Eliminating debt is my main FIRE goal

[rayvt]

As far as holding a mortgage, I sure would not hold one in retirement that was so big that I couldn't pay it off, even if I had to at a bad time. I dunno, maybe no more than 15% of liquid NW?


I guess that an awful lot of the decision-making process depends on your personal situation. For example since I'm retired, I don't have any worries about being laid off. In fact, I was telling my barber the other day that I get cheated----I don't get holidays or vacations anymore. (My wife says, "Yeah, smartass, that's because every day is a vacation day for us." I don't get no respect.)

Your perspective changes a lot after you retire. IF you have an adequate portfolio. Which is the whole point of FIRE. You don't FIRE on a shoestring.

My pension plus SS cover all of our ordinary living expenses---which includes the house mortgage (29 1/2 years to go). Our only portfolio withdrawals are for extraordinary & voluntary expenses. In the last year we've bought 2 new cars--one BMW sports car toy and one Toyota sedan because I don't want to have a 15 year old car when I turn 75.
Financed them at 3.99% (Pentagon Fed CU)---which is where I also have a 5.25% CD. Our dividends from stocks & preferred stocks are greater than the total car payments.

Our necessary withdrawal ratio is under 1%, and even after the ca. 50% stock haircut during the recent market crash we could pay off the house without a blink. We have cut back on our expenses, though. This year we've only gone on 4 cruises.

So, in this situation there is little reason to pay off the mortgage.

 

[jdw_fire]

JDW I've been trying to follow you on this thread and I have to say I am confused at this point, I think ERD maybe in the same boat.

You suggest to Rayvt to go back and re-read everything you wrote, that is a somewhat daunting task. Could you summarize your main points and contrast them ERD point that their generally isn't a big difference between paying off mortgage vs keeping it but often it slightly improves survival rates.

my main point is that owning a house to live in has financial value, it is not completely consumed like food is when you eat, as Rayvt asserted. in making that point i talked of another way to value said house using an income approach and this led into how to harvest some of your house value (as well as chosing whether to rent or buy) based on whether the income valuation is greater than or less than the market valuation.

As for FIRECALC, I think including 2008 in the data set of possible results should have significant impact on WR rates, it is the worse year since 32.

since the 2008 data will be at the end of any FIRECalc run it wont have much impact on survivability. it will at most affect only 1 period and since i think the money for living is taken out at the begining of the year, the 2008 performance will only lower the portfolio remainder, thus it wont even cause another failure.

 

[youbet]

since the 2008 data will be at the end of any FIRECalc run it wont have much impact on survivability. it will at most affect only 1 period and since i think the money for living is taken out at the begining of the year, the 2008 performance will only lower the portfolio remainder, thus it wont even cause another failure.

Yep, that's how it works........

But I think where most folks get shocked is when they enter a reduced portfolio value (say $1.5 mil vs. $2.0 mil) this year as opposed to last year. That can result in a substantially reduced success rate. But, as you say, other things being equal, the addition of 2008 data results in, max, one additional failure.

 

[jdw_fire]

So, not really relevant to the OP (whatever that was anyway ), I did glean a bit of info from all that. I think it tells me that buying versus renting is a bit like an annuity. For simplicity, assume a paid up home. So the $ in the home save you the rental expense. So the home is like an annuity - you stick $ into it, and then you get a lifetime of $ out of it ($ in rental savings, minus ownership expenses). And using my assumption that the homeowner never downgrades or shifts to renting, the $ in the home are never recovered (to the owner), like an annuity.

So, like an annuity, buying versus renting is a bad deal if you live a short time. You could have used those $ for living expenses. If you live a long time, the savings from rental costs keeps growing. But it's hard to take advantage of that with an unknown life-span.

Unlike an annuity, the value of the home can go to heirs/charities, if that is important.

So maybe we could say that buying a home gives a bit of financial diversity, like putting some $ in an annuity? I like the idea of diversifying my risks, as we cannot predict the future. I guess once the home value exceeds the cost of rentals for your foreseeable lifetime, that is the time to shift to renting - but there will likely be other, larger factors at that time also.

-ERD50

and i think that by considering a house as a COLAed SPIA, you must be agreeing that it has financial value, the point i was trying to originally make. the fact is it is better than a SPIA because you can sell it (thus keeping your options open) or borrow against it with a reverse mortgage(which can increase your standard of living with out moving from your home).

So, not really relevant to the OP (whatever that was anyway ), ...

and now in an attempt to address paying off your mortgage, i will start with something i wrote earlier

btw, there has been an increase in discussion (and seemingly acceptance) for using a SPIA to support some portion of a minimum lifestyle set of expenses (as well as what appears to be pension envy). it seems to me that this has come about because of people's lack of faith that self-annuitizing a portfolio is all that safe from a continued income stream standpoint. it dawned on me that paying off your mortgage is almost exactly the same thing as buying a fixed term fixed dollar SPIA, so there is another "advantage" to paying off the mortgage, or at least another way to look at it.

and what is interesting is that when interest rates are low, like they are now, if you are looking to protect your income with an SPIA it is actually more advantagous to pay off the mortgage because you will get a better rate on that "annuity" than 1 you can buy from an insurance company and you dont have to worry about the insurance company that issues your annuity failing.

 

[jdw_fire]

Yep, that's how it works........

But I think where most folks get shocked is when they enter a reduced portfolio value (say $1.5 mil vs. $2.0 mil) this year as opposed to last year. That can result in a substantially reduced success rate. But, as you say, other things being equal, the addition of 2008 data results in, max, one additional failure.

my point is that i doubt that the SWR has changed all that much which is a point i was making in that post i made that brought about the comment i was addressing here