Planning my last 20 years, how much to spend. (Part 2)

[d2reid]

I posted back in January of 2023 about planning my last 20 years.

https://www.early-retirement.org/forums/f29/planning-my-last-20-years-finding-a-place-116418.html

We have pretty much desided on Johnson City, TN. Family is within reach. Airports are within reach. Weather is moderate. The Appalachian Mountains are nearby. The area is economically depressed. They have a medical college. They have a very active senior center.

So coming off the road after 12 years what do we want and more importantly, how much should we invest. I am thinking that we should take 50% of our cash assetts and purchase property outright. No mortgage, no paying interest. DW argues that we may need that money for something. At 68 I am not sure what that "something" could be. The only thing we don't have is a fixed place to live.

So my question for the group is: Do we keep the cash in the bank, or spend it on a house?

 

[MBAustin]

Without knowing more about your overall financial situation, it's really hard to give specific advice. What are your other assets and sources of income and other expenses? You can run various scenarios through FIREcalc (link at the bottom of each page here).

 

[pb4uski]

.... I am thinking that we should take 50% of our cash assetts and purchase property outright. No mortgage, no paying interest. DW argues that we may need that money for something. At 68 I am not sure what that "something" could be. The only thing we don't have is a fixed place to live.

So my question for the group is: Do we keep the cash in the bank, or spend it on a house?

What percentage of cash assets would be invested in a house is isn't relevant; what is relevant is the percentage ot total retirement assets. 50% of your retirement assets that might be uncomfortable in some situations. I guess I would reframe it as if you paid cash for the house what would your finances look like? If pensions, SS or other income sources exceed or cover a large percent of your spending then no problem. But if your retirement is relying on portfolio withdrawals and your WR is 4% or more then I would look at a mortgage.

I am contemplating this right now but if we paid cash it would only be less than 10% of our total retirement assets (after selling our current home). I am thinking of getting a mortgage anyway and refinance as rates decline. I have been a "serial" refinancer over the years as morgage rates decline, in one case refinancing within 2 years to capture the benefit of declining interest rates.

So put another way.. if you pay cash and run your situation through FIRECalc then what is your success rate? Similarly, if you take a mortgage and run your situation through FIRECalc then what is your success rate? That will give you insights as to what the best decision is.

 

[d2reid]

Without knowing more about your overall financial situation, it's really hard to give specific advice.

More info below.

what is relevant is the percentage ot total retirement assets.

I am contemplating this right now but if we paid cash it would only be less than 10% of our total retirement assets (after selling our current home). I am thinking of getting a mortgage anyway and refinance as rates decline. I have been a "serial" refinancer over the years as morgage rates decline, in one case refinancing within 2 years to capture the benefit of declining interest rates.

So put another way.. if you pay cash and run your situation through FIRECalc then what is your success rate? Similarly, if you take a mortgage and run your situation through FIRECalc then what is your success rate? That will give you insights as to what the best decision is.

Of course if I don't communicate the situation correctly if would be difficult to analyze, soooo

We have $600k in cash. Some in stocks, most in CD's. We only have about $70k in tangibles, RV and truck. Not planning on selling either. We filed on $110k of income last year, pensions, IRA withdrawels, interest, SS; those will reman steady until my demise. DW will get about 60% of that.

I am thinking that we will invest about $300k in our fixed home. With no mortgage, that will reduce our "rent" from (avg) $1500 a month to around $500 a month (taxes, insurance, utilities).

I guess my big think is I don't want to pay interest. Now I have to go find the firecalc thingy....

 

[Wile E. Coyote]

More info below.



Of course if I don't communicate the situation correctly if would be difficult to analyze, soooo

We have $600k in cash. Some in stocks, most in CD's. We only have about $70k in tangibles, RV and truck. Not planning on selling either. We filed on $110k of income last year, pensions, IRA withdrawels, interest, SS; those will reman steady until my demise. DW will get about 60% of that.

I am thinking that we will invest about $300k in our fixed home. With no mortgage, that will reduce our "rent" from (avg) $1500 a month to around $500 a month (taxes, insurance, utilities).

I guess my big think is I don't want to pay interest. Now I have to go find the firecalc thingy....

I do not see anything wrong with you taking half your cash and buying a house. But, then I would save that other $1,000 out of your income to beef up your investment portfolio (even if it is cash). We may not get some guaranteed huge drop in mortgage rates like we have in the past and I am not sure you could finance and be guaranteed a 2.5 to 3.0 percent interest rate down the road (houses require maintenance).

 

[mathjak107]

Without knowing more about your overall financial situation, it's really hard to give specific advice. What are your other assets and sources of income and other expenses? You can run various scenarios through FIREcalc (link at the bottom of each page here).

it’s almost like asking a forum , how long is a rope ?

 

[Wile E. Coyote]

it’s almost like asking a forum , how long is a rope ?

And yet people must make decisions under all kinds of uncertainty.

 

[DrRoy]

If you are unsure, you could put 50% down and mortgage the rest.

 

[mathjak107]

And yet people must make decisions under all kinds of uncertainty.

key word is they have to make decisions..i for one would never offer advice to a stranger i know nothing about.

we really can only say what we do or did but that may have no bearing on what anyone else should do , especially when no real information is given

 

[TickTock]

I am thinking that we will invest about $300k in our fixed home. With no mortgage, that will reduce our "rent" from (avg) $1500 a month to around $500 a month (taxes, insurance, utilities).

Assuming your numbers are accurate, you put $300k for a $12k/year spending reduction. 4% return on money invested. Seems reasonable. And hopefully the house appreciates in value over time, at least keeping up with inflation.

I don't see a bad choice either way.

FWIW, about 5 years ago I called DF to ask his opinion on paying off our mortgage (low interest rate) vs. keeping it and let the money grow in our investment portfolio. He said essentially the same thing to me, "I don't think you can make a bad decision here." Of course, one decision will be better than the other afterwards, but you can't reliably tell in advance.

 

[Wile E. Coyote]

key word is they have to make decisions..i for one would never offer advice to a stranger i know nothing about.

we really can only say what we do or did but that may have no bearing on what anyone else should do , especially when no real information is given

Then, why even comment.

People do not really want you to solve their problems; they just want to hear comments that lead to something they have not thought of/considered.

Everyone has an opinion/everyone has an axhol too and everyone knows that already.

It's like thank you Captain Obvious every time you say that.

 

[mathjak107]

then they need to provide far more information like was said

Without knowing more about your overall financial situation, it's really hard to give specific advice. What are your other assets and sources of income and other expenses? You can run various scenarios through FIREcalc (link at the bottom of each page here).

 

[Wile E. Coyote]

then they need to provide far more information like was said

He did.

 

[Aerides]

No need to derail a thread squabbling, take that to PM's please...

 

[MichaelB]

Without knowing more about your overall financial situation, it's really hard to give specific advice. What are your other assets and sources of income and other expenses? You can run various scenarios through FIREcalc (link at the bottom of each page here).

What percentage of cash assets would be invested in a house is isn't relevant; what is relevant is the percentage ot total retirement assets. 50% of your retirement assets that might be uncomfortable in some situations. I guess I would reframe it as if you paid cash for the house what would your finances look like? If pensions, SS or other income sources exceed or cover a large percent of your spending then no problem. But if your retirement is relying on portfolio withdrawals and your WR is 4% or more then I would look at a mortgage.
./.
So put another way.. if you pay cash and run your situation through FIRECalc then what is your success rate? Similarly, if you take a mortgage and run your situation through FIRECalc then what is your success rate? That will give you insights as to what the best decision is.

pb4uski’s question is critical. If you buy your new home with cash from your portfolio, are your remaining portfolio assets enough to live on? FIRECalc can model this for you.

 

[mathjak107]

pb4uski’s question is critical. If you buy your new home with cash from your portfolio, are your remaining portfolio assets enough to live on? FIRECalc can model this for you.

i will add another factor and that is when taking a mortgage and leaving your own money invested you are in effect borrowing to invest ….

i know unless the risk premium for using leverage and borrowing money to invest is high enough over just using my own money. , i wouldn’t be interested in borrowing money to invest .

so if a risk free treasury is 4-5% percent then i would want at least a few points over that if i wasn’t using leveraged to make it worth it .

throw in another few points for using borrowed money and without high levels of equities being involved it just may not have enough of a risk premium with a balanced portfolio to be worth doing .

look at 2022 where one’s portfolio took a beating and tens of thousands in interest had to be paid out ,illustrating rates as to why we really need an additional risk premium with borrowed money.

it isn’t a simple case of i’m paying this much interest and getting this much return when spending down , as that increased spending multiplies sequence risk in poor years plus we may be talking balanced portfolio returns in retirement, not 100% equity ones

after thinking about this article i agree and a mortgage may not be the best option even if one can get a point or 2 higher once spending down unless high equity levels are used to make it worth the risk premium

https://www.kitces.com/blog/why-keeping-a-mortgage-and-a-portfolio-may-not-be-worth-the-risk/

 

[d2reid]

I have been posting on forums for many years. Wile E. Coyote expressed it very well, I post to start a discussion that will lead to me hearing something I did not consider before.

So two positive points that have come out of the discussion. 1. TickTock did an analysis and came up with 4% return. 2. MathJak107 expressed the viewpoint that a mortgage would be like borrowing to invest.

One could certainly quibble about these, but I found them to be something to consider. And like all opinions that you get on a forum you have to do your own thinking on subject, separate the wheat and chaff so to speak.

 

[mathjak107]

I have been posting on forums for many years. Wile E. Coyote expressed it very well, I post to start a discussion that will lead to me hearing something I did not consider before.

So two positive points that have come out of the discussion. 1. TickTock did an analysis and came up with 4% return. 2. MathJak107 expressed the viewpoint that a mortgage would be like borrowing to invest.

One could certainly quibble about these, but I found them to be something to consider. And like all opinions that you get on a forum you have to do your own thinking on subject, separate the wheat and chaff so to speak.

not my view just to be clear , but the view of kitces , which i do agree with

 

[d2reid]

not my view just to be clear , but the view of kitces , which i do agree with

I apologize if I misquoted.

 

[mathjak107]

I apologize if I misquoted.

i am not smart enough to come up with most of this stuff. ha ha

 

[ivinsfan]

One thing I don't see mentioned is what you happen if one of you dies? IE would you stay in place, relocate, move to an apartment..I realize these questions are hypothetical but having a mortgage in place does give the survivor more breathing room and more money if changes need to happen.


This is kind of a personal comfort level item and can vary wildly.

 

[d2reid]

One thing I don't see mentioned is what you happen if one of you dies?

If she dies I lose about 20% of my income stream. If there is no mortgage then my income stream will sustain the property until I can no longer do the maintenance, at which time I will have to sell it and move into an old folks home.

If I die first, and there is no mortgage, her income stream will support the property. She would not be able to sustain mortgage payments. Nor would she be able to care for the type of property we are looking at.

 

[Wile E. Coyote]

i will add another factor and that is when taking a mortgage and leaving your own money invested you are in effect borrowing to invest ….

i know unless the risk premium for using leverage and borrowing money to invest is high enough over just using my own money. , i wouldn’t be interested in borrowing money to invest .

so if a risk free treasury is 4-5% percent then i would want at least a few points over that if i wasn’t using leveraged to make it worth it .

throw in another few points for using borrowed money and without high levels of equities being involved it just may not have enough of a risk premium with a balanced portfolio to be worth doing .

look at 2022 where one’s portfolio took a beating and tens of thousands in interest had to be paid out ,illustrating rates as to why we really need an additional risk premium with borrowed money.

it isn’t a simple case of i’m paying this much interest and getting this much return when spending down , as that increased spending multiplies sequence risk in poor years plus we may be talking balanced portfolio returns in retirement, not 100% equity ones

after thinking about this article i agree and a mortgage may not be the best option even if one can get a point or 2 higher once spending down unless high equity levels are used to make it worth the risk premium

https://www.kitces.com/blog/why-keeping-a-mortgage-and-a-portfolio-may-not-be-worth-the-risk/

Some people might get into that situation because, for instance, they cannot get money out of their 401k so they refi their house instead (say for unexpected medical bills, etc.). I'm not saying it is proper financial planning, I am just saying that people end up in that situation (not as a plan).

 

[mathjak107]

Some people might get into that situation because, for instance, they cannot get money out of their 401k so they refi their house instead (say for unexpected medical bills, etc.). I'm not saying it is proper financial planning, I am just saying that people end up in that situation (not as a plan).

then it isn’t a situation of choosing between paying cash , leaving investments alone or taking a mortgage , they have no choice in your example.

it’s no different then someone who has no choice and has to spend their retirement money for unexpected bills

these kinds of discussions and decisions are for those with choices.

like i say , money may not buy happiness but it can buy many choices in life

 

[Wile E. Coyote]

then it isn’t a situation of choosing between paying cash , leaving investments alone or taking a mortgage , they have no choice in your example.

it’s no different then someone who has no choice and has to spend their retirement money for unexpected bills

these kinds of discussions and decisions are for those with choices.

like i say , money may not buy happiness but it can buy many choices in life

Arbitrage works or else so many uber wealthy people would not do it.