Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

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KlangFool
Posts: 16610
Joined: Sat Oct 11, 2008 12:35 pm

Re: 20-25 years before retirement for divorced couple in 40s; invest all in VTSAX or LifeStrategy Moderate Growth ?

Post by KlangFool » Tue Nov 19, 2019 6:49 pm

behumble wrote:
Tue Nov 19, 2019 4:41 pm
KlangFool wrote:
Tue Nov 19, 2019 4:03 pm
behumble wrote:
Tue Nov 19, 2019 3:04 pm
What do people think about going all in (using 1 fund only) on the LifeStrategy Moderate Growth fund in a Roth IRA for the long term (20+ years till retirement)?
I see no problem with that. I use the same strategy with the Wellington fund.

KlangFool
Do you use just the Wellington Fund in your Roth? If so, how long have you been using that fund for just your Roth, pre-retirement?
I was 50% VSMGX and 50% Wellington Fund for all my accounts. Then, I switch to a combination of 3 funds and Wellington in my tax-advantaged accounts and 100% stock in my taxable account.

I have all Wellington funds in all my Roth IRAs.

KlangFool

Locard
Posts: 27
Joined: Wed Jul 12, 2017 11:03 am

Re: 20-25 years till retirement- LifeStrategy Moderate Growth Fund ?

Post by Locard » Tue Nov 19, 2019 7:35 pm

You are doing fine. I'm with Jack on avoiding total world. That said I'd not be thrilled at owing almost a half million on a house even with the outstanding rate you have. Your future earning potential is not guaranteed and having that much liability outstanding, any plan has to factor in this risk. I'd look at a 15 year horizon to paying that off and go from there.

Topic Author
behumble
Posts: 126
Joined: Tue Nov 14, 2017 5:43 pm

Re: Divorced couple confused about whether to invest towards retirement in 20/25 years or pay down mortgage?

Post by behumble » Fri Nov 22, 2019 5:52 pm

inbox788 wrote:
Mon Nov 18, 2019 7:29 pm
behumble wrote:
Mon Nov 18, 2019 3:29 pm
NEW QUESTION: Do we continue saving and invest towards retirement over the next 20/25 years or take all the money we have in cash (except emergency funds) and pay down the mortgage?
I think you're doing great and wouldn't make many changes. You're paying about $2000/month mortgage or $25k/year. If you can invest that cash flow for the next 27 years, no reason not to pay down or pay off the mortgage. When you're done with the mortgage you would be investing $75k/year total. If you accelerate it, you could be done in 5-10 years.

No reason to keep Money Market in Roth, so buy VTSAX or VTIAX (Total International Stock Index Fund). Actually, you probably should add some more international, but you can take a little time figuring out your end point.

Take the $138k in taxable and pay down the mortgage. I'd max out all the tax advantaged amounts and forego equities in taxable until the mortgage was paid off. Or if you're aggressive, invest it in equities, since 3.25% isn't too bad. I'd definitely keep 2% and invest and pay off 4% mortgage with current conditions. I wouldn't bother with bonds, since you'd be taking some risk with little return, so paying down mortgage is simpler IMO.
Thanks. I'm considering liquidating everything in my taxable (VTSAX and the money market fund) and CD's ($56K) once they mature and paying off the entire mortgage some time in 2020, only if we can pay off the remainder approx. $450K. That would leave us with nothing in the taxable account, 3 months of Emergency Funds and whatever is in our retirement accounts. What do you think about that?

Topic Author
behumble
Posts: 126
Joined: Tue Nov 14, 2017 5:43 pm

Re: Divorced couple confused about whether to invest towards retirement in 20/25 years or pay down mortgage?

Post by behumble » Fri Nov 22, 2019 6:17 pm

wolf359 wrote:
Tue Nov 19, 2019 3:44 pm
KlangFool wrote:
Mon Nov 18, 2019 7:12 pm
OP,

You have 700+K of investment and a 700+K house. You have a lot of your net worth tied up with the house. So, why would you want to pre-pay the mortgage and keep less money outside the house? How does keeping more of your eggs in one house basket make you safer? It does not.

KlangFool
Interesting. I agree with your "what" (Don't pay down the house) and not your "why" (value of house is too high a percentage of net worth.)

In my opinion, the affordability of the house has more to do with income and cash flow. The OP is starting over, and is in a situation similar to a younger couple that has just bought a house. By definition, the value of the house will be a high percentage of net worth. If percentage of net worth was an appropriate measure, no one would ever own a house.

However, the OP also has a high positive cash flow, even after paying for the mortgage. Therefore, the mortgage payment is a relatively lower percentage of their net income, and is therefore affordable.

The reason I agree with the advice not to pay down the house is that the liquidity of having the investment funds is more important than paying down the mortgage. Eventually, there will come a time when the remaining balance on the house is dwarfed by the taxable investment balance. It is better to wait until you can PAY OFF the mortgage completely while still having plenty of investments left over, than to PAY DOWN the mortgage (and still owe on it.) That's the point when you consider paying it off (and given your great mortgage rate, you still might not do it.)

The only reason to pay it off early is to free up the cash flow going to pay the mortgage. At this stage, the liquidity is more important.
Thought about what you wrote. I'm considering liquidating everything in my taxable (VTSAX and the money market fund) and CD's ($56K) once they mature and paying off the entire mortgage some time in 2020, only if we can pay off the remainder approx. $450K. That would leave us with nothing in the taxable account, 3 months of Emergency Funds and whatever is in our retirement accounts. What do you think about that?

KlangFool
Posts: 16610
Joined: Sat Oct 11, 2008 12:35 pm

Re: Divorced couple confused about whether to invest towards retirement in 20/25 years or pay down mortgage?

Post by KlangFool » Fri Nov 22, 2019 6:30 pm

behumble wrote:
Fri Nov 22, 2019 6:17 pm
wolf359 wrote:
Tue Nov 19, 2019 3:44 pm
KlangFool wrote:
Mon Nov 18, 2019 7:12 pm
OP,

You have 700+K of investment and a 700+K house. You have a lot of your net worth tied up with the house. So, why would you want to pre-pay the mortgage and keep less money outside the house? How does keeping more of your eggs in one house basket make you safer? It does not.

KlangFool
Interesting. I agree with your "what" (Don't pay down the house) and not your "why" (value of house is too high a percentage of net worth.)

In my opinion, the affordability of the house has more to do with income and cash flow. The OP is starting over, and is in a situation similar to a younger couple that has just bought a house. By definition, the value of the house will be a high percentage of net worth. If percentage of net worth was an appropriate measure, no one would ever own a house.

However, the OP also has a high positive cash flow, even after paying for the mortgage. Therefore, the mortgage payment is a relatively lower percentage of their net income, and is therefore affordable.

The reason I agree with the advice not to pay down the house is that the liquidity of having the investment funds is more important than paying down the mortgage. Eventually, there will come a time when the remaining balance on the house is dwarfed by the taxable investment balance. It is better to wait until you can PAY OFF the mortgage completely while still having plenty of investments left over, than to PAY DOWN the mortgage (and still owe on it.) That's the point when you consider paying it off (and given your great mortgage rate, you still might not do it.)

The only reason to pay it off early is to free up the cash flow going to pay the mortgage. At this stage, the liquidity is more important.
Thought about what you wrote. I'm considering liquidating everything in my taxable (VTSAX and the money market fund) and CD's ($56K) once they mature and paying off the entire mortgage some time in 2020, only if we can pay off the remainder approx. $450K. That would leave us with nothing in the taxable account, 3 months of Emergency Funds and whatever is in our retirement accounts. What do you think about that?
behumble,

Then, you have 300+K outside the house and a 700+K house. How does this make you safe financially? It does not. 70% of your net worth is in the housing basket.

KlangFool

delamer
Posts: 10117
Joined: Tue Feb 08, 2011 6:13 pm

Re: Divorced couple confused about whether to invest towards retirement in 20/25 years or pay down mortgage?

Post by delamer » Fri Nov 22, 2019 7:07 pm

KlangFool wrote:
Fri Nov 22, 2019 6:30 pm
behumble wrote:
Fri Nov 22, 2019 6:17 pm
wolf359 wrote:
Tue Nov 19, 2019 3:44 pm
KlangFool wrote:
Mon Nov 18, 2019 7:12 pm
OP,

You have 700+K of investment and a 700+K house. You have a lot of your net worth tied up with the house. So, why would you want to pre-pay the mortgage and keep less money outside the house? How does keeping more of your eggs in one house basket make you safer? It does not.

KlangFool
Interesting. I agree with your "what" (Don't pay down the house) and not your "why" (value of house is too high a percentage of net worth.)

In my opinion, the affordability of the house has more to do with income and cash flow. The OP is starting over, and is in a situation similar to a younger couple that has just bought a house. By definition, the value of the house will be a high percentage of net worth. If percentage of net worth was an appropriate measure, no one would ever own a house.

However, the OP also has a high positive cash flow, even after paying for the mortgage. Therefore, the mortgage payment is a relatively lower percentage of their net income, and is therefore affordable.

The reason I agree with the advice not to pay down the house is that the liquidity of having the investment funds is more important than paying down the mortgage. Eventually, there will come a time when the remaining balance on the house is dwarfed by the taxable investment balance. It is better to wait until you can PAY OFF the mortgage completely while still having plenty of investments left over, than to PAY DOWN the mortgage (and still owe on it.) That's the point when you consider paying it off (and given your great mortgage rate, you still might not do it.)

The only reason to pay it off early is to free up the cash flow going to pay the mortgage. At this stage, the liquidity is more important.
Thought about what you wrote. I'm considering liquidating everything in my taxable (VTSAX and the money market fund) and CD's ($56K) once they mature and paying off the entire mortgage some time in 2020, only if we can pay off the remainder approx. $450K. That would leave us with nothing in the taxable account, 3 months of Emergency Funds and whatever is in our retirement accounts. What do you think about that?
behumble,

Then, you have 300+K outside the house and a 700+K house. How does this make you safe financially? It does not. 70% of your net worth is in the housing basket.

KlangFool
Completely agree.

Topic Author
behumble
Posts: 126
Joined: Tue Nov 14, 2017 5:43 pm

Re: Divorced couple confused about whether to invest towards retirement in 20/25 years or pay down mortgage?

Post by behumble » Fri Nov 22, 2019 7:35 pm

KlangFool wrote:
Fri Nov 22, 2019 6:30 pm
behumble wrote:
Fri Nov 22, 2019 6:17 pm
wolf359 wrote:
Tue Nov 19, 2019 3:44 pm
KlangFool wrote:
Mon Nov 18, 2019 7:12 pm
OP,

You have 700+K of investment and a 700+K house. You have a lot of your net worth tied up with the house. So, why would you want to pre-pay the mortgage and keep less money outside the house? How does keeping more of your eggs in one house basket make you safer? It does not.

KlangFool
Interesting. I agree with your "what" (Don't pay down the house) and not your "why" (value of house is too high a percentage of net worth.)

In my opinion, the affordability of the house has more to do with income and cash flow. The OP is starting over, and is in a situation similar to a younger couple that has just bought a house. By definition, the value of the house will be a high percentage of net worth. If percentage of net worth was an appropriate measure, no one would ever own a house.

However, the OP also has a high positive cash flow, even after paying for the mortgage. Therefore, the mortgage payment is a relatively lower percentage of their net income, and is therefore affordable.

The reason I agree with the advice not to pay down the house is that the liquidity of having the investment funds is more important than paying down the mortgage. Eventually, there will come a time when the remaining balance on the house is dwarfed by the taxable investment balance. It is better to wait until you can PAY OFF the mortgage completely while still having plenty of investments left over, than to PAY DOWN the mortgage (and still owe on it.) That's the point when you consider paying it off (and given your great mortgage rate, you still might not do it.)

The only reason to pay it off early is to free up the cash flow going to pay the mortgage. At this stage, the liquidity is more important.
Thought about what you wrote. I'm considering liquidating everything in my taxable (VTSAX and the money market fund) and CD's ($56K) once they mature and paying off the entire mortgage some time in 2020, only if we can pay off the remainder approx. $450K. That would leave us with nothing in the taxable account, 3 months of Emergency Funds and whatever is in our retirement accounts. What do you think about that?
behumble,

Then, you have 300+K outside the house and a 700+K house. How does this make you safe financially? It does not. 70% of your net worth is in the housing basket.

KlangFool
Is there any other way to look at this? Paying off the house is mostly a psychological move but what's the real risk of paying off the mortgage and sitting on a home worth 700+ in a very stable local housing market (at least historically). Each of us has already been through a divorce, started over with nothing, paid off undergraduate and graduate school loans, have no kids now or in the future. Granted, at 44/41 years old, we would only have 300K in retirement savings and 3 months of emergency funds. We would have nearly 20-25 years to fully invest having 0 debt. What's the real risk? If the market tanks, it wouldn't matter as we would have used the funds to pay off the home. If we lose our jobs for any reason, we've paid off our home. No matter what scenario, we still keep our home and at our age, with no kids and no mortgage, why shouldn't we take the "risk" of paying off the home (especially since we wouldn't even be able to take much advantage of a mortgage interest deduction? Just wondering that's all. I'm challenging conventional wisdom and wondering if anyone can make a non-psychological argument that favors pay off the mortgage in our situation.

Topic Author
behumble
Posts: 126
Joined: Tue Nov 14, 2017 5:43 pm

Re: 20-25 years till retirement- LifeStrategy Moderate Growth Fund ?

Post by behumble » Fri Nov 22, 2019 7:36 pm

Is there any other way to look at this? Paying off the house is mostly a psychological move but what's the real risk of paying off the mortgage and sitting on a home worth 700+ in a very stable local housing market (at least historically). Each of us has already been through a divorce, started over with nothing, paid off undergraduate and graduate school loans, have no kids now or in the future. Granted, at 44/41 years old, we would only have 300K in retirement savings and 3 months of emergency funds. We would have nearly 20-25 years to fully invest having 0 debt. What's the real risk? If the market tanks, it wouldn't matter as we would have used the funds to pay off the home. If we lose our jobs for any reason, we've paid off our home. No matter what scenario, we still keep our home and at our age, with no kids and no mortgage, why shouldn't we take the "risk" of paying off the home (especially since we wouldn't even be able to take much advantage of a mortgage interest deduction? Just wondering that's all. I'm challenging conventional wisdom and wondering if anyone can make a non-psychological argument that favors pay off the mortgage in our situation.

KlangFool
Posts: 16610
Joined: Sat Oct 11, 2008 12:35 pm

Re: Divorced couple confused about whether to invest towards retirement in 20/25 years or pay down mortgage?

Post by KlangFool » Fri Nov 22, 2019 7:45 pm

behumble wrote:
Fri Nov 22, 2019 7:35 pm
KlangFool wrote:
Fri Nov 22, 2019 6:30 pm
behumble wrote:
Fri Nov 22, 2019 6:17 pm
wolf359 wrote:
Tue Nov 19, 2019 3:44 pm
KlangFool wrote:
Mon Nov 18, 2019 7:12 pm
OP,

You have 700+K of investment and a 700+K house. You have a lot of your net worth tied up with the house. So, why would you want to pre-pay the mortgage and keep less money outside the house? How does keeping more of your eggs in one house basket make you safer? It does not.

KlangFool
Interesting. I agree with your "what" (Don't pay down the house) and not your "why" (value of house is too high a percentage of net worth.)

In my opinion, the affordability of the house has more to do with income and cash flow. The OP is starting over, and is in a situation similar to a younger couple that has just bought a house. By definition, the value of the house will be a high percentage of net worth. If percentage of net worth was an appropriate measure, no one would ever own a house.

However, the OP also has a high positive cash flow, even after paying for the mortgage. Therefore, the mortgage payment is a relatively lower percentage of their net income, and is therefore affordable.

The reason I agree with the advice not to pay down the house is that the liquidity of having the investment funds is more important than paying down the mortgage. Eventually, there will come a time when the remaining balance on the house is dwarfed by the taxable investment balance. It is better to wait until you can PAY OFF the mortgage completely while still having plenty of investments left over, than to PAY DOWN the mortgage (and still owe on it.) That's the point when you consider paying it off (and given your great mortgage rate, you still might not do it.)

The only reason to pay it off early is to free up the cash flow going to pay the mortgage. At this stage, the liquidity is more important.
Thought about what you wrote. I'm considering liquidating everything in my taxable (VTSAX and the money market fund) and CD's ($56K) once they mature and paying off the entire mortgage some time in 2020, only if we can pay off the remainder approx. $450K. That would leave us with nothing in the taxable account, 3 months of Emergency Funds and whatever is in our retirement accounts. What do you think about that?
behumble,

Then, you have 300+K outside the house and a 700+K house. How does this make you safe financially? It does not. 70% of your net worth is in the housing basket.

KlangFool
Is there any other way to look at this? Paying off the house is mostly a psychological move but what's the real risk of paying off the mortgage and sitting on a home worth 700+ in a very stable local housing market (at least historically).
behumble,

Would you put 70+% of your net worth into a single stock? If not, why would you do this for a house? It is even more illiquid than the stock.

<<No matter what scenario, we still keep our home and at our age,>>

If both of you are unemployed and your portfolio drop by a significant amount and you need to move elsewhere to find a job, how long can you keep the house?

A) How much is the annual property tax? It is probably around 10K per year.

B) You only have 3 months of the emergency fund.

C) How long can you last?

KlangFool

Topic Author
behumble
Posts: 126
Joined: Tue Nov 14, 2017 5:43 pm

Re: Divorced couple confused about whether to invest towards retirement in 20/25 years or pay down mortgage?

Post by behumble » Fri Nov 22, 2019 7:55 pm

KlangFool wrote:
Fri Nov 22, 2019 7:45 pm
behumble wrote:
Fri Nov 22, 2019 7:35 pm
KlangFool wrote:
Fri Nov 22, 2019 6:30 pm
behumble wrote:
Fri Nov 22, 2019 6:17 pm
wolf359 wrote:
Tue Nov 19, 2019 3:44 pm

Interesting. I agree with your "what" (Don't pay down the house) and not your "why" (value of house is too high a percentage of net worth.)

In my opinion, the affordability of the house has more to do with income and cash flow. The OP is starting over, and is in a situation similar to a younger couple that has just bought a house. By definition, the value of the house will be a high percentage of net worth. If percentage of net worth was an appropriate measure, no one would ever own a house.

However, the OP also has a high positive cash flow, even after paying for the mortgage. Therefore, the mortgage payment is a relatively lower percentage of their net income, and is therefore affordable.

The reason I agree with the advice not to pay down the house is that the liquidity of having the investment funds is more important than paying down the mortgage. Eventually, there will come a time when the remaining balance on the house is dwarfed by the taxable investment balance. It is better to wait until you can PAY OFF the mortgage completely while still having plenty of investments left over, than to PAY DOWN the mortgage (and still owe on it.) That's the point when you consider paying it off (and given your great mortgage rate, you still might not do it.)

The only reason to pay it off early is to free up the cash flow going to pay the mortgage. At this stage, the liquidity is more important.
Thought about what you wrote. I'm considering liquidating everything in my taxable (VTSAX and the money market fund) and CD's ($56K) once they mature and paying off the entire mortgage some time in 2020, only if we can pay off the remainder approx. $450K. That would leave us with nothing in the taxable account, 3 months of Emergency Funds and whatever is in our retirement accounts. What do you think about that?
behumble,

Then, you have 300+K outside the house and a 700+K house. How does this make you safe financially? It does not. 70% of your net worth is in the housing basket.

KlangFool
Is there any other way to look at this? Paying off the house is mostly a psychological move but what's the real risk of paying off the mortgage and sitting on a home worth 700+ in a very stable local housing market (at least historically).
behumble,

Would you put 70+% of your net worth into a single stock? If not, why would you do this for a house? It is even more illiquid than the stock.

<<No matter what scenario, we still keep our home and at our age,>>

If both of you are unemployed and your portfolio drop by a significant amount and you need to move elsewhere to find a job, how long can you keep the house?

A) How much is the annual property tax? It is probably around 10K per year.

B) You only have 3 months of the emergency fund.

C) How long can you last?

KlangFool
Please see my private reply.

KlangFool
Posts: 16610
Joined: Sat Oct 11, 2008 12:35 pm

Re: Divorced couple confused about whether to invest towards retirement in 20/25 years or pay down mortgage?

Post by KlangFool » Fri Nov 22, 2019 8:00 pm

behumble wrote:
Fri Nov 22, 2019 7:55 pm
KlangFool wrote:
Fri Nov 22, 2019 7:45 pm
behumble wrote:
Fri Nov 22, 2019 7:35 pm
KlangFool wrote:
Fri Nov 22, 2019 6:30 pm
behumble wrote:
Fri Nov 22, 2019 6:17 pm


Thought about what you wrote. I'm considering liquidating everything in my taxable (VTSAX and the money market fund) and CD's ($56K) once they mature and paying off the entire mortgage some time in 2020, only if we can pay off the remainder approx. $450K. That would leave us with nothing in the taxable account, 3 months of Emergency Funds and whatever is in our retirement accounts. What do you think about that?
behumble,

Then, you have 300+K outside the house and a 700+K house. How does this make you safe financially? It does not. 70% of your net worth is in the housing basket.

KlangFool
Is there any other way to look at this? Paying off the house is mostly a psychological move but what's the real risk of paying off the mortgage and sitting on a home worth 700+ in a very stable local housing market (at least historically).
behumble,

Would you put 70+% of your net worth into a single stock? If not, why would you do this for a house? It is even more illiquid than the stock.

<<No matter what scenario, we still keep our home and at our age,>>

If both of you are unemployed and your portfolio drop by a significant amount and you need to move elsewhere to find a job, how long can you keep the house?

A) How much is the annual property tax? It is probably around 10K per year.

B) You only have 3 months of the emergency fund.

C) How long can you last?

KlangFool
Please see my private reply.
I seriously doubt that I would change my mind. It is not safe to put most of your net worth into a single house.

KlangFool

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galawdawg
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Location: Georgia

Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by galawdawg » Fri Nov 22, 2019 9:15 pm

OP...don't tie up such a significant part of your net worth in an illiquid asset such as your house. Not only is that not a wise decision, but you'll pay federal CG taxes (and probably state taxes on top of that) on the liquidation of VTSAX.

Not sure why you have changed the title of this thread so many times (you are now on the sixth or seventh version) and how you got from "help me find a single fund for a 90/10 allocation", to "but my wife wants a 70/30 allocation, to asking about going all in on the LifeStrategy Moderate Growth fund vs all VTSAX to this new topic about liquidating accounts to pay off the mortgage.

On Monday you posted "I didn't ask about paying down the mortgage because I don't want to put more in the house than we already have and be house poor. We purchased the house for $654,000 and financed $500,000 (down pmt. $154,000) with a balance left of approx. $450,000. The house is worth somewhere b/w $720,000-$740,000. I think given that my wife and I went through divorces and had to "start over" and that we're in our 40s, it seems like we have to play catch up and use time to our advantage in building towards retirement. If we take all the cash we have, except the 6-months of emergency funds, to pay down the mortgage, i'm worried we'll be far behind. Any thoughts on that?" and most posters recommended you direct your funds towards investing and not payoff the mortgage. Then you switched to another question about what funds to invest in, now we are back to liquidating accounts to pay off the mortgage.

It looks like you and your wife have done well "starting from zero" after your respective divorces. My vote is to "stay the course." In the meantime, perhaps you and your wife should sit down and come up with an Investment Policy Statement which may help you and she sort through your priorities and make sure that they are aligned.

WIKI on Investment Policy Statement: https://www.bogleheads.org/wiki/Investm ... _statement

inbox788
Posts: 7084
Joined: Thu Mar 15, 2012 5:24 pm

Re: Divorced couple confused about whether to invest towards retirement in 20/25 years or pay down mortgage?

Post by inbox788 » Sat Nov 23, 2019 1:54 am

behumble wrote:
Fri Nov 22, 2019 5:52 pm
Thanks. I'm considering liquidating everything in my taxable (VTSAX and the money market fund) and CD's ($56K) once they mature and paying off the entire mortgage some time in 2020, only if we can pay off the remainder approx. $450K. That would leave us with nothing in the taxable account, 3 months of Emergency Funds and whatever is in our retirement accounts. What do you think about that?
I wouldn't go that far. Consider the consequences of your actions on the networth, AA and liquidity. You can play a shell game and shuffle the ball underneath, but in the end, you haven't really changed anything. In the short term, your networth isn't going to change based on your financial decisions. You could take out some equity from your home and put the funds in a CD or bond, but net worth remains the same. I don't think it really should impact your AA either, but it all depends on how you count things. Some people count only bonds, but not cash or CDs. Some include the home equity loan, while others don't. Or you could take some CD or bonds and pay down your mortgage. If the interest rate is identical, and you want or need liquidity, then by all means take out the loan, but usually the CD and bond returns are less than the mortgage and home equity loans, so you're paying for that liquidity. Over time, your net worth goes down because you're paying to keep cash in CDs and bonds, if you never touch it. So if your emergency fund is sufficient, and you have a reasonable fall back plan for worse, then I'm all for taking that CD and money market and savings a little in interest, which over time will increase your net worth.

Now as far as liquidating VTSAX, what is the tax liability. That alone might be reason not to move. The other is that selling stocks to buy bonds (same as paying down mortgage IMO) is a change in AA. On average, stocks return higher than bonds, so having stocks is riskier, but positive on your net worth, so over the long run, the stocks should increase your net worth, and selling them now hit your with a double (triple) penalty. Capital gains tax (how much in your holdings?) and lower expected returns (and less liquidity).

Where is that extra cash coming from to pay off the mortgage? My count was about $100k short, but if you're close, next year might be too aggressive and leave you with too little reserve. A 3-5 year plan seems reasonable, and you might not need to sell off any stocks or change AA.

Based on where you are, what is your AA? and do you want to increase or decrease your equity risk at this time? Tweaking bonds, CDs and mortgages is mainly optimizing a bit and not going to be impacted much by market moves and mainly benefits from lower costs or better rate of return.

Topic Author
behumble
Posts: 126
Joined: Tue Nov 14, 2017 5:43 pm

Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Sat Nov 23, 2019 4:35 am

galawdawg wrote:
Fri Nov 22, 2019 9:15 pm
OP...don't tie up such a significant part of your net worth in an illiquid asset such as your house. Not only is that not a wise decision, but you'll pay federal CG taxes (and probably state taxes on top of that) on the liquidation of VTSAX.

Not sure why you have changed the title of this thread so many times (you are now on the sixth or seventh version) and how you got from "help me find a single fund for a 90/10 allocation", to "but my wife wants a 70/30 allocation, to asking about going all in on the LifeStrategy Moderate Growth fund vs all VTSAX to this new topic about liquidating accounts to pay off the mortgage.

On Monday you posted "I didn't ask about paying down the mortgage because I don't want to put more in the house than we already have and be house poor. We purchased the house for $654,000 and financed $500,000 (down pmt. $154,000) with a balance left of approx. $450,000. The house is worth somewhere b/w $720,000-$740,000. I think given that my wife and I went through divorces and had to "start over" and that we're in our 40s, it seems like we have to play catch up and use time to our advantage in building towards retirement. If we take all the cash we have, except the 6-months of emergency funds, to pay down the mortgage, i'm worried we'll be far behind. Any thoughts on that?" and most posters recommended you direct your funds towards investing and not payoff the mortgage. Then you switched to another question about what funds to invest in, now we are back to liquidating accounts to pay off the mortgage.

It looks like you and your wife have done well "starting from zero" after your respective divorces. My vote is to "stay the course." In the meantime, perhaps you and your wife should sit down and come up with an Investment Policy Statement which may help you and she sort through your priorities and make sure that they are aligned.

WIKI on Investment Policy Statement: https://www.bogleheads.org/wiki/Investm ... _statement
Embarrassing and true. Full circle - the questions in the posts reflect an evolving discussion between my wife and I as our positions on the way forward differ but the goals are shared (save up for retirement and pay off the house).

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behumble
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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Sat Nov 23, 2019 4:36 am

galawdawg wrote:
Fri Nov 22, 2019 9:15 pm
OP...don't tie up such a significant part of your net worth in an illiquid asset such as your house. Not only is that not a wise decision, but you'll pay federal CG taxes (and probably state taxes on top of that) on the liquidation of VTSAX.

Not sure why you have changed the title of this thread so many times (you are now on the sixth or seventh version) and how you got from "help me find a single fund for a 90/10 allocation", to "but my wife wants a 70/30 allocation, to asking about going all in on the LifeStrategy Moderate Growth fund vs all VTSAX to this new topic about liquidating accounts to pay off the mortgage.

On Monday you posted "I didn't ask about paying down the mortgage because I don't want to put more in the house than we already have and be house poor. We purchased the house for $654,000 and financed $500,000 (down pmt. $154,000) with a balance left of approx. $450,000. The house is worth somewhere b/w $720,000-$740,000. I think given that my wife and I went through divorces and had to "start over" and that we're in our 40s, it seems like we have to play catch up and use time to our advantage in building towards retirement. If we take all the cash we have, except the 6-months of emergency funds, to pay down the mortgage, i'm worried we'll be far behind. Any thoughts on that?" and most posters recommended you direct your funds towards investing and not payoff the mortgage. Then you switched to another question about what funds to invest in, now we are back to liquidating accounts to pay off the mortgage.

It looks like you and your wife have done well "starting from zero" after your respective divorces. My vote is to "stay the course." In the meantime, perhaps you and your wife should sit down and come up with an Investment Policy Statement which may help you and she sort through your priorities and make sure that they are aligned.

WIKI on Investment Policy Statement: https://www.bogleheads.org/wiki/Investm ... _statement
Embarrassing and true. Full circle - the questions in the posts reflect an evolving discussion between my wife and I as our positions on the way forward differ but the goals are shared (save up for retirement and pay off the house).

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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by galawdawg » Sat Nov 23, 2019 7:31 am

behumble wrote:
Sat Nov 23, 2019 4:35 am
Embarrassing and true. Full circle - the questions in the posts reflect an evolving discussion between my wife and I as our positions on the way forward differ but the goals are shared (save up for retirement and pay off the house).
And I think that is a great plan...in that order!

1. Save up for retirement.
2. Pay off the house.

:beer

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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Sat Nov 23, 2019 2:11 pm

galawdawg wrote:
Sat Nov 23, 2019 7:31 am
behumble wrote:
Sat Nov 23, 2019 4:35 am
Embarrassing and true. Full circle - the questions in the posts reflect an evolving discussion between my wife and I as our positions on the way forward differ but the goals are shared (save up for retirement and pay off the house).
And I think that is a great plan...in that order!

1. Save up for retirement.
2. Pay off the house.

:beer
Thank you so very much for taking the time to share your thoughts and guidance. Most appreciated.

petulant
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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by petulant » Sun Nov 24, 2019 11:37 am

Frankly you will probably win either way paying down the mortgage with new cash then investing versus investing while making normal mortgage payments. The former is suboptimal from an expected return perspective but the latter is riskier in the event you have a cash crunch (from losing jobs, say) while stocks are down.

On the topic of suboptimality, the reason not to pay off the mortgage faster is that the expected return on paying down the mortgage is much lower than continuing to invest in stocks, particularly if you have more 401(k) and Roth space available. By investing in these spaces, you have the higher returns of the market (say, 8% before inflation), and the tax advantages of these special accounts. Over 20 years, this return will be much higher than the saved interest you get from paying down a mortgage with a rate from 3-5%. People may reference something about having net worth in the house from paying off the mortgage faster; that isn't really a relevant concern for this issue. You are entirely exposed to the price movements of the house regardless of whether you pay down the mortgage--for example, if the goes down $20,000 tomorrow, you're down $20,000 regardless of whether you have a mortgage. So the relevant question is whether paying down the mortgage rate is a better use of capital than buying stocks. The mortgage is mostly lower risk in that you're guaranteed to remove the 3-5% note, but it's also inflexible in that if you need the money back out, it's harder/less certain you can get a HELOC or second mortgage compared to just selling stocks. This inflexibility is the main drawback to having money "locked" in your house.

The most wise advice would be for you to save the max in tax-advantaged accounts with a strong stock tilt (70/30 is fine), then if you have any leftover cash each month, you can use that to build up a mortgage payoff fund using high quality bonds. Using a separate mortgage payoff fund prevents a situation where you've paid down the mortgage a lot but still have the high payment, then lose your job and need cash. Once the mortgage payoff fund is enough to pay off the mortgage, you can decide then to just finish it or manage the payoff fund differently.

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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by milktoast » Sun Nov 24, 2019 12:47 pm

I’m paying down my 3.85% mortgage at an extreme rate. Extra principal payments that cover multiple years each year. So understand that I get the urge.

My advice is to decide that you will not sell anything to pay off the house.

And decide to max out every tax advantaged account available to you.

Then put the rest on the mortgage. That natural urge to payoff the mortgage will drive behavior.

My IPS also says that 50% of my extra cash goes to after tax stock in corrections and 100% in bears. That’s when the mortgage expected returns are dwarfed by stock returns.

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behumble
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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Sun Nov 24, 2019 1:56 pm

Thank you to each of the last two replies. Yes, the plan is to continue to max each of our Roth IRAs and 401Ks, even though we had to do a backdoor Roth for 2019 and will again in 2020. As you may recall from the initial post, after divorce and since being remarried, we've managed to pay off the balance of our undergraduate and graduate school loans, pay off a low interest car loan and pay $154K down on the home we live (principal mortgage was $500K and remaining balance is approx. $450K-----we have no other current debts.

BUT, at our respective age of 44/41, we're concerned we're far behind what we should have accumulated by now. That is why I asked the series of evolving questions. What you and the other Bogleheads have provided us are timeless principles to consider and apply, no matter the evolving circumstances, which we appreciate considerably.

Another follow up concept question: how should how long we plan to remain in our home impact the decision as to when and whether to pay down a mortgage with whatever is leftover after maxing all of our tax advantaged accounts? We have no idea how long we play to remain. Based on our life experience, we our "planning" cycle is about 2 years for most major things (job/home). As a reminder, we don't have children nor do we plan to.
Furthermore, in an emergency (both lose our jobs), we have family close by we could live with for at least a year, if not more.

Paying down or off the mortgage (when we can) would largely be psychological, especially for my wife. Again, does or should paying down or off a mortgage relate to how long one plans to live in their home or the duration of the loan (30 year fixed in our case)? How should one think about these factors in relation to each other, if at all? Thanks.

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Re: Divorced couple confused about whether to invest towards retirement in 20/25 years or pay down mortgage?

Post by JBTX » Sun Nov 24, 2019 2:07 pm

behumble wrote:
Fri Nov 22, 2019 5:52 pm
inbox788 wrote:
Mon Nov 18, 2019 7:29 pm
behumble wrote:
Mon Nov 18, 2019 3:29 pm
NEW QUESTION: Do we continue saving and invest towards retirement over the next 20/25 years or take all the money we have in cash (except emergency funds) and pay down the mortgage?
I think you're doing great and wouldn't make many changes. You're paying about $2000/month mortgage or $25k/year. If you can invest that cash flow for the next 27 years, no reason not to pay down or pay off the mortgage. When you're done with the mortgage you would be investing $75k/year total. If you accelerate it, you could be done in 5-10 years.

No reason to keep Money Market in Roth, so buy VTSAX or VTIAX (Total International Stock Index Fund). Actually, you probably should add some more international, but you can take a little time figuring out your end point.

Take the $138k in taxable and pay down the mortgage. I'd max out all the tax advantaged amounts and forego equities in taxable until the mortgage was paid off. Or if you're aggressive, invest it in equities, since 3.25% isn't too bad. I'd definitely keep 2% and invest and pay off 4% mortgage with current conditions. I wouldn't bother with bonds, since you'd be taking some risk with little return, so paying down mortgage is simpler IMO.
Thanks. I'm considering liquidating everything in my taxable (VTSAX and the money market fund) and CD's ($56K) once they mature and paying off the entire mortgage some time in 2020, only if we can pay off the remainder approx. $450K. That would leave us with nothing in the taxable account, 3 months of Emergency Funds and whatever is in our retirement accounts. What do you think about that?
A 90/10 asset allocation suggests greater than average risk tolerance. Paying down a 3.25% mortgage in your 40s suggests significant risk aversion. I can't reconcile the two.

You won't really have any material growth selling stocks and paying off a 3.25 mortgage.

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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by milktoast » Sun Nov 24, 2019 2:09 pm

Longer loans have higher interest and larger fraction of payment is interest, especially early.

Time in house isn’t super relevant.

But extra payments lock funds away in illiquid form. They only become liquid when you sell or completely pay off.

So if you are going to stay forever, that increases need to be balanced. Because getting that money back out means selling.

But I would suggest working out a compromise that works for both of you. Another example is buying $1 in sp500 for each extra dollar in principal payment. And goal is to double principal payments (which can be relatively modest proposal early in 30 yr mortgage).

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behumble
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Re: Divorced couple confused about whether to invest towards retirement in 20/25 years or pay down mortgage?

Post by behumble » Sun Nov 24, 2019 2:29 pm

JBTX wrote:
Sun Nov 24, 2019 2:07 pm
behumble wrote:
Fri Nov 22, 2019 5:52 pm
inbox788 wrote:
Mon Nov 18, 2019 7:29 pm
behumble wrote:
Mon Nov 18, 2019 3:29 pm
NEW QUESTION: Do we continue saving and invest towards retirement over the next 20/25 years or take all the money we have in cash (except emergency funds) and pay down the mortgage?
I think you're doing great and wouldn't make many changes. You're paying about $2000/month mortgage or $25k/year. If you can invest that cash flow for the next 27 years, no reason not to pay down or pay off the mortgage. When you're done with the mortgage you would be investing $75k/year total. If you accelerate it, you could be done in 5-10 years.

No reason to keep Money Market in Roth, so buy VTSAX or VTIAX (Total International Stock Index Fund). Actually, you probably should add some more international, but you can take a little time figuring out your end point.

Take the $138k in taxable and pay down the mortgage. I'd max out all the tax advantaged amounts and forego equities in taxable until the mortgage was paid off. Or if you're aggressive, invest it in equities, since 3.25% isn't too bad. I'd definitely keep 2% and invest and pay off 4% mortgage with current conditions. I wouldn't bother with bonds, since you'd be taking some risk with little return, so paying down mortgage is simpler IMO.
Thanks. I'm considering liquidating everything in my taxable (VTSAX and the money market fund) and CD's ($56K) once they mature and paying off the entire mortgage some time in 2020, only if we can pay off the remainder approx. $450K. That would leave us with nothing in the taxable account, 3 months of Emergency Funds and whatever is in our retirement accounts. What do you think about that?
A 90/10 asset allocation suggests greater than average risk tolerance. Paying down a 3.25% mortgage in your 40s suggests significant risk aversion. I can't reconcile the two.

You won't really have any material growth selling stocks and paying off a 3.25 mortgage.
What you so accurately stated is partly the issue. I’ve got a 90/10 AA preference. However, my wife is more 60/40 and prefers to pay down or off the mortgage at earliest possible time given the uncertainty of the market. Her position is keep everything in our tax advantages accts in a balanced index fund and everything else goes to pay down the mortgage.

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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Sun Nov 24, 2019 2:36 pm

milktoast wrote:
Sun Nov 24, 2019 2:09 pm
Longer loans have higher interest and larger fraction of payment is interest, especially early.

Time in house isn’t super relevant.

But extra payments lock funds away in illiquid form. They only become liquid when you sell or completely pay off.

So if you are going to stay forever, that increases need to be balanced. Because getting that money back out means selling.

But I would suggest working out a compromise that works for both of you. Another example is buying $1 in sp500 for each extra dollar in principal payment. And goal is to double principal payments (which can be relatively modest proposal early in 30 yr mortgage).
We’ve been paying bi-wkly. Our loan is about $450k. Going forward, after making contributions to all our tax advantages accts, is your suggestion (in order to address each of our concerns), to slit whatever savings is leftover between making extra mortgage payments and adding to the taxable acct? For example, we have save $3,000 per month (over and above max contribution to our tax advantaged accts), contribute $1500 extra toward the mortgage each month and $1500 to taxable acct ?

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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by mortfree » Sun Nov 24, 2019 2:52 pm

Are your bi-weekly payments being applied immediately or does the lender sit on that until the next payment is received?

There are some case where bi-weekly is borderline scam.

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behumble
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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Sun Nov 24, 2019 3:17 pm

mortfree wrote:
Sun Nov 24, 2019 2:52 pm
Are your bi-weekly payments being applied immediately or does the lender sit on that until the next payment is received?

There are some case where bi-weekly is borderline scam.
I only know that it comes out our bank account every 2 weeks but never even occurred to me to ask. I will now ask that question. Our loan servicer is some company called Caliber Home Loans and so far, we’ve had no major issues with them. Ours is a 30-yr VA loan at 3.25%, with 27 years remaining. Still early into the loan.

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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Mon Nov 25, 2019 1:36 pm

mortfree wrote:
Sun Nov 24, 2019 2:52 pm
Are your bi-weekly payments being applied immediately or does the lender sit on that until the next payment is received?

There are some case where bi-weekly is borderline scam.
How do you independently verify what the mortgage company says beyond looking at the statements they send?

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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by Chadnudj » Mon Nov 25, 2019 2:01 pm

Two thoughts:

1. Don't sacrifice the liquidity of your taxable accounts/CDs, etc. for the illiquidity of a paid-off home as an asset. You can always use liquidity down the line to pay off the house/pay a mortgage; you cannot as easily tap your equity in the illiquid home to pay for groceries, etc.

2. If you do want to support your wife's wish to pay down the mortgage more aggressively, split the baby (so to speak): contribute half of what you would put in taxable investments towards early pay down on the mortgage, as well as half the dividends/interest from the taxable accounts towards mortgage pay down. You make quicker progress on the mortgage, but continue to grow the taxable balances all the same (just at a slower rate).

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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by wolf359 » Mon Nov 25, 2019 2:30 pm

I suggest using a sinking fund to pay off the mortgage:

- Invest money that you intend to use to pay off the mortgage into a designated account for that purpose. Eventually that money will become large enough to pay off the mortgage.

- If you have an emergency that exceeds your emergency fund, you still have your existing taxable assets to rely upon. For that matter, your sinking fund is available as well. (Everything is liquid until the actual payoff.)

- It takes time to accumulate the sinking fund. During this time, your mortgage balance will be shrinking, and your equities should be growing faster than your mortgage rate. Compound interest works in your favor, allowing you to reach your goal faster than you might anticipate.

- When you finally pay off the mortgage, you still have your other taxable assets. The big benefit of liquidity is that it gives you options. You do not want to tie up all your money in the house.

If you pay off the house now,what happens if your emergencies exceed your 3 month emergency fund?

You're getting old enough to have medical emergencies. What if one occurs, and it impacts your ability to work? And if you have another emergency (such as your car breaking down or your roof leaking) while your fund is depleted?

I had a series of events this year that would have been potentially financially devestating if I hadn't had an emergency fund and a significant taxable account backing it. (I can't get specific because I have some friends who follow this site and it's too identifying.) Having sufficient funds around is critically important.

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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Mon Nov 25, 2019 4:20 pm

Chadnudj wrote:
Mon Nov 25, 2019 2:01 pm
Two thoughts:

1. Don't sacrifice the liquidity of your taxable accounts/CDs, etc. for the illiquidity of a paid-off home as an asset. You can always use liquidity down the line to pay off the house/pay a mortgage; you cannot as easily tap your equity in the illiquid home to pay for groceries, etc.

2. If you do want to support your wife's wish to pay down the mortgage more aggressively, split the baby (so to speak): contribute half of what you would put in taxable investments towards early pay down on the mortgage, as well as half the dividends/interest from the taxable accounts towards mortgage pay down. You make quicker progress on the mortgage, but continue to grow the taxable balances all the same (just at a slower rate).
Thanks for your thoughts!

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behumble
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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Mon Nov 25, 2019 4:24 pm

wolf359 wrote:
Mon Nov 25, 2019 2:30 pm
I suggest using a sinking fund to pay off the mortgage:

- Invest money that you intend to use to pay off the mortgage into a designated account for that purpose. Eventually that money will become large enough to pay off the mortgage.

- If you have an emergency that exceeds your emergency fund, you still have your existing taxable assets to rely upon. For that matter, your sinking fund is available as well. (Everything is liquid until the actual payoff.)

- It takes time to accumulate the sinking fund. During this time, your mortgage balance will be shrinking, and your equities should be growing faster than your mortgage rate. Compound interest works in your favor, allowing you to reach your goal faster than you might anticipate.

- When you finally pay off the mortgage, you still have your other taxable assets. The big benefit of liquidity is that it gives you options. You do not want to tie up all your money in the house.

If you pay off the house now,what happens if your emergencies exceed your 3 month emergency fund?

You're getting old enough to have medical emergencies. What if one occurs, and it impacts your ability to work? And if you have another emergency (such as your car breaking down or your roof leaking) while your fund is depleted?

I had a series of events this year that would have been potentially financially devestating if I hadn't had an emergency fund and a significant taxable account backing it. (I can't get specific because I have some friends who follow this site and it's too identifying.) Having sufficient funds around is critically important.
Thanks for sharing a good example from your experience. Though it wasn't an emergency, each of us having gone through a divorce is reason enough to realize how uncertain and unpredictable life can be.

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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Mon Nov 25, 2019 4:29 pm

Just wanted to share with the group that based on all of your collective advice and experience, we've decided NOT to pay down the mortgage. Rather, we will continue to invest and set our AA at 80/20 (compromise b/w my wife's preference for 70/30 and my preference which was 90/10 stock/bonds). Since we don't plan to retire for another 20-25 years, we'll continue to contribute all we can each year and hope for the best. By the way, we're keeping VTSAX as the sole fund in our Roths and our taxable account and we will take the money sitting in our money market fund to buy more VTSAX in our taxable. Next, we'll have to deal with our 401ks to address the 20% in bonds we need.

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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by KlangFool » Mon Nov 25, 2019 6:33 pm

behumble wrote:
Mon Nov 25, 2019 4:29 pm
Just wanted to share with the group that based on all of your collective advice and experience, we've decided NOT to pay down the mortgage. Rather, we will continue to invest and set our AA at 80/20 (compromise b/w my wife's preference for 70/30 and my preference which was 90/10 stock/bonds). Since we don't plan to retire for another 20-25 years, we'll continue to contribute all we can each year and hope for the best. By the way, we're keeping VTSAX as the sole fund in our Roths and our taxable account and we will take the money sitting in our money market fund to buy more VTSAX in our taxable. Next, we'll have to deal with our 401ks to address the 20% in bonds we need.
behumble,

Then, you need to decide when are you going to change your AA from 80/20 to 60/40. Will it be based on age and/or the portfolio size?

At some time in the future, your portfolio will be big enough and you will be old enough that you cannot afford a 40% loss.

KlangFool

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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Mon Nov 25, 2019 10:18 pm

KlangFool wrote:
Mon Nov 25, 2019 6:33 pm
behumble wrote:
Mon Nov 25, 2019 4:29 pm
Just wanted to share with the group that based on all of your collective advice and experience, we've decided NOT to pay down the mortgage. Rather, we will continue to invest and set our AA at 80/20 (compromise b/w my wife's preference for 70/30 and my preference which was 90/10 stock/bonds). Since we don't plan to retire for another 20-25 years, we'll continue to contribute all we can each year and hope for the best. By the way, we're keeping VTSAX as the sole fund in our Roths and our taxable account and we will take the money sitting in our money market fund to buy more VTSAX in our taxable. Next, we'll have to deal with our 401ks to address the 20% in bonds we need.
behumble,

Then, you need to decide when are you going to change your AA from 80/20 to 60/40. Will it be based on age and/or the portfolio size?

At some time in the future, your portfolio will be big enough and you will be old enough that you cannot afford a 40% loss.

KlangFool
Establishing the AA seems like more art than science. From most threads I’ve read, on one hand it appears that it comes down to what feels right. On the other hand, there appears to be various factors like age that weigh heavily in determining AA. Considering our age (early to mid 40s), I would start by leaning more to my wife’s preference of 70/30 or even 60/40 but considering how little we have accumulated, I feel that we need to “catch up” and be more aggressive since we have 20-25 left till retirement; hence, my preference for a 90/10 AA. As a compromise with my wife, it seems 80/20 is better but I don’t think I would have an issue with 70/30 as long as we’re not losing the potential for much upside. I’m not concerned about the additional 10% risk because I’m thinking long term.

70/30 maybe the sweet spot. Keep everything in VTSAX in the Roth and taxable and just use bonds in the 401k but if they don’t have any good bond options, would a balanced fund be ok like vbiax?

KlangFool
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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by KlangFool » Mon Nov 25, 2019 10:28 pm

behumble wrote:
Mon Nov 25, 2019 10:18 pm
KlangFool wrote:
Mon Nov 25, 2019 6:33 pm
behumble wrote:
Mon Nov 25, 2019 4:29 pm
Just wanted to share with the group that based on all of your collective advice and experience, we've decided NOT to pay down the mortgage. Rather, we will continue to invest and set our AA at 80/20 (compromise b/w my wife's preference for 70/30 and my preference which was 90/10 stock/bonds). Since we don't plan to retire for another 20-25 years, we'll continue to contribute all we can each year and hope for the best. By the way, we're keeping VTSAX as the sole fund in our Roths and our taxable account and we will take the money sitting in our money market fund to buy more VTSAX in our taxable. Next, we'll have to deal with our 401ks to address the 20% in bonds we need.
behumble,

Then, you need to decide when are you going to change your AA from 80/20 to 60/40. Will it be based on age and/or the portfolio size?

At some time in the future, your portfolio will be big enough and you will be old enough that you cannot afford a 40% loss.

KlangFool
Establishing the AA seems like more art than science. From most threads I’ve read, on one hand it appears that it comes down to what feels right. On the other hand, there appears to be various factors like age that weigh heavily in determining AA. Considering our age (early to mid 40s), I would start by leaning more to my wife’s preference of 70/30 or even 60/40 but considering how little we have accumulated, I feel that we need to “catch up” and be more aggressive since we have 20-25 left till retirement; hence, my preference for a 90/10 AA. As a compromise with my wife, it seems 80/20 is better but I don’t think I would have an issue with 70/30 as long as we’re not losing the potential for much upside. I’m not concerned about the additional 10% risk because I’m thinking long term.

70/30 maybe the sweet spot. Keep everything in VTSAX in the Roth and taxable and just use bonds in the 401k but if they don’t have any good bond options, would a balanced fund be ok like vbiax?
behumble,

You did not get my point.

1) Your portfolio is at 700K now and you believe that it is okay to be 80/20.

2) Sometime in the future, your portfolio would be

A) 1 million
B) 1.5 million
C) 2 million
D) 2.5 million

When will you change your AA from 80/20 to something else? At a certain point from (A) to (D), it will no longer be acceptable to you to lose 40% of your portfolio.

KlangFool
Last edited by KlangFool on Mon Nov 25, 2019 11:43 pm, edited 2 times in total.

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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by celia » Mon Nov 25, 2019 10:43 pm

behumble wrote:
Mon Nov 18, 2019 3:29 pm
mortgage: 27 years remaining at 3.25% (original loan was $500,000); remaining bal approx. $450,000

NEW QUESTION: If we can pay off our $450K mortgage in full sometime by next year, why NOT?
Why would you want to pay off a 3.25% loan when you can invest the money instead and earn a lot more than the interest that would be saved? For example, you could use some of the growth you earn to make those occasional extra mortgage payments.

Topic Author
behumble
Posts: 126
Joined: Tue Nov 14, 2017 5:43 pm

Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Mon Nov 25, 2019 11:32 pm

KlangFool wrote:
Mon Nov 25, 2019 10:28 pm
behumble wrote:
Mon Nov 25, 2019 10:18 pm
KlangFool wrote:
Mon Nov 25, 2019 6:33 pm
behumble wrote:
Mon Nov 25, 2019 4:29 pm
Just wanted to share with the group that based on all of your collective advice and experience, we've decided NOT to pay down the mortgage. Rather, we will continue to invest and set our AA at 80/20 (compromise b/w my wife's preference for 70/30 and my preference which was 90/10 stock/bonds). Since we don't plan to retire for another 20-25 years, we'll continue to contribute all we can each year and hope for the best. By the way, we're keeping VTSAX as the sole fund in our Roths and our taxable account and we will take the money sitting in our money market fund to buy more VTSAX in our taxable. Next, we'll have to deal with our 401ks to address the 20% in bonds we need.
behumble,

Then, you need to decide when are you going to change your AA from 80/20 to 60/40. Will it be based on age and/or the portfolio size?

At some time in the future, your portfolio will be big enough and you will be old enough that you cannot afford a 40% loss.

KlangFool
Establishing the AA seems like more art than science. From most threads I’ve read, on one hand it appears that it comes down to what feels right. On the other hand, there appears to be various factors like age that weigh heavily in determining AA. Considering our age (early to mid 40s), I would start by leaning more to my wife’s preference of 70/30 or even 60/40 but considering how little we have accumulated, I feel that we need to “catch up” and be more aggressive since we have 20-25 left till retirement; hence, my preference for a 90/10 AA. As a compromise with my wife, it seems 80/20 is better but I don’t think I would have an issue with 70/30 as long as we’re not losing the potential for much upside. I’m not concerned about the additional 10% risk because I’m thinking long term.

70/30 maybe the sweet spot. Keep everything in VTSAX in the Roth and taxable and just use bonds in the 401k but if they don’t have any good bond options, would a balanced fund be ok like vbiax?
behumble,

You did get my point.

1) Your portfolio is at 700K now and you believe that it is okay to be 80/20.

2) Sometime in the future, your portfolio would be

A) 1 million
B) 1.5 million
C) 2 million
D) 2.5 million

When will you change your AA from 80/20 to something else? At a certain point from (A) to (D), it will no longer be acceptable to you to lose 40% of your portfolio.

KlangFool
If you were in my shoes (you know our basic background), what AA would you set?

KlangFool
Posts: 16610
Joined: Sat Oct 11, 2008 12:35 pm

Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by KlangFool » Mon Nov 25, 2019 11:52 pm

behumble wrote:
Mon Nov 25, 2019 11:32 pm
KlangFool wrote:
Mon Nov 25, 2019 10:28 pm
behumble wrote:
Mon Nov 25, 2019 10:18 pm
KlangFool wrote:
Mon Nov 25, 2019 6:33 pm
behumble wrote:
Mon Nov 25, 2019 4:29 pm
Just wanted to share with the group that based on all of your collective advice and experience, we've decided NOT to pay down the mortgage. Rather, we will continue to invest and set our AA at 80/20 (compromise b/w my wife's preference for 70/30 and my preference which was 90/10 stock/bonds). Since we don't plan to retire for another 20-25 years, we'll continue to contribute all we can each year and hope for the best. By the way, we're keeping VTSAX as the sole fund in our Roths and our taxable account and we will take the money sitting in our money market fund to buy more VTSAX in our taxable. Next, we'll have to deal with our 401ks to address the 20% in bonds we need.
behumble,

Then, you need to decide when are you going to change your AA from 80/20 to 60/40. Will it be based on age and/or the portfolio size?

At some time in the future, your portfolio will be big enough and you will be old enough that you cannot afford a 40% loss.

KlangFool
Establishing the AA seems like more art than science. From most threads I’ve read, on one hand it appears that it comes down to what feels right. On the other hand, there appears to be various factors like age that weigh heavily in determining AA. Considering our age (early to mid 40s), I would start by leaning more to my wife’s preference of 70/30 or even 60/40 but considering how little we have accumulated, I feel that we need to “catch up” and be more aggressive since we have 20-25 left till retirement; hence, my preference for a 90/10 AA. As a compromise with my wife, it seems 80/20 is better but I don’t think I would have an issue with 70/30 as long as we’re not losing the potential for much upside. I’m not concerned about the additional 10% risk because I’m thinking long term.

70/30 maybe the sweet spot. Keep everything in VTSAX in the Roth and taxable and just use bonds in the 401k but if they don’t have any good bond options, would a balanced fund be ok like vbiax?
behumble,

You did get my point.

1) Your portfolio is at 700K now and you believe that it is okay to be 80/20.

2) Sometime in the future, your portfolio would be

A) 1 million
B) 1.5 million
C) 2 million
D) 2.5 million

When will you change your AA from 80/20 to something else? At a certain point from (A) to (D), it will no longer be acceptable to you to lose 40% of your portfolio.

KlangFool
If you were in my shoes (you know our basic background), what AA would you set?
behumble,

I am not questioning your decision to set the current AA at 80/20. But, you should know that you cannot retire with the AA of 80/20.

So, the question is

A) What is your targeted retirement portfolio size? 1.5 million? 2 million? 2.5 million?

B) In general, when you plan to retire, your fixed income/bond should be at 10 to 20 years of your retirement expense.

C) Take (A) and (B), you will know your retirement AA.

D) You need a glide path to move from 80/20 to (C).

In my case, my number is 1.5 million. My annual expense is 60K. When I retire, I want 10 years of expense in fixed income/bond. 10 X 60K = 600K.

600K/1.5 million = 40%.

So, my retirement AA is 60/40.

I started with 70/30 and I change my AA to 60/40 as it gets bigger.

KlangFool

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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by Outer Marker » Tue Nov 26, 2019 5:23 am

behumble wrote:
Mon Nov 25, 2019 4:29 pm
Just wanted to share with the group that based on all of your collective advice and experience, we've decided NOT to pay down the mortgage. Rather, we will continue to invest and set our AA at 80/20 (compromise b/w my wife's preference for 70/30 and my preference which was 90/10 stock/bonds). Since we don't plan to retire for another 20-25 years, we'll continue to contribute all we can each year and hope for the best. By the way, we're keeping VTSAX as the sole fund in our Roths and our taxable account and we will take the money sitting in our money market fund to buy more VTSAX in our taxable. Next, we'll have to deal with our 401ks to address the 20% in bonds we need.
Sounds like a good choice on all fronts. I too suffered through the financial ruin that was the divorce. Previously with a paid off house and enough to retire at 45. Now that I have less than “half” and need to do it all again, I have a bigger mortgage than ever. And a more aggressive asset allocation. (From 50/50 to 70/30). I did take a 15 year vs a 30 year, so that my new retirement age of 65 and end of mortgage payments would roughly coincide. And to lower the rate and total interest payments.

Another benefit of keeping the mortgage is that it serves as an inflation hedge. If inflation kicks up from its current low levels, I will be paying off the mortgage in cheaper future dollars.

Topic Author
behumble
Posts: 126
Joined: Tue Nov 14, 2017 5:43 pm

Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Tue Nov 26, 2019 6:22 am

KlangFool wrote:
Mon Nov 25, 2019 11:52 pm
behumble wrote:
Mon Nov 25, 2019 11:32 pm
KlangFool wrote:
Mon Nov 25, 2019 10:28 pm
behumble wrote:
Mon Nov 25, 2019 10:18 pm
KlangFool wrote:
Mon Nov 25, 2019 6:33 pm


behumble,

Then, you need to decide when are you going to change your AA from 80/20 to 60/40. Will it be based on age and/or the portfolio size?

At some time in the future, your portfolio will be big enough and you will be old enough that you cannot afford a 40% loss.

KlangFool
Establishing the AA seems like more art than science. From most threads I’ve read, on one hand it appears that it comes down to what feels right. On the other hand, there appears to be various factors like age that weigh heavily in determining AA. Considering our age (early to mid 40s), I would start by leaning more to my wife’s preference of 70/30 or even 60/40 but considering how little we have accumulated, I feel that we need to “catch up” and be more aggressive since we have 20-25 left till retirement; hence, my preference for a 90/10 AA. As a compromise with my wife, it seems 80/20 is better but I don’t think I would have an issue with 70/30 as long as we’re not losing the potential for much upside. I’m not concerned about the additional 10% risk because I’m thinking long term.

70/30 maybe the sweet spot. Keep everything in VTSAX in the Roth and taxable and just use bonds in the 401k but if they don’t have any good bond options, would a balanced fund be ok like vbiax?
behumble,

You did get my point.

1) Your portfolio is at 700K now and you believe that it is okay to be 80/20.

2) Sometime in the future, your portfolio would be

A) 1 million
B) 1.5 million
C) 2 million
D) 2.5 million

When will you change your AA from 80/20 to something else? At a certain point from (A) to (D), it will no longer be acceptable to you to lose 40% of your portfolio.

KlangFool
If you were in my shoes (you know our basic background), what AA would you set?
behumble,

I am not questioning your decision to set the current AA at 80/20. But, you should know that you cannot retire with the AA of 80/20.

So, the question is

A) What is your targeted retirement portfolio size? 1.5 million? 2 million? 2.5 million?

B) In general, when you plan to retire, your fixed income/bond should be at 10 to 20 years of your retirement expense.

C) Take (A) and (B), you will know your retirement AA.

D) You need a glide path to move from 80/20 to (C).

In my case, my number is 1.5 million. My annual expense is 60K. When I retire, I want 10 years of expense in fixed income/bond. 10 X 60K = 600K.

600K/1.5 million = 40%.

So, my retirement AA is 60/40.

I started with 70/30 and I change my AA to 60/40 as it gets bigger.

KlangFool
Your analysis is very helpful- first time seeing how one mathematically arrives at the their AA!

Topic Author
behumble
Posts: 126
Joined: Tue Nov 14, 2017 5:43 pm

Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Tue Nov 26, 2019 6:25 am

Outer Marker wrote:
Tue Nov 26, 2019 5:23 am
behumble wrote:
Mon Nov 25, 2019 4:29 pm
Just wanted to share with the group that based on all of your collective advice and experience, we've decided NOT to pay down the mortgage. Rather, we will continue to invest and set our AA at 80/20 (compromise b/w my wife's preference for 70/30 and my preference which was 90/10 stock/bonds). Since we don't plan to retire for another 20-25 years, we'll continue to contribute all we can each year and hope for the best. By the way, we're keeping VTSAX as the sole fund in our Roths and our taxable account and we will take the money sitting in our money market fund to buy more VTSAX in our taxable. Next, we'll have to deal with our 401ks to address the 20% in bonds we need.
Sounds like a good choice on all fronts. I too suffered through the financial ruin that was the divorce. Previously with a paid off house and enough to retire at 45. Now that I have less than “half” and need to do it all again, I have a bigger mortgage than ever. And a more aggressive asset allocation. (From 50/50 to 70/30). I did take a 15 year vs a 30 year, so that my new retirement age of 65 and end of mortgage payments would roughly coincide. And to lower the rate and total interest payments.

Another benefit of keeping the mortgage is that it serves as an inflation hedge. If inflation kicks up from its current low levels, I will be paying off the mortgage in cheaper future dollars.
Thanks for sharing. It nice to hear from people who’ve also gone through such life/financial challenges and what they’ve done to reorient towards financial security.

hudson
Posts: 2861
Joined: Fri Apr 06, 2007 9:15 am

Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by hudson » Tue Nov 26, 2019 7:29 am

Behumble,

I see Klangfool's points on not paying down the house.
You said that you weren't going to pay it down in a recent post above.
If I planned to stay in that house, I'd pay it down out of current income; I wouldn't take a dime out of my portfolio.
I would make double payments. I'd get rid of that 3.25% interest drag and aim towards being debt free. Maybe pay it off by age 50...then no debt.
I also like bond heavy portfolios...AAA/AA/A rated, intermediate, low ER, Vang. Risk Potential 1-2...or safer.

Topic Author
behumble
Posts: 126
Joined: Tue Nov 14, 2017 5:43 pm

Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Tue Nov 26, 2019 9:06 am

hudson wrote:
Tue Nov 26, 2019 7:29 am
Behumble,

I see Klangfool's points on not paying down the house.
You said that you weren't going to pay it down in a recent post above.
If I planned to stay in that house, I'd pay it down out of current income; I wouldn't take a dime out of my portfolio.
I would make double payments. I'd get rid of that 3.25% interest drag and aim towards being debt free. Maybe pay it off by age 50...then no debt.
I also like bond heavy portfolios...AAA/AA/A rated, intermediate, low ER, Vang. Risk Potential 1-2...or safer.
Thanks, Hudson. If we set our AA to 70/30, what Vanguard funds would you select for the following accounts?

Roth IRA 1 (Currently all VTSAX)
Roth IRA 2 (Currently all VTSAX)
401K 1 (Currently all VBIAX - Vanguard balanced index fund)
401k 2 (Currently all VBIAX - Vanguard balanced index fund)
Taxable (Currently all VTSAX)

Topic Author
behumble
Posts: 126
Joined: Tue Nov 14, 2017 5:43 pm

Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Tue Nov 26, 2019 9:07 am

hudson wrote:
Tue Nov 26, 2019 7:29 am
Behumble,

I see Klangfool's points on not paying down the house.
You said that you weren't going to pay it down in a recent post above.
If I planned to stay in that house, I'd pay it down out of current income; I wouldn't take a dime out of my portfolio.
I would make double payments. I'd get rid of that 3.25% interest drag and aim towards being debt free. Maybe pay it off by age 50...then no debt.
I also like bond heavy portfolios...AAA/AA/A rated, intermediate, low ER, Vang. Risk Potential 1-2...or safer.
CORRECTION:
In Taxable (VTSAX and Vanguard Prime MM fund)

Topic Author
behumble
Posts: 126
Joined: Tue Nov 14, 2017 5:43 pm

Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Tue Nov 26, 2019 9:15 am

For my 401k, the only bond fund available is VBILX (Vanguard Interm-Term Bond Index Adm) with a .07 ER. I'll have to check my wife's fund options but I do recall that she has access to Vanguard's Total Bond Index Fund. If we want to set a 70/30 AA and keep everything else in VTSAX (Roths and Taxable), should we select the bond funds in our 401k's and if so, which bond funds would be ideal for a "set it and forget it" type for the next 20-25 years till retirement?

hudson
Posts: 2861
Joined: Fri Apr 06, 2007 9:15 am

Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by hudson » Tue Nov 26, 2019 9:27 am

behumble wrote:
Tue Nov 26, 2019 9:06 am

Thanks, Hudson. If we set our AA to 70/30, what Vanguard funds would you select for the following accounts?

Roth IRA 1 (Currently all VTSAX)
Roth IRA 2 (Currently all VTSAX)
401K 1 (Currently all VBIAX - Vanguard balanced index fund)
401k 2 (Currently all VBIAX - Vanguard balanced index fund)
Taxable (Currently all VTSAX)
For stocks...I don't have any; If I did I'd use Vang. Total Stock

In my IRA, I use 5 year CDs...around 3% or higher....some brokered...some from credit unions. I also use GNMA...VFIJX. I would have ALL CDs except that I need the GNMA fund to invest interest and to take Req. Min. Distributions from....can't take them from a 5 year brokered CDs. VFIJX does have issues...but it's almost 100% US backed bonds.

In my Roths, I use primarily CDs....brokered and direct. With the brokered CDs I need funds to invest the dividends. I use BND and VMBS.

Taxable: I use Intermediate Munis...VWIUX and MUB. I also keep an eye on BMBIX and VTEB.

Overall I'm 80% CDs, 19% VWIUX, and a little MUB.

Again, I look for AAA/AA/A bonds, low ER, Vang. Risk Potential 1-2....or better(CDs)
I used to own some of the Treasury TIPS fund; When a CD expires, I might buy again.

rich126
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Joined: Thu Mar 01, 2018 4:56 pm

Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by rich126 » Tue Nov 26, 2019 9:37 am

Admittedly I'm not one that follows some of the stuff people propose here and the obsession with paying off mortgages is one that I rarely understand. It is rare that people give you money cheaply, and when they do so, you might as well take it and put it into the market and, most likely, earn much better returns than you are paying in interest.

Too often people here seem to talk about winning but dying with as much money saved as possible isn't my definition of winning, nor is getting to zero debt, if it means greatly reducing investable income.

I can understand people in retirement not wanting a mortgage regardless of whether it makes sense, mostly because once you hit retirement, you may not have as many years to recover from a bad market but when you are 30s/40s and not planning to retire until 60 or late, I don't see any real need to pay down a mortgage quickly.

Now if rates were very high, or it was some kind of adjustable rate loan that was likely to rise and for some reason you couldn't refinance it, I could see paying it off early. Otherwise it just seems more like people wanting to brag about not having any debt and thinking that is winning. It isn't.

I keep two things in mind.
1. Money can buy you possessions or freedom.
2. People gladly give you money when you don't need it, but when you do, they won't (or it won't come without a big price attached to it).

(And I'm generally referring to the average person and not someone with $10M in the bank.)

Topic Author
behumble
Posts: 126
Joined: Tue Nov 14, 2017 5:43 pm

Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Tue Nov 26, 2019 9:37 am

hudson wrote:
Tue Nov 26, 2019 9:27 am
behumble wrote:
Tue Nov 26, 2019 9:06 am

Thanks, Hudson. If we set our AA to 70/30, what Vanguard funds would you select for the following accounts?

Roth IRA 1 (Currently all VTSAX)
Roth IRA 2 (Currently all VTSAX)
401K 1 (Currently all VBIAX - Vanguard balanced index fund)
401k 2 (Currently all VBIAX - Vanguard balanced index fund)
Taxable (Currently all VTSAX)
For stocks...I don't have any; If I did I'd use Vang. Total Stock

In my IRA, I use 5 year CDs...around 3% or higher....some brokered...some from credit unions. I also use GNMA...VFIJX. I would have ALL CDs except that I need the GNMA fund to invest interest and to take Req. Min. Distributions from....can't take them from a 5 year brokered CDs. VFIJX does have issues...but it's almost 100% US backed bonds.

In my Roths, I use primarily CDs....brokered and direct. With the brokered CDs I need funds to invest the dividends. I use BND and VMBS.

Taxable: I use Intermediate Munis...VWIUX and MUB. I also keep an eye on BMBIX and VTEB.

Overall I'm 80% CDs, 19% VWIUX, and a little MUB.

Again, I look for AAA/AA/A bonds, low ER, Vang. Risk Potential 1-2....or better(CDs)
I used to own some of the Treasury TIPS fund; When a CD expires, I might buy again.
Wow, respectfully, I'm not tracking on most of what you said. You obviously are an expert and at a different stage/investment purpose. In our 40s and during the accumulation phase, with 20-25 years before retirement and considering we're far behind most at this stage with only $700K or so in investments, it seems like we would need at least a 70/30bonds AA. In terms of bonds, which would be better to use, total bond index or intermediate term bond index fund?

Topic Author
behumble
Posts: 126
Joined: Tue Nov 14, 2017 5:43 pm

Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by behumble » Tue Nov 26, 2019 9:44 am

rich126 wrote:
Tue Nov 26, 2019 9:37 am
Admittedly I'm not one that follows some of the stuff people propose here and the obsession with paying off mortgages is one that I rarely understand. It is rare that people give you money cheaply, and when they do so, you might as well take it and put it into the market and, most likely, earn much better returns than you are paying in interest.

Too often people here seem to talk about winning but dying with as much money saved as possible isn't my definition of winning, nor is getting to zero debt, if it means greatly reducing investable income.

I can understand people in retirement not wanting a mortgage regardless of whether it makes sense, mostly because once you hit retirement, you may not have as many years to recover from a bad market but when you are 30s/40s and not planning to retire until 60 or late, I don't see any real need to pay down a mortgage quickly.

Now if rates were very high, or it was some kind of adjustable rate loan that was likely to rise and for some reason you couldn't refinance it, I could see paying it off early. Otherwise it just seems more like people wanting to brag about not having any debt and thinking that is winning. It isn't.

I keep two things in mind.
1. Money can buy you possessions or freedom.
2. People gladly give you money when you don't need it, but when you do, they won't (or it won't come without a big price attached to it).

(And I'm generally referring to the average person and not someone with $10M in the bank.)
Provocative, thanks. Considering our situation (40s, post-divorce and remarried, with only a bit over $700k in investments and home with a $450K mortgage remaining on a 30 yr fixed at 3.25%), i'm abandoning the idea of paying down the mortgage and focusing on investing. Will hope for the best and see what happens over the next 20-25 years. In fact, i'm planning to change our bi-weekly mortgage payment schedule to monthly and not pay anything more than that until we hopefully have enough in our taxable account to consider paying off the mortgage entirely in 10-15 years. Time will tell.

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Wiggums
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Re: Challenge Conventional Thought: Why NOT pay off a mortgage with 20-25 years before retirement?

Post by Wiggums » Tue Nov 26, 2019 9:48 am

At your age, I paid off the mortgage because I felt like we had too much cash. The mortgage rate at the time was 5.5% and the CD rates at the time were much less. People told me that we could have done better in the stock market, but we already has two 401ks that we maxed out each year. Best feeling to know that the house was ours. It’s not always about getting accumulating more money.

I do understand why people don’t want to sink all their money into the house, but I’ve come to realize that there are many different roads to a successful outcome. Your savings rate and time in the market are your best friend. I truly believe that. So I don’t have a strong opinion on this question. It probably would work out either way if you stay invested and employed during the next downturn. Life is a balance and you don’t have to go all in on one option.

It would be nice if you could agree on one asset allocation. I don’t personal like your 90/10 to compensate for her AA.

I wish you the best of luck with whatever you decide.

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