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06-22-2017, 11:21 AM
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#21
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,008
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When we paid off our mortgage, we did so to lower our fixed monthly expenses. We were taking considerable risk at the time because most of our net worth was tied up in company stock. Our net worth was getting up there where we could consider retiring quite early, so we started looking at our expenses more carefully. At one stock price run up we sold a little company stock and paid off our mortgage. Then we held on a couple more years working to meet our nest egg goals and then some.
Got lucky in general. No, the company stock never cratered and the company remained healthy, but it was a wild ride over many years. I think we were used to it though. Holding on was what made it possible to retire super early.
__________________
Retired since summer 1999.
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06-22-2017, 11:57 AM
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#22
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2014
Location: Huntsville, AL/Helen, GA
Posts: 6,002
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I just like a peace of mind in my retirement. I don't want to think about watching a calendar in order to pay any house or car payment on time. When a bill hits the mailbox, I pay it online immediately and toss the paper away. I seldom even pay that close of attention to my cash balances--as there's enough funds there to cover my expenses.
I just want a simple, no hassle existence that includes no house payments.
After spending mega hours on the phone while working, I seldom talk to anyone on the telephone Most correspondence is by email or Facebook.
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06-22-2017, 12:08 PM
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#23
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Thinks s/he gets paid by the post
Join Date: Mar 2017
Location: New York City
Posts: 2,838
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Im with bamaman, I would have made a mint if i kept a high mortgage and invested the money. But i have enough of money. I wanted to sleep at night. Paid off house makes me sleep better. I do NOT include my house in my AA. Therefore, it doesnt affect the percentages.
__________________
Withdrawal Rate currently zero, Pension 137 % of our spending, Wasted 5 years of my prime working extra for a safe withdrawal rate. I can live like a King for a year, or a Prince for the rest of my life. I will stay on topic, I will stay on topic, I will stay on topic
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06-22-2017, 12:21 PM
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#24
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Thinks s/he gets paid by the post
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,393
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Quote:
Originally Posted by Bamaman
I just like a peace of mind in my retirement. I don't want to think about watching a calendar in order to pay any house or car payment on time. When a bill hits the mailbox, I pay it online immediately .
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Likewise. I was probably into my 50's before I could easily afford to do this. Felt great then and still feels great now.
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06-22-2017, 12:34 PM
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#25
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Recycles dryer sheets
Join Date: Sep 2012
Location: Spring, Texas
Posts: 483
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We paid off our home afew years ago.
We understand all the arguments for making more ROI on the money we spent to eliminate the debt.
Best decision we ever made - but thats just us.....
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06-22-2017, 01:23 PM
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#26
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2013
Posts: 9,358
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Paying off our mortgage would have decreased our after tax money and made it harder for us to qualify for ACA tax credits. We've come out ahead on the investment ROI plus tax credits (currently around $1.3K a month).
__________________
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)
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06-22-2017, 01:59 PM
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#27
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Thinks s/he gets paid by the post
Join Date: Jan 2014
Location: Everett
Posts: 1,592
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Quote:
Originally Posted by bingybear
i paid my house of decades ago (at 32 yo) and did not get sucked into the move up fad.
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On our last move in 2003, we moved to a smaller home, from 2000 sqft down to 1500 (which we paid off in 2006). When people heard we were moving, the typical comment was, "Oh, into a bigger place, huh?" I enjoyed their puzzled looks when I told them no, a smaller place.
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06-22-2017, 02:16 PM
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#28
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Thinks s/he gets paid by the post
Join Date: Jul 2012
Location: Texas
Posts: 3,024
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I suppose I "get" the theoretical point that a mortgage obligation is like an anti-bond. Just not following the OP's logic on why that is "perhaps another argument" for paying off a mortgage. Can someone help me connect the dots?
__________________
Retired at 52 in July 2013. On to better things...
AA: 85/15 WR: 2.7% SI: 2 pensions, SS later
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06-22-2017, 02:28 PM
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#29
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Thinks s/he gets paid by the post
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,393
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Quote:
Originally Posted by Cobra9777
I suppose I "get" the theoretical point that a mortgage obligation is like an anti-bond. Just not following the OP's logic on why that is "perhaps another argument" for paying off a mortgage. Can someone help me connect the dots?
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I think he might be trying to make the case that having a mortgage effectively reduces your fixed income asset allocation. Easy to fix of course, simply buy more bonds and sell equities. The problem with this solution is the bonds typically pay less than the mortgage cost. So if you want to keep your AA steady and keep your overall risk in accordance with your appetite, it will cost you in income. Ignoring any tax effects of course.
So people who say. "Surely I can do better in the stock market than my mortgage rate" are totally missing this point. Perhaps another reason to pay your mortgage off.
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06-22-2017, 03:20 PM
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#30
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Thinks s/he gets paid by the post
Join Date: Jul 2012
Location: Texas
Posts: 3,024
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Quote:
Originally Posted by Danmar
I think he might be trying to make the case that having a mortgage effectively reduces your fixed income asset allocation. Easy to fix of course, simply buy more bonds and sell equities. The problem with this solution is the bonds typically pay less than the mortgage cost. So if you want to keep your AA steady and keep your overall risk in accordance with your appetite, it will cost you in income. Ignoring any tax effects of course.
So people who say. "Surely I can do better in the stock market than my mortgage rate" are totally missing this point. Perhaps another reason to pay your mortgage off.
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Thanks. That makes more sense to me than the OP.
So... if I had a $1M portfolio (60/40) and a $100K mortgage, in effect I would be 67/33 ($600K equity and $300K bonds+mortgage). To get back to 60/40 (my desired AA), would require selling $60K of equity and buying $60K of bonds, resulting in $540K/$360K (60/40). And ignoring the mortgage, the actual portfolio would be $540K/$460K (54/46).
I'm just not sure that a mortgage holder at 54/46 is going to give up much if anything, compared to a non-mortgage holder at 60/40. I've seen FIRECalc success rates that don't vary materially from 30/70 to 70/30. So I can't imagine 5 or 6 points difference in AA would matter much in the long run.
I think the mortgage holder is far more likely to outperform the mortgage rate even with some minor impact from holding more bonds. Of course that assumes the mortgage is 10% of portfolio (my example). I suppose a larger % could make a larger impact and could possibly influence the decision on whether to continue holding the mortgage.
Interesting to think about.
__________________
Retired at 52 in July 2013. On to better things...
AA: 85/15 WR: 2.7% SI: 2 pensions, SS later
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06-22-2017, 08:38 PM
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#31
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 14,183
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Most of my stash is in tax deferred, so I would take a huge tax hit if I pulled out enough to pay off the mortgage. Therefore, I haven't, and won't...
__________________
Have Funds, Will Retire
...not doing anything of true substance...
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06-22-2017, 09:32 PM
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#32
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Thinks s/he gets paid by the post
Join Date: Apr 2016
Location: Dutchess County
Posts: 1,599
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Quote:
Originally Posted by HFWR
Most of my stash is in tax deferred, so I would take a huge tax hit if I pulled out enough to pay off the mortgage. Therefore, I haven't, and won't...
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My issue also. Besides the fact that my interest rate is only 2.75%
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06-23-2017, 05:16 AM
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#33
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,809
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Quote:
Originally Posted by HFWR
Most of my stash is in tax deferred, so I would take a huge tax hit if I pulled out enough to pay off the mortgage. Therefore, I haven't, and won't...
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Until RMDs, heh, heh. Just started RMDs and though still manageable, my experience suggests starting to manage well before RMDs begin. I worked hard at getting "rid" of deferred money ahead of RMDs and I STILL have enough that I may run into not only tax issues in the future but the "gotchas" of MC fees, SS taxability, etc.
While you are in the driver's seat, this could be a good time to pull out a manageable amount from deferred (either to Roth it or to pay down mortgage - or just take a trip to France.) Just a thought as YMMV.
__________________
Ko'olau's Law -
Anything which can be used can be misused. Anything which can be misused will be.
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06-23-2017, 05:27 AM
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#34
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,809
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Quote:
Originally Posted by FIRE'd@51
It's one of mine also, since having to increase your income to make the mortgage payment raises your AGI resulting in higher taxes.
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IIRC Laurence Kotlikoff and Scott Burns spend the better part of a chapter in their book THE COMING GENRATIONAL STORM talking about the issues surrounding having a mortgage or paying it off. They came down on the side of the paid off mortgage. One of the issues is AGI but there are others. Depending on the situation, having the mortgage (thus having to fund its monthly payments) was a significantly more costly retirement strategy than early pay off. They discuss other advantages to the retiree for having a paid off mortgage. Don't recall the details but recommend the book (and not just for the mortgage part.) YMMV
__________________
Ko'olau's Law -
Anything which can be used can be misused. Anything which can be misused will be.
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06-23-2017, 05:27 AM
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#35
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Thinks s/he gets paid by the post
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,393
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Quote:
Originally Posted by Cobra9777
Thanks. That makes more sense to me than the OP.
So... if I had a $1M portfolio (60/40) and a $100K mortgage, in effect I would be 67/33 ($600K equity and $300K bonds+mortgage). To get back to 60/40 (my desired AA), would require selling $60K of equity and buying $60K of bonds, resulting in $540K/$360K (60/40). And ignoring the mortgage, the actual portfolio would be $540K/$460K (54/46).
I'm just not sure that a mortgage holder at 54/46 is going to give up much if anything, compared to a non-mortgage holder at 60/40. I've seen FIRECalc success rates that don't vary materially from 30/70 to 70/30. So I can't imagine 5 or 6 points difference in AA would matter much in the long run.
I think the mortgage holder is far more likely to outperform the mortgage rate even with some minor impact from holding more bonds. Of course that assumes the mortgage is 10% of portfolio (my example). I suppose a larger % could make a larger impact and could possibly influence the decision on whether to continue holding the mortgage.
Interesting to think about.
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Yes, I think that is the point here. Agree for most people it isn't a huge issue and probably points out more the imprecision of AA percentages, eg a few % points doesn't make much difference. I think the debate about pensions and AA is probably more substantive. But as you say "interesting to think about". Bottom line is keeping your mortgage will increase your risk (everything else staying the same). Surely everyone knew that?
Another interesting thing to think about is the apparent use of Firecalc by some people to set their AA. Eg maximize their success % by changing their AA, this seems a little backwards to me, but again, probably not that much of an issue since the Firecalc results are similar across a fairly wide band of AA's.
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06-23-2017, 06:50 AM
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#36
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
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Quote:
Originally Posted by Danmar
Yes, I think that is the point here. Agree for most people it isn't a huge issue and probably points out more the imprecision of AA percentages, eg a few % points doesn't make much difference. ....
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+1 If I include my mortgage in my AA as some suggest my 60/35/5 changes to 65/30/5..... so not a big deal.
__________________
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
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06-23-2017, 03:28 PM
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#37
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Thinks s/he gets paid by the post
Join Date: Sep 2007
Posts: 1,199
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Quote:
you really need to look at your mortgage obligation as part of your bond allocation, as in theory, you need a reliable/dependable return to match up with your fixed mortgage payment
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No, a house isn't any part of your investment asset allocation. A house is a consumption item, not an investment
Don't overthink it and try to force something into the stock/bond framework that doesn't fit there.
You also need a reliable/dependable return to match up with your grocery bill, your car payment, your electric bill, etc. Do you consider them part of your asset allocation? No. A bill is just a bill. You just need the income to pay the bill.
If you want to pay your mortgage off, just make the decision and pay it off. Don't make up some phony bullsxxx reason, just do it because you want to. You don't have to justify it, any more than you have to justify what to have for dinner. Just do it because you want to and you can afford it.
Because from a pure financial point of view you should have the longest fixed-rate mortgage you can get. Financially, allocating a large chunk of your net worth into one specific piece of illiquid real-estate is not a good strategy.
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06-23-2017, 03:30 PM
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#38
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Thinks s/he gets paid by the post
Join Date: Sep 2007
Posts: 1,199
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Quote:
"it's especially nice when reading the doom'n'gloom on the news and financial pages. I can even read Nouriel Roubini articles without freaking out. With a very low cash flow requirement for bare bones existence..."
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You know, if the banking system crashed into a smoking ruin, there will be nobody to send your mortgage payment to. And also nobody to come and foreclose on your house if you don't send the payment.
Gold & silver won't do you any good either. (Lead and brass will be more useful.)
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06-23-2017, 03:45 PM
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#39
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,809
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Quote:
Originally Posted by rayvt
You know, if the banking system crashed into a smoking ruin, there will be nobody to send your mortgage payment to. And also nobody to come and foreclose on your house if you don't send the payment.
Gold & silver won't do you any good either. (Lead and brass will be more useful.)
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There are plenty of doom and gloom scenarios that don't end with the banking system in smoking ruins. For doom and gloom, I'd settle for the stagflation of the 70s/80s. Hardly the end of the banking system but very painful - especially if you're retired. YMMV
__________________
Ko'olau's Law -
Anything which can be used can be misused. Anything which can be misused will be.
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06-23-2017, 09:03 PM
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#40
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Thinks s/he gets paid by the post
Join Date: Nov 2013
Location: Twin Cities
Posts: 3,927
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Quote:
Originally Posted by Koolau
They came down on the side of the paid off mortgage. One of the issues is AGI but there are others. Depending on the situation, having the mortgage (thus having to fund its monthly payments) was a significantly more costly retirement strategy than early pay off. They discuss other advantages to the retiree for having a paid off mortgage.
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But if early payoff requires pulling $ from tax deferred accounts, because that's where the bulk of one's assets are parked, what is a good strategy for doing so? Is it the same calculation as a Roth conversion, only you put the converted $ toward the mortgage instead of a Roth? Has anyone here done it?
Our mortgage balance is $280,000, which would take $450,000 ballpark to generate the principle and interest payments sustainably at a 4% SWR, so there is some short term appeal to paying it off, which I realize dissipates longer term as that $450,000 "endowment" grows faster than the mortgage payments.
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