carry my mortgage into retirement?

[albireo13]

"But all of this is academic because the OP does only has tax-deferred funds and was asking if he should do big withdrawals and pay the taxes to generate funds to pay off his $347k mortgage.... are people advocating paying off the mortgage in this thread really advocating that he withdraw $347k of tax-deferred money and pay the tax (let's say $70k... so total withdrawals of $417k) just in order to be debt-free?"

True. The tax impact view is interesting. As I continue to pay the mortgage, it is with after-tax money so the tax hit is the same. However, if I carry the mortgage into retirement I will be paying it with after-tax money where we are (hopefully) at a lower tax rate. Thus, in the long run it seems like a win to invest now, instead of paying down the mortgage.

[albireo13]

I'd love to just pay off the mortgage before retiring but, that will be an impossibility.

[flyingaway]

Mortgage is a fixed payment, it should be compared with the fixed income portion of your portfolio. So unless you have an aggressive portfolio in retirement, it does not make financial sense to keep a mortgage in retirement in which many retirees have conservative portfolios. Some people consider a mortgage as a negative bond fund, it reduces the corresponding portion of your bond holding.
The OP has a few years to retirement, I would suggest to pay down the mortgage as quickly as possible.

[bingybear]

I had to ask about after tax $ as some RE questions only list retirement accounts and forget about after tax accounts. For me the taxable account has made RE much easier. ER at 53, mortgage retired at 32. But then, my house is worth significantly less than yours.
You had noted about effective interest after itemizing. Watch over estimating this. In retirement will you still be itemizing every year? If yes, will there be enough other deductions to exceed the standard deductions not including mortgage interest (do you really get a benefit on taxes).
Obviously you know you'd likely get killed on taxes if you paid off the mortgage in one go since you would have to take it out of retirement accounts. However, some like to keep a mortgage as you can still invest the $ that you would have used to pay it off. If inflation continues you get to pay off the mortgage with inflated $.
We talked about getting a mortgage before RE. DW nixed it.
Do look at the mix of retirement funds. There are some nice advantages having a mix:TIRA, RIRA and after tax. HSA is another useful one that is often overlooked.

Seriously estimate your taxes in ER. Mine are significantly different than when working. It can lead to different decisions than what you'd make when working.

[pb4uski]

Quote:

Originally Posted by flyingaway Mortgage is a fixed payment, it should be compared with the fixed income portion of your portfolio. So unless you have an aggressive portfolio in retirement, it does not make financial sense to keep a mortgage in retirement in which many retirees have conservative portfolios. Some people consider a mortgage as a negative bond fund, it reduces the corresponding portion of your bond holding. ....

I totally disagree with this unless you actually adjust your AA to reflect the payoff of the mortgage.

For example, let's say you have $1 million of investments that are 60/40 and a $200k mortgage. You redeem investments and payoff the mortgage... if you now have $800k of investments that are 60/40 then comparing your fixed income return to your mortgage interest rate in making the payoff decision is incorrect... it should be your overall investment rate of return.

OTOH, if after paying off the mortgage you then have $800k that is now 75/25 then I agree with what you posted.

[flyingaway]

Quote:

Originally Posted by pb4uski I totally disagree with this unless you actually adjust your AA to reflect the payoff of the mortgage. For example, let's say you have $1 million of investments that are 60/40 and a $200k mortgage. You redeem investments and payoff the mortgage... if you now have $800k of investments that are 60/40 then comparing your fixed income return to your mortgage interest rate in making the payoff decision is incorrect... it should be your overall investment rate of return. OTOH, if after paying off the mortgage you then have $800k that is now 75/25 then I agree with what you posted.

The main reason that many people quoted to keep mortgage in retirement (or before) is that they can make better return with the money being invested.

[pb4uski]

And I do.... much better in the time period since I took out my mortgage, but if I paid off my mortgage then I would not change my AA so my overall investment return is the correct rate to compare to my mortgage rate.

[JustCurious]

Quote:

Originally Posted by albireo13 I'd love to just pay off the mortgage before retiring but, that will be an impossibility.

If it is impossible, why are you asking whether you should do it? This whole thread is academic.

[RunningBum]

Quote:

Originally Posted by flyingaway The main reason that many people quoted to keep mortgage in retirement (or before) is that they can make better return with the money being invested.

A mortgage is an expense. If you have $3000 in other monthly expenses in addition to a $1000 mortgage expense, so you feel like you have to keep the money to pay the $3000 of expenses in fixed income? Most people don't.

I only kind of agree with what I wrote above, and kind of split the difference. Since I have no mortgage I feel like I can be a bit more aggressive with my AA. My rationale for this is that if I see that I'm not going to make it financially, I'd downsize my house. I don't include my house in my total investment assets I base my AA and WR on, but if I did it wouldn't be on the equity side.

[pb4uski]

I don't think of my mortgage as an expense at all. I think of it only as leverage that I am using to make a spread that is collateralized by my principal residence. With a few clicks I can pay it off at any time of my chosing and the monthly mortgage payments would no longer be required. Since I refinanced in early 2012, my portfolio has returned much more than what I have paid in interest. My AA is not affected by my mortgage in any way whatsoever.

I realize that many others are more emotional about having a mortgage and a mortgage payment... to me it is simply leverage. Now that said, if I was mortgage free I would not necessarily go out of my way to get a mortgage loan and invest the proceeds, but since the mortgage happened to be there when I retired I am taking advantage of it for the remainder of its term or until investment returns go sideways and it is no longer beneficial to me.

[albireo13]

Quote:

Originally Posted by JustCurious If it is impossible, why are you asking whether you should do it? This whole thread is academic.

Actually, what I should have said was it will be impossible for me to pay it off out of monthly cash flow. I won't be working long enough to do that.

I could pay it off today out of retirement funds. However, it's already been exposed that it wouldn't make sense to do that.

[JustCurious]

I do not think it is advisable for you to retire with a 30 year mortgage hanging over your head, especially if you cannot pay it off without dipping in to retirement funds. Also, you said it makes you uncomfortable to retire with the 30 year mortgage hanging over your head, and I don't think it is advisable for you to retire if you are financially uncomfortable, your discomfort will not go away, it will only exacerbate once you retire and no longer have earned income coming in to pay that mortgage every month.

So, in short, it's not advisable to dip into retirement funds to pay off your mortgage, and it's not advisable for you to retire with the mortgage, so I do not think it is financially advisable for you to retire.

You also said in another thread that you have credit card debt and a car loan and less than 3k in cash reserves in addition to your 347k mortgage on your 460k house. You are asking questions about how to move around money or increase your cash reserves, which are all good questions, but if you step back and look at the bigger picture, I do not think you are in a situation where it would be advisable to retire in the next 3 years. I'm not saying you can't...clearly you have enough savings that you could do it and you would be ok for a while depending on your spending rate (which we do not know, that is an important factor), but I suspect based on the fact that you have a big mortgage and an expensive house that is not cheap to maintain (property tax, maintenance, insurance, utilities, HOA?) credit card debt and a car loan at 61 that you are used to living at or above your means and you may have a relatively high spending rate and you may be spending down your savings to keep yourself going in retirement for a while until the funds run out and that would make me uncomfortable.

[pb4uski]

Quote:

Originally Posted by JustCurious .... it's not advisable to dip into retirement funds to pay off your mortgage, and it's not advisable for you to retire with the mortgage, so I do not think it is financially advisable for you to retire. ....

Since OP only has tax-deferred funds, unless the OP plans to work for another 30 years at some point in time he will use tax deferred funds to make his mortgage payments so your advice is a bit silly.

Money is fungible.... OP's tax-deferred accounts will provide income once he retires and a portion of that income will be used to service the mortgage... much more tax efficiently than taking a big lump sum out to pay of the mortgage.

OP has $1.8M in tax-deferred savings and a $350k mortgage.... would your advice be different if he didn't have a mortgage and had $1.45m in tax-deferred savings? The situations are really no different except paying off the mortgage over time through income generated by the $1.8M in tax-deferred accounts is just a more tax efficient way of paying off the mortgage.

Other than the additional taxes that would be paid if OP did a big lump sum withdrawal and paid off the mortgage the facts are identical as the mortgage will need to be paid eventually.

I retired with a new 15 year mortgage... just set up autopay and other than the mortgage company sending me a statement each month I hardly know that it is there.

[l8_apex]

As described by the posters above, there are the hard $ numbers, which really can only be figured out by doing forward looking tax returns and guessing future investment return rates.

There is also your comfort level.

One other thing that I don't think was mentioned: you take on more risk if you own your home outright. Say a natural disaster happens and you home is a total loss: if you've got a big mortgage on it, it's the bank's problem. If you own it, it's your problem.

I have a big exposure to real estate (6 rentals + my house). I have mortgages on all, and if the housing market collapses or some other calamity hits, I have the option of walking away. Is it ethical? Hard to say, but the banks had the luxury of writing the fine details of the mortgage, so they know the risks going into it, as did/do I.

The way things were done in the past are necessarily the way things will be done going forward...

[pb4uski]

You make a good point for those who live or own property in non-recourse states, but many states are recourse states.

[GravitySucks]

I retired with five years left on the mortgage. I consider the interest, taxes, insurance and maintenance expenses and the principle as transfer of assets.

[JustCurious]

Quote:

Originally Posted by pb4uski Since OP only has tax-deferred funds, unless the OP plans to work for another 30 years at some point in time he will use tax deferred funds to make his mortgage payments so your advice is a bit silly.

I don't agree. Many people pay off their mortgage well before the scheduled date, so that is a false dichotomy. There is a third alternative, pay off the mortgage without working for another 30 years and without taking lump sum withdrawals from tax deferred accounts by working longer but for a period less than 30 years. We do not know the OP's income (there is admittedly a lot of important missing info) but he may be able to pay off the mortgage in say 5 years out of current income without touching savings.

Quote:

Originally Posted by pb4uski Money is fungible.... OP's tax-deferred accounts will provide income once he retires and a portion of that income will be used to service the mortgage... much more tax efficiently than taking a big lump sum out to pay of the mortgage.

I agree that money is fungible, and I agree he could pay the mortgage from tax deferred accounts and that would be more efficient than a lump sum withdrawal. But that would be true whether he continues to work or not. So where we disagree is whether it is advisable to continue to work and pay off the mortgage before retiring, not whether it is advisable to take a lump sum withdrawal from tax deferred accounts.

Quote:

Originally Posted by pb4uski OP has $1.8M in tax-deferred savings and a $350k mortgage.... would your advice be different if he didn't have a mortgage and had $1.45m in tax-deferred savings?

No, it wouldn't. As I said, we don't know his spending rate or his income and that is important information. If he spends 60k a year, then my advice would be he is ok in either situation, but if he spends 100k a year or more, then I would say it is not advisable in his situation, mortgage or not, because his withdrawal rate would probably be too high.

I think people are getting lost in the "should I pay off the mortgage from retirement funds" question and not looking at the big picture. The 4% safe withdrawal rate is preached around here so often as a guideline, and if you follow that guideline, 1.45m in retirement savings would support $58,000 in annual spending, right? So really shouldn't we find out what his spending rate is before answering the question? And I am willing to bet that someone with a new big 30 year mortgage (that used to be bigger before downsizing) and credit card debt and a car loan is spending more than $58,000 a year.

[l8_apex]

Quote:

Originally Posted by pb4uski You make a good point for those who live or own property in non-recourse states, but many states are recourse states.

Yes, very true. Lots of details, particularly since some states are "limited recourse". My only experience with this topic was second-hand in NV where the bank didn't go after folks back in about 2010. I have no idea if they were the exception or what...

If it did come to that, one would have to see what the impacts would be to declaring bankruptcy (i.e. how much of one's retirement assets would be protected).

[W2R]

Whether or not to carry a mortgage in retirement is, of course, an individual decision and as you can see in this thread thus far, it is one of those topics upon which forum members never agree. That's fine. But I just wanted to point out that there is no "right answer". There are pros and cons on both sides, and not only that, but individual situations differ. The financial study of this question is one of those risk-vs-reward analyses IMO.

When I was planning my retirement, I felt that in my case it made more sense to not have a mortgage. So, I paid it off several years before retiring. Aside from the financial aspects, I love not having a mortgage to pay.

[Clone]

Quote:

Originally Posted by W2R Whether or not to carry a mortgage in retirement is, of course, an individual decision and as you can see in this thread thus far, it is one of those topics upon which forum members never agree.

There are many interesting perspectives. The 2 primary views:

1- The risk of having money in the market. If we pay off the mortgage, we have less invested in the funds. Therefore less downside risk if the market tanks.

2- The benefit of having more money in the market. If we carry the mortgage, we have more invested in the market. If the market returns more than the mortgage, we end up money ahead.

Currently- Mortgage rates are low, and market returns are high. Therefore Option #2 feels pretty good for those folks who are carrying a mortgage.

It will continue to feel good until the market takes a serious crash for a prolonged period of time. All we need to know is when is the market going to make a big correction, and for how long?

W2R- Are you still the keeper of the crystal ball?