cash flow management using a LOC
Here's a question to ponder. At least I'm pondering it.
I'm in transition from full time to part time this year to fully retired. Maybe I'll make it before 65, but if I don't have to work too hard, make a little money and enjoy it, it's okay.
We're trying to determine a cash management plan for the next phase of our lives. Our mortgage is low enough that we can pay it off and even if we don't, it's gone in about 5 years. We have discussed paying off the mortgage with either cash or using the home equity LOC--the rate on the LOC is something like 2.5% right now, but variable, and the rate on the mortgage is fixed at 4.5%. We're playing with those numbers.
The new question that occurred to me is whether one might use a HELOC in retirement to even out cash flow rather than having a year or more's worth of expenses in a non or very low interest rate cash account. So long as the rates stay low, which the Fed is saying will continue for another 2 to 3 years, I'm pondering whether we would be better off using the LOC to fund expenses and put the cash into something that might generate a little more interest. But then again, if we're paying 2.5% on the LOC and we make 4% by investing the cash part, you're only talking about a 1.5% spread. Maybe it isn't worth it.