry? laurence Young Dreamers 66 07-27-2006 01:47 PM
Capital Loss Carry-over Question kjpliny Other topics 3 01-28-2006 12:56 PM
Pay off or carry mortgage? runnerr FIRE and Money 15 01-14-2006 09:52 AM

» Quick Links

 
All times are GMT -6. The time now is 03:01 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.