In the brinker example, he doesnt count the fact that an ER will have to possibly double their withdrawal amount to pay for the mortgage, and that increases your income taxes by that amount. I was able to stay just under the line to pay no tax.
I guess it bugs me that SG brings this back to it being all about some sort of psychological thing. Its absolutely not that at all in my case, the 'wow I have no debt' part is just a little icing on the cake. I get drawn into this discussion primarily to debunk this "keep your mortgage and make money, pay it if you're a scaredy-cat" approach.
Its a decision SG's made for himself, and he's structured it so it works for him. Thats great. However...he has to presume that stock gains during the time he's in the home exceed the mortgage cost. If he stays in the home for more than 15 years, thats probably going to happen. If he doesnt, the odds are 50/50. He also has to hope that the yields on the bonds he's holding eventually top the mortgage rate he's paying, otherwise he's making less on those than he's paying out on the mortgage. In other words, its not a slam-dunk that he's going to do better; there are a lot of "ifs".
I'm also skeptical about the above $50k in 3.5 years claim; I cant see any investments that would have produced a positive return of that level over that time period.
The last 5 years, equities have not turned out a rate strong enough to overcome ANY widely available mortgage cost, and bonds have paid less than mortgage rates as well. Statistically, about 55% of homeowners move within 5 years, 68% in 7 years, and 85% in 10 years. After moving, you get a new mortgage at the new prevailing rates, its a new calculation. (Side note: yes you can find 10 sets of numbers that are different from the ones I just put out, depending on who gathered them. The basic intent is the same; if you stay in your house long enough for the long term equity curve to move into a positive bias in the favor that you'll make money on them, you're an odd duck as far as length of stay in one home is concerned.)
You can do this three ways:
1 - Take a mortgage, keep your investment balance of stocks:bonds the same, commit to staying in the property for 15+ years, and by historical numbers, make money off the float. You'll have to pull more money from the portfolio to pay the mortgage, incurring capital gains. You'll get some benefit from the mortgage interest tax deduction, but by halfway through the mortgage that'll slide off and in the last 25% of it, you'll be paying for the withdrawal while getting little benefit tax-wise.
2 - Pay the mortgage, shift your investment balance from a traditional 50/50 or 60/40 to an 80/20. You dont have to stay in the home for any particular length of time. Over the same time period as #1, you will make even MORE money because of your higher equity to bond ratio even though your portfolio has been reduced by paying off the mortgage. You can totally take the volatility as you're not paying much out every month. Food and the regular bills. I can slash mine down to ~$10k a year and not feel like I'm suffering. You can make that kind of money working part time at any old job. I can make 10k a year mowing lawns, pet sitting, painting a few houses, selling a couple of cars or sitting behind the counter at the quick-e mart. If you have to come up with 45k+ a year to make your mortgage payments, you're back to your old cube farm job for the alleged forty hours a week. In this scenario, with a good set of deductions you'll probably little or no taxes, and since most of your withdrawals will be equity capital gains, you're capped at 15%. Get richer while taking on a fairly small risk with no catches. Still feeling like a scaredy-cat?
3 - Pay the mortgage, shift from a 50/50 or 60/40 to a 35/65 or 40/60. On portfolios in the $1M to $1.5M range you're pulling in $40-60k a year in dividends alone (Wellesley paying ~4%). Unless you're a big spender or big traveller, any couple can live comfortably on 40-60. With a good set of deductions you'll probably pay no taxes and what you do pay will be at the regular income rate of 15% or less. Funds like Wellesley have paid the ~4% dividend while also keeping pace with inflation. Enjoy your almost completely risk free life with no catches.
There you go. Not a damn thing to do with 'psychology' or 'fear'. Roll the dice in one case or pick a payoff scenario that will either make you more money than the gamble, or reduce your risk and still enjoy a comfortable retirement.
You can play with the calculators to make yourself feel more at-home with this, providing your mind is not already made up.
Run SG's example in firecalc. Confirm the results.
Now deduct that mortgage payoff amount from the total port size. Change the equity portion to 80%. Reduce the withdrawal by the annual mortgage payment amount. Do the run. Your average terminal portfolio size will be higher than SG's example and your allowable withdrawal rate and success percentage will go up. In fact, with this construction you can actually retire earlier with less money and still make it. Try it...reduce the portfolio size until you drop below 100%...in the examples I ran I could retire with well under a million and still hit a 99%+ success ratio. Wouldnt THAT suck? Retiring on less earlier and making more, without a mortgage?
Now do it again but change the ratio to 40% equities. You'll have a smaller average terminal size, but your success ratio will stay the same. If you look at the detail report, you'll see very little volatility from year to year, even during the worst of times. Sound sleeping.
Sounds like math, finances and science to me. No fear, no psychology.