Been searching the site, but can't quite find this specific scenario vetted out. I would suspect my dilemma is relevant for many others, but will use my specifics to get some feedback. Relevant points...
- Currently working, plan to RE end of 2019
- Once I RE (both myself and DW will be 55), will be 100% dependent upon investments (no pension, no working DW)
- AA currently 60/40 (current plan is to ride this thru RE) split about 50/50 in taxable/tax differed (will run mock tax returns and iOrp to determine best mix of withdrawals, but will have access to early 401K accounts if desired)
- Planning on using a flexible 4% SWR with a much higher RE spend/budget than most (heavy in the discretionary department), so have a good bit of flexibility.
- Plan to stay in home a min of 5 yrs, but frankly it could be indefinitely with no plans on the horizon to downsize. As others, at this point, I view my home as my home and not part of my assets factored into my SWR
- Currently mortgage balance of $348K (home value +/-$1M) at 3.6% with roughly 24 yrs to go and P&I = $21,726/yr.
- For now, I have underwritten this $21,726/yr as part of my static fixed expenses since it has 24 yrs to go and we have no plans to move
- For me, while I am leaning towards the pay off of the mortgage the day I RE for emotional reasons, I am still balancing that with the financial arguments. The $348K will either be paid off or stay in my AA.
So here is the pickle... While I am currently working and making more income than my planned RE annual spend, I am 1) very conscious of maximizing any tax deductions and 2) still being in the phase of putting money away, I choose to keep the low mortgage betting my $348K will get a better return in the market. However, I really wonder if I need to look at this differently (financially speaking, putting the peace of mind of a paid off mortgage to the side for a min) once I RE and go from zero earned income to 100% dependent on the 4% rule. In simple terms, once I RE, my $21,726/yr fixed expense really requires $543,150 in my AA to support it, does it not? IOW, the $348K I am currently keeping in my AA only covers $13,920 in expenses so does this not make the financial argument to pay off my mortgage based on my specifics noted above? I realize there will be some tax benefits to keeping the mortgage, but not significant enough to close the gap.
Where I struggle is the financial argument for keeping the cheap money and betting on higher returns by keeping the money in the market vs the financial argument I just laid out once RE. Somebody tell me what I'm missing here.
- Currently working, plan to RE end of 2019
- Once I RE (both myself and DW will be 55), will be 100% dependent upon investments (no pension, no working DW)
- AA currently 60/40 (current plan is to ride this thru RE) split about 50/50 in taxable/tax differed (will run mock tax returns and iOrp to determine best mix of withdrawals, but will have access to early 401K accounts if desired)
- Planning on using a flexible 4% SWR with a much higher RE spend/budget than most (heavy in the discretionary department), so have a good bit of flexibility.
- Plan to stay in home a min of 5 yrs, but frankly it could be indefinitely with no plans on the horizon to downsize. As others, at this point, I view my home as my home and not part of my assets factored into my SWR
- Currently mortgage balance of $348K (home value +/-$1M) at 3.6% with roughly 24 yrs to go and P&I = $21,726/yr.
- For now, I have underwritten this $21,726/yr as part of my static fixed expenses since it has 24 yrs to go and we have no plans to move
- For me, while I am leaning towards the pay off of the mortgage the day I RE for emotional reasons, I am still balancing that with the financial arguments. The $348K will either be paid off or stay in my AA.
So here is the pickle... While I am currently working and making more income than my planned RE annual spend, I am 1) very conscious of maximizing any tax deductions and 2) still being in the phase of putting money away, I choose to keep the low mortgage betting my $348K will get a better return in the market. However, I really wonder if I need to look at this differently (financially speaking, putting the peace of mind of a paid off mortgage to the side for a min) once I RE and go from zero earned income to 100% dependent on the 4% rule. In simple terms, once I RE, my $21,726/yr fixed expense really requires $543,150 in my AA to support it, does it not? IOW, the $348K I am currently keeping in my AA only covers $13,920 in expenses so does this not make the financial argument to pay off my mortgage based on my specifics noted above? I realize there will be some tax benefits to keeping the mortgage, but not significant enough to close the gap.
Where I struggle is the financial argument for keeping the cheap money and betting on higher returns by keeping the money in the market vs the financial argument I just laid out once RE. Somebody tell me what I'm missing here.