Did you pay off a mortgage at a reasonably young age and live mortgage free? How did that impact retirement? (ignorant, income)
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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.
there is no math to do . taking a mortgage today as a retiree spending down a portfolio to invest i think is pretty crappy odds at these valuations. i think there is a good chance if things do not go well you can do irreversible damage to your cash flow by the time things straighten out again.
i see far greater downside risk as a new retiree starting out vs any potential rewards out there. any big hits the first 5 years can ruin that retirement cash flow forever and to worsen the expenditures for such small rewards makes little sense.
it isn't like you took a mortgage 5 years ago and caught 5 years of incredible retracement , then you have no issues . if you hve a good up cycle first the down turn likely would not even reduce you from what you gained. .
but any hits in returns and sequence or any excessive expenditures before that first run up and you got problems.
so should a new retiree take a mortgage today if cash is an option - likely not.
should someone who already has a mortgage and money invested bail and sell and pay off the mortgage ? likely not.
Last edited by mathjak107; 05-25-2015 at 04:57 PM..
there is no math to do . taking a mortgage today as a retiree spending down a portfolio to invest i think is pretty crappy odds at these valuations. i think there is a good chance if things do not go well you can do irreversible damage to your cash flow by the time things straighten out again.
i see far greater downside risk as a new retiree starting out vs any potential rewards out there. any big hits the first 5 years can ruin that retirement cash flow forever and to worsen the expenditures for such small rewards makes little sense.
it isn't like you took a mortgage 5 years ago and caught 5 years of incredible retracement , then you have no issues . if you hve a good up cycle first the down turn likely would not even reduce you from what you gained. .
but any hits in returns and sequence or any excessive expenditures before that first run up and you got problems.
Here's the math you don't want to do. $1,000,000 portfolio and 3% withdrawal rate = $30,000. $1,600,000 portfolio at 4% withdrawal rate = $64,000. $600,000 Mortgage at 4% = $2865 mortgage X 12 = $34,380 yearly. $64,000 - 34,380= $29,620 vs $30,000. $380 is not bad to pay for the flexibility the mortgage provides. And rates are actually below 4%.
Sure probably most people would ********** up but even an average competence investor should be able to beat a 4% mortgage over 30 years.
you are lost in left field . if you are following what we are saying your portfolio only has 1 value the day you start your retirement and set up withdrawals.
we are not talking investing over 30 years in the accumulation stage. we are discussing the decumulation stage so i suggest you go learn about withdrawal stages and how things work and then come back.
you don't have 30 years to beat it . you may have less than 5 years if a market decline is deep and extended and your needed withdrawals high , there could be no recovery later if you are hit hard enough.
this is why i say you are off base in what you keep throwing out. your discussion is for those in the accumulation stage in the investing section not here where the 2nd half of the game is very different.
so should a new retiree take a mortgage today if cash is an option - likely not.
should someone who already has a mortgage and money invested bail and sell and pay off the mortgage ? likely not.
So your advice ONLY pertains to someone retiring TODAY?
The thing is if you start TODAY with a 4% mortgage you can always pay it off.
If you don't have a 4% mortgage it will probably be a lot harder to obtain a 4% mortgage when the economy changes. Better to have choices.
you are lost in left field . if you are following what we are saying your portfolio only has 1 value the day you start your retirement and set up withdrawals.
Huh? So where did the magic money come from to pay off the mortgage?
you are lost in left field . if you are following what we are saying your portfolio only has 1 value the day you start your retirement and set up withdrawals.
we are not talking investing over 30 years in the accumulation stage. we are discussing the decumulation stage so i suggest you go learn about withdrawal stages and how things work and then come back
NO! If I'm retiring today or in 10 years if I take $600,000 to pay of my mortgage I do not have that money to invest whether retired or not.
I used your scenario so if you are going to change as convenient for you then let's set the ground rules NOW.
NO! If I'm retiring today or in 10 years if I take $600,000 to pay of my mortgage I do not have that money to invest whether retired or not.
I used your scenario so if you are going to change as convenient for you then let's set the ground rules NOW.
what you need to look at is what is the withdrawal rate with the mortgage , what is the draw rate with out it and assume you start with a million dollars and have a choice ,take a mortgage to buy a place or pay cash,..
then see if markets fell 40% and took 5 years to come back how far down would you have spent your nest egg down in both cases . after all if you want to look at risk vs reward we have to look at the downside potential and the upside . we specifically want to see the effect of a decent size hit early on when a portfolio is most vulnerable in retirement to see if the potential upside offsets the down side.
then you can run different simulations from that point using future good times and bad times in firecalc on what is left over the remaining retirement period.
that is how you compare the range of results. the answer isn't a number it is a range of possibilities based on a range of outcomes over the remaining years.
Last edited by mathjak107; 05-25-2015 at 05:26 PM..
If we both have a million in assets and I get a $600,000 mortgage then I have $1,600,000 to invest and draw against and YOU only have $1,000,000 to draw against.
so you have 1 million . in case 1 you have a paid for house , no mortgage and 400k left invested.
in scenario 2 you have 1 million invested , a 600k house and owe the bank 600k for the house. . you do not have 1,600,000 . your net worth is still 1 million.
so how much a year will that 600k cost you in generated income from that 1 million ?
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