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Which also means that except for 4 time frames investing the amount of a low cost mortgage will also work.
that isn't what it means at all , you would have to enter each time frame and see . just because you didn't go broke before 30 years doesn't mean you made more in your investments then you paid in interest or that you have less left then you would have if you didn't have to pull so much out to pay the mortgage in down years ..
you may have had 3 minor up years since investing the mortgage money and 3 bigger down ones.
each person and each time frame will have totally different outcomes if you are counting dollars based on different expenses . don't forget your withdrawal rate would be less with no mortgage and higher with one so it has zero to do with an average swr...
all that matters is the spread vs withdrawal rate with what you are getting at.
Last edited by mathjak107; 05-25-2015 at 02:46 PM..
Which also means that except for 4 time frames investing the amount of a low cost mortgage will also work. At a minimum the income will pay off the mortgage and generate a couple of percent annual returns that can be spent. Personally I like to be more conservative and not spend the 2% for at least a few years to be absolutely sure that returns early on will carry through. I also understand that the 4% or even the 6.5% withdrawals are conservative. Changes are very good that I will earn substantially more money from the investment of my mortgage amount.
we will see what conservative withdrawals will be coming up in my time frame.
with the outlook by quite a few including bogle being that now that we re-traced which is easy we may be around 6% market returns and 2.50-4% on bonds. for a 50/50 mix that does not look to great and stands some where around a 3% safe withdrawal rate for at least 5 years and maybe longer.
i hope they are wrong. i am going off each years balance so whatever it is it is.
As you pointed out there with 4 exceptions, any other time period would permit withdrawals of 6.5%. That is way over what it takes to pay off a mortgage at current rates. If you want to look for the worst cases and also believe that will hit you at the worst time, that is what I call pessimism...constantly looking for the absolute worse case. If I were retiring today I would still feel relatively confident with the 4% rule. In hindsight, I was lucky. I can tell you for sure it did not seem that way in 2011. There had been some recovery but still lots of serious concern about the economy both in the US and the rest of the world. Any mention of Greece brought up discussion on the impending domino effect soon to overtake Spain, Portugal and Italy. Unemployment was high and the US economy was still scary in many areas.
No ,don't misunderstand ,that is an average of 6.50% . Many were lower and many higher.
A swr has little to do with market returns were . They have everything to do with sequence of returns and inflation.
How much you have is based on your expenses so being able to pay a mortgage means nothing ,it is just another expense.
The question is what will leave you with more . Taking 4% withdrawals to pay a mortgage vs 3% withdrawals with no mortgage. ?
If markets produce more you win. If they produce less like that y2k retiree you lose.
The big question will be when did you start . Someone starting the process when market valuations are lower stands a good chance of winning.
Start the process before a retracement and you should do great. Start it after the retrace and it may be less then a coin toss chance of coming out ahead.
But start the process when valuations are high and chances of winning are lower.
Last edited by mathjak107; 05-25-2015 at 04:11 PM..
Odds are with the market valuations as high as they are that if i took a mortgage now we would have a correction at some point early on likely in my first 5 years of living off that portfolio.
The risk of me having to support that mortgage early on from assets are pretty good.
The outlook for getting very high market returns is slim the next 5 years . Could it happen? Sure. but nothing indicates the odds are on my side enough to bet on.
So the risk vs reward outlook is poor in my view. To make 2 or 3% over the mortgage would change nothing in our lives. The risk to hurting the first 5 year period is quite high at this point.
When i borrow money to invest i want nice juicy rewards with high odds just as i have always done.
Perhaps after a major correction i would consider it but certainly not at these levels
The question is what will leave you with more . Taking 4% withdrawals to pay a mortgage vs 3% withdrawals with no mortgage. ?
.
Taking 4% withdrawals from a MUCH LARGER portfolio to pay a mortgage over 30 years vs 3% withdrawals from a much smaller portfolio with no mortgage. Or, since the portfolio is much larger maybe you could take only 3% either way. Do the math.
The risk is virtually nonexistent. It is not the risk that makes a difference for you. As I understand it you are considering buying a condo which will represent a very small portion of your portfolio. Making a couple of percent + inflation is not going to mean much to you even if it adds up to several hundred thousand dollars over the years.
which is just the issues most retirees face who depend on their portfolio's to live , not just me
the downside risk in times like now with valuations as high as they are vs the potential gains of borrowing money to invest with a mortgage are pretty crappy.
good chance the bigger portfolio will be the one without the mortgage if you are starting out now . like i said valuations when you start are everything , they will determine if the odds are in your favor not.
5 years ago i would have given you a different answer. if we have a major correction that brings valuations down the answer will change again but anyone starting out now who is thinking of taking a mortgage to try to investing i think has to really evaluate the rewards at this point. not a biggie if not spending that portfolio down , just wait it out but certainly can be hurtful if you are.
Last edited by mathjak107; 05-25-2015 at 04:44 PM..
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