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Old 02-05-2021, 02:06 PM   #41
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I'm not quite following. I don't know the intricacies of Covered California yet but I believe I'll need to be under $80k/year in income to qualify for subsidiaries. My mortgage is about $25k/year. Taxes, hoa and insurance is another $20k/year. So that would leave 35k of income left for everything else...
The money you are going to use to pay off your mortgage is coming from somewhere. I'm suggesting to use that money to instead cover part or all of your travel and other discretionary spending for many years to come, thereby keeping your income low, or else use it to do bigger Roth conversions now at what I'm assuming what will be lower rates than in the future. This is what I'm planning on doing.

My model does make the assumption that taxes are only going to go up in the future, as well as assuming those Roth funds will grow (not shrink) at some nominal rate tax free, so I guess it's all a bit of a crap shoot, but I'll bet on higher taxes/positive growth over the long term every time. Let's meet back here in 20 years and see how it all worked out, which will of course tell us nothing about the next 20 years.
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Old 02-05-2021, 02:10 PM   #42
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I'm not quite following. I don't know the intricacies of Covered California yet but I believe I'll need to be under $80k/year in income to qualify for subsidiaries. My mortgage is about $25k/year. Taxes, hoa and insurance is another $20k/year. So that would leave 35k of income left for everything else which would not be enough unless I give up travel, however travel is the main draw of early retirement.

Also, while long term performance will likely exceed my mortgage rate, short term performance is less certain. I think I would feel more comfortable in retirement without any debt obligations.
Income does not have to equal expenses. If, for example, you have $80K in a mutual fund with $60K basis, then by selling it you get $80K to cover your expenses on just $20K of taxable income.

I'm not saying you should or should not do this. Just showing an example of what I think was meant in the comment directed toward you.

If all of your money is in tax deferred, then of course it's all taxable as you withdraw for expenses. But if you withdraw a bulk sum to pay off your mortgage, you're really going to get whacked that year in taxes.
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Old 02-05-2021, 02:17 PM   #43
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Income does not have to equal expenses. If, for example, you have $80K in a mutual fund with $60K basis, then by selling it you get $80K to cover your expenses on just $20K of taxable income.

I'm not saying you should or should not do this. Just showing an example of what I think was meant in the comment directed toward you.

If all of your money is in tax deferred, then of course it's all taxable as you withdraw for expenses. But if you withdraw a bulk sum to pay off your mortgage, you're really going to get whacked that year in taxes.
I got lucky because I was stupid and started saving very late. I don't have giant cap gains in my taxable account.
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Old 02-05-2021, 02:21 PM   #44
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Exactly. In summary the 2.5% you're paying on your mortgage, and allowing you to keep your full taxable account in tact, will give you great power in the future to keep your effective tax rate lower for many years to come, not to mention possibly allowing you to qualify for ACA subsidies and other pluses of maintaining a low income. I'm guessing that power will more than make up for the 2.5% you're paying in interest, not even considering that your taxable account, if left in tact, would likely be growing during that time as well.
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Old 02-05-2021, 02:26 PM   #45
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Income does not have to equal expenses. If, for example, you have $80K in a mutual fund with $60K basis, then by selling it you get $80K to cover your expenses on just $20K of taxable income.

I'm not saying you should or should not do this. Just showing an example of what I think was meant in the comment directed toward you.

If all of your money is in tax deferred, then of course it's all taxable as you withdraw for expenses. But if you withdraw a bulk sum to pay off your mortgage, you're really going to get whacked that year in taxes.
Ah, I see. My plan was to use cash from bonuses over the next several years to pay it off so I likely wouldn't be selling anything to pay it off. It's a bit of a safety hedge, I'll still be investing a decent sum in the market each year but the cash from bonuses will go to a low yield sure thing.
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Old 02-05-2021, 05:23 PM   #46
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I have resolved this problem. I paid off my mortgage and got a HELOC at 2.24% (-1.01% of prime rate) .. gives me flexibility with the revolving credit.
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Old 02-06-2021, 09:11 AM   #47
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I won't carry a mortgage into retirement, even if I have to move...saw people get stuck with a hefty mortgage after they unexpectedly were laid off who never managed to find another job but couldn't give up the house where they'd been living for the past 30+ years.

And they did what they were supposed to do...e.g. my recently-deceased relative (single mother) refinanced to a 15 year mortgage once the kids were out of the house (trying to pay it off before retirement) but 5 years into it their entire department was outsourced, so they refi'd again to a 30 year, which meant they were stuck with it through retirement.

Given their only income was $1,800/month (SS-at-age-62) retirement servicing a mortgage (& later HELOC) payment of over $1,000/month made for a lean retirement.
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Old 02-06-2021, 10:37 AM   #48
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I won't carry a mortgage into retirement, even if I have to move...saw people get stuck with a hefty mortgage after they unexpectedly were laid off who never managed to find another job but couldn't give up the house where they'd been living for the past 30+ years.
While not a good situation to be in, I don't see how this example could ever apply to someone already retired. Once you are retired how will you ever lose your job? If you decided to retire but didn't figure your existing mortgage in your expense calculations (or paying off of said mortgage for that matter) then you probably shouldn't be retiring in the first place.
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Old 02-06-2021, 12:19 PM   #49
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I have resolved this problem. I paid off my mortgage and got a HELOC at 2.24% (-1.01% of prime rate) .. gives me flexibility with the revolving credit.
Can I ask - what bank is doing a HELOC at 2.24%?
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Taking cash at these rates is reasonable...
Old 02-09-2021, 04:28 PM   #50
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Taking cash at these rates is reasonable...

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My first question on this is always: Right now, if you had no mortgage, would you mortgage the house to invest in the market? Because that is basically what you are doing.

That said, it depends on how much the mortgage is and what are the payments. If you have a large amount of cash earning less than 1%, maybe put some of that towards it.

Despite the fact that we (the FIRE community) LOVE to discuss the topic, paying off the mortgage is a very personal decision.

Full disclosure: We (DW and I) always had the attitude that all the money from a sale went into the next house, keeping the mortgage low. When the last house was paid off, we sold for a tidy profit, bought the current townhome/condo, and invested the rest.
I go back and forth dramatically on this one. Had house paid off 1.2M, got tired of it feeling like a giant gold brick doing nothing and took money out in March when pandemic hit - turned 500k into 800k just investing in a diverse basket of equities. Took another 250k just now for syndicated real-estate investment. It feels odd paying the 2k soon to be 3k payment (2.75% for 30)... but it really is essentially free money. Full disclosure also for consideration, have multiples of this so could pay it off whenever.
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Old 02-09-2021, 04:43 PM   #51
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I paid my mortgage off early once the tax rules changed and there was no longer any advantage to itemize. Timing was about a year prior to retirement. Plowed the free cash into my emergency fund. 50 days after my retirement date we went into the first COVID lockdown. COVID has been a pain. But we’ve stayed healthy and not having a mortgage payment has been a huge source of peace of mind. All the best.
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Old 02-09-2021, 05:02 PM   #52
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We paid off our house in TX in 2019. Then we moved to OH in 2020. We could have paid cash for the OH house, but decided to take a 2.75% 30 yr fixed rate mortgage on the new house. We put the cash from the TX house into the market in May 2020. That turned out to be a great move. Made $56,000 net of mortgage interest. Yeah us!

But now, as we are 57 days and a wake up from retirement, I have come to hate this mortgage. All the models say keep it. And now that the invested cash from the TX house has giant short term cap gains, it isn't as simple as just paying it off. I'll have this boat anchor until age 84.

No real action, just a rant.
I don't think I will ever understand why a person with the means to pay cash for a house (or anything else) would opt for a loan instead (younger folks building a credit history being the exception). Why give away ANY percentage of your money to someone else?
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Old 02-09-2021, 05:08 PM   #53
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I don't think I will ever understand why a person with the means to pay cash for a house (or anything else) would opt for a loan instead
If you've read through this thread and others like it and still don't understand, I don't think you ever will either. That doesn't make it wrong for people to take on a mortgage.
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Old 02-09-2021, 05:12 PM   #54
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I don't think I will ever understand why a person with the means to pay cash for a house (or anything else) would opt for a loan instead (younger folks building a credit history being the exception). Why give away ANY percentage of your money to someone else?
I have 67,806 reasons why I did it. I got lucky by leveraging my house into my 60/40 portfolio, but the odds were in my favor. I need 0.75% real from my 60/40 portfolio over the next 30 years to breakeven on the mortgage. If you think the odds of that happening are low, then you should pay off your mortgage.
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Old 02-09-2021, 05:16 PM   #55
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I don't think I will ever understand why a person with the means to pay cash for a house (or anything else) would opt for a loan instead (younger folks building a credit history being the exception). Why give away ANY percentage of your money to someone else?
Pretty much for the same reason that AT&T, Amazon, Microsoft, etc. borrow money by floating long-term bonds.

Because -- over the long run -- your money that is invested earns more than what the loan costs.
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Banks only lend when you dont need it
Old 02-09-2021, 05:25 PM   #56
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Banks only lend when you dont need it

I have not seen this comment, but I say keep the mortage. Banks don't give you money if you need it. You can invest it for virtually no gain/loss, but possibly gain (as you have). But the future is unknown and I have seen situations where you do need money after retirement and banks wont give it. Sock it away wisely and give it back when it wont matter.

If your savings account can pay it off tomorrow, why the "pressure" of a mortage exists I;ll never know...
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Old 02-09-2021, 05:29 PM   #57
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Well the mortgage can be thought of as a loan to let you buy stocks. That would be extremely risky as markets do not always go up, but it at least would be a logically consistent bet.

The suggestions that are not consistent are the ones to have a mixed stock/bond portfolio - bonds are paying 1% (and could go down in value if inflation kicks up) and you are paying 2.75% to get that. So if you have no cash/bonds and want to have an all stock leveraged portfolio - you are logically consistent and may you have good luck! But if, like most retirees, you want to hold a substantial amount of bonds, having a mortgage is working against you. You cannot get a risk free 2.75% return anywhere else right now and paying off that mortgage gives you that opportunity.

The cost of paying off the mortgage is flexibility, if you don't have enough assets to do it, then keep working until you do, but personally I would never carry a mortgage into retirement.
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Old 02-09-2021, 05:46 PM   #58
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I went against the grain and payed mine off when I was in my thirties. I had everyone tell me I was losing money, but I work construction and I love the peace of mine it brings me if things every get bad for me.
I don't understand how this helped your peace of mind. With no mortgage, you don't have to worry about that if you're out of work. With a mortgage, but the money you would have used to pay it off conservatively invested, you don't have to worry about paying the mortgage if you're out of work.

Either way, no mortgage problem.
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Old 02-09-2021, 06:00 PM   #59
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Well the mortgage can be thought of as a loan to let you buy stocks. That would be extremely risky as markets do not always go up, but it at least would be a logically consistent bet.
That would be a painful and short conversation at my house:

“Honey, I mortgaged the house today to play the stock market.”
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Old 02-09-2021, 06:03 PM   #60
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That would be a painful and short conversation at my house:

“Honey, I mortgaged the house today to play the stock market.”

Good point. Wouldn't go over well here either.
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