Ready to Retire/Pay off mortgage?

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Ready to Retire/Pay off mortgage?

Postby LFrugal » Sat Feb 09, 2013 12:23 pm

Bogelheads,

Been a frequent lurker for quite a while, view the site daily, but this is the first post I've made. Looking for some advice from forum followers whose expertise I am in awe of:

I'm considering retiring now or in a year. Work for the federal government and am getting tired of the bureaucracy and dealing with the politics as each new group of political appointees come in and think they know more than federal employees. Most of my career has been in private sector, been in this federal job for 10 years.

So, two questions:

1) Am I financially ready to retire?
2) Should I pay off my mortgage now or wait until i retire?

Here's the data:
64 years old; salary $155k
wife 58 years old (does not work);

Plan is to live off earnings from investments etc. preserving principal;

Portfolio @ 40/60 : $3.1 million (individual acct./401-k/TSP/cash);
Past 12 month portfolio growth @ 8.7%; (I use Portfolio Solutions and couldn't be happier!)

If retire now, federal pension about $1500/month;
Rental property brings in $1800/month/$22,000 annually
Will take SS at 70 years old;

Only debt is mortgage - approximately $103k; 15-year loan @ 5-1/8% with about 5 years left; ($2500 per month);
Two kids out of college, no debt;

Monthly expenses approximately $9000-$10,000;

1) So, what kind of shape am I in -- am I financially ready to retire and live off the earnings of investments etc.?

2) And since refinancing isn't an option since I've paid down most of the interest, should I pay off mortgage now?

Thanks for some thoughts.
LFrugal
 
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Re: Ready to Retire/Pay off mortgage?

Postby Outer Marker » Sat Feb 09, 2013 3:13 pm

LFrugal wrote:
1) So, what kind of shape am I in -- am I financially ready to retire and live off the earnings of investments etc.?

2) And since refinancing isn't an option since I've paid down most of the interest, should I pay off mortgage now?



1. You appear to be able to comfortably retire. Your monthly expenses are on the high side, but eliminating the $2,500/mo mortgage payment will bring that down to reasonable levels relative to the size of your portfolio. With a $3M portoflio at a conservative 3% withdrawal rate, you should be able to draw $90,000/yr indefinately, and you have other income streams. You will need some sort of bridge plan to get you to medicare elegibility at 65, but with your resources you should be able to afford it.


2. Nothing wrong with paying off the mortgage if you have the resources, and are bond-heavy, not trying to leverage yourself for growth at this point. That said, your logic for not refinancing is wrong. You owe $103K and are paying 5.125% on the outstanding balance. The interest you've paid in the past is irrelevant. So, either pay it off asap, or refi to much lower current market rates.
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Re: Ready to Retire/Pay off mortgage?

Postby livesoft » Sat Feb 09, 2013 4:33 pm

Did you run any of those retirement calculators like www.firecalc.com or Fidelity's RIP?
This signature message sponsored by LadyGeek.
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Re: Ready to Retire/Pay off mortgage?

Postby dimdum » Sat Feb 09, 2013 5:27 pm

First off you need to pay off the mortgage. 3.1 mil - 0.1 = 3 mil left
That would reduce your monthly expense to 7500$.
You have pension about $1500/month and Rental property brings in $1800/month = 3000 (lets keep 300 for any rental related expense).

You need to get 7500-3000 = 4000 / month to maintaining your current lifestyle.

With @2% withdrawal will get you 60k per year or 5000$/ month.
Assuming 3-4% market return on average/yr, you can retire easily without worrying about money running out.

SS at 70 will bring in additional income.
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