More retirees have a mortgage

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grok87
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More retirees have a mortgage

Post by grok87 » Sat Nov 16, 2019 9:00 am

According to the center for retirement research at boston college, the percent of early stage retirees (65-79) with a mortgage is now 46% vs. 24% in 1990.
for late stage retirees (80+) it is now 26% vs. 3% in 1990.

https://squaredawayblog.bc.edu/squared- ... -mortgage/

the article mentions a few things that may be behind it including changes in attitude toward debt, rising house prices etc.

i'm not retired yet but i wonder if one factor might be increased uncertainty around health care costs and desire for liquidity.

cheers,
grok
RIP Mr. Bogle.

retiredjg
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Re: More retirees have a mortgage

Post by retiredjg » Sat Nov 16, 2019 9:44 am

I am a retiree with a mortgage by choice because interest rates were so low when I bought it made more sense to me to have the mortgage.

In the decision to pay cash vs take out a mortgage, the 2.875% interest rate won out because I expect my 50/50 portfolio to do better than 2.875%.

WillRetire
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Re: More retirees have a mortgage

Post by WillRetire » Sat Nov 16, 2019 9:49 am

We view the mortgage as a cash management tool. Low rate means we use someone else's money to partially finance our house.

Our reasons for keeping the mortgage:
1) the mortgage rate is very low, so selling assets to pay it off makes no economic sense right now
2) Paying it off cannot be undone very easily. Got the mortgage while still employed. Retired now, and doubt I could get as good a rate.
3) Other than simplifying household budget, can't think of a good reason to pay it off.

Did not plan to have a mortgage in retirement. Just got "lucky" with refinancing at historically low rates (while still employed), and now hanging on to that good deal.

What could change our minds? If interest rates drop drastically, making our current mortgage interest rate relatively high.

edited typo.
Last edited by WillRetire on Sat Nov 16, 2019 9:50 am, edited 1 time in total.

Topic Author
grok87
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Re: More retirees have a mortgage

Post by grok87 » Sat Nov 16, 2019 9:50 am

retiredjg wrote:
Sat Nov 16, 2019 9:44 am
I am a retiree with a mortgage by choice because interest rates were so low when I bought it made more sense to me to have the mortgage.

In the decision to pay cash vs take out a mortgage, the 2.875% interest rate won out because I expect my 50/50 portfolio to do better than 2.875%.
that's a great rate.

what i am doing right now is carrying a mortgage even though i have the funds to pay it off. I have invested those funds in bonds that roughly match the duration of the mortgage. the aftertax yield of the bonds is less than the aftertax cost of the mortgage so there is a net-carrying cost for me to do this. the reason i do it is liquidity. i.e. i could pay off the mortgage but then i wouldn't be able to get to the funds easily if i need them.
RIP Mr. Bogle.

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grok87
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Re: More retirees have a mortgage

Post by grok87 » Sat Nov 16, 2019 9:54 am

WillRetire wrote:
Sat Nov 16, 2019 9:49 am
We view the mortgage as a cash management tool. Low rate means we use someone else's money to partially finance our house.

Our reasons for keeping the mortgage:
1) the mortgage rate is very low, so selling assets to pay it off makes no economic sense right now
2) Paying it off cannot be undone very easily. Got the mortgage while still employed. Retired now, and doubt I could get as good a rate.
3) Other than simplifying household budget, can't think of a good reason to pay it off.

Did not plan to have a mortgage in retirement. Just got "lucky" with refinancing at historically low rates (while still employed), and now hanging on to that good deal.

What could change our minds? If interest rates drop drastically, making our current mortgage interest rate relatively high.

edited typo.
" Paying it off cannot be undone very easily. Got the mortgage while still employed. Retired now, and doubt I could get as good a rate."

it's a good point. i'm wondering if it makes sense to refinance just before i retire to extend the term of the mortgages
RIP Mr. Bogle.

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MrBobcat
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Re: More retirees have a mortgage

Post by MrBobcat » Sat Nov 16, 2019 10:20 am

grok87 wrote:
Sat Nov 16, 2019 9:00 am
the article mentions a few things that may be behind it including changes in attitude toward debt, rising house prices etc.

i'm not retired yet but i wonder if one factor might be increased uncertainty around health care costs and desire for liquidity.

cheers,
grok
I think the changing attitude towards debt is a big factor, that and I also thinks it represents an overall deterioration in the average seniors finances which don't represent the average bogleheads finances. It's more of a I don't have the liquid resources to pay off the mortgage vs I have better use for my money than paying off cheap debt.

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Re: More retirees have a mortgage

Post by Grt2bOutdoors » Sat Nov 16, 2019 10:25 am

A mortgage is a source of liquidity, the ability to tap equity in what can be said is the largest asset for many Americans. Outside of this forum,I’d say most of those holding mortgages are doing so because they “need” to (inability to payoff mortgage at an accelerated rate or in one fell swoop) versus one who is playing the arbitrage game.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Stoic9
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Re: More retirees have a mortgage

Post by Stoic9 » Sat Nov 16, 2019 10:28 am

Starting our 3rd year retired (62/59). A part of the plan included 0 debt. To do so we sold our 3 year old house that had a 3.25% mortgage (couldn't pass up their money) and moved into one of our free houses with zero mortgage. Now we are thinking about buying a new house, probably take a mortgage as my portfolio makes a lot more than their money for 3.5%.

DetroitRick
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Re: More retirees have a mortgage

Post by DetroitRick » Sat Nov 16, 2019 10:35 am

We have a modest mortgage now, in retirement. And likely will either have a mortgage with next home purchase, or will get a heloc. Either way, it's just a cash management tool for us too. I have no greater fear of a mortgage now in retirement than I did while working. Although I limit the balance to an amount that is modest in relation to net worth and cash flow (which, come to think of it, I also did while working).

For the next few years, due to ACA and our precise financial position, not having a mortgage would have a massive negative impact on cash flow. In our case, the funds to pay off mortgage would result in large taxable gains that would significantly reduce or eliminate premium subsidies. In our case, it's far cheaper to pay the modest interest we now pay. For us, with current mortgage, this is very black-and-white.

Leverage, in general and in the context of a mortgage, is always a two-way street. Could help, could hurt. Depends on tons of factors - what you do with the money, what happens with inflation, how it impacts other spending, the income streams you have to support it, true borrowing costs, etc. Retirees have all sorts of different financial situations that drive the ultimate decision. So, I'm not at all surprised that more retirees opt to maintain mortgages. In our case, in moderation, it's a good thing.

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Kenkat
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Re: More retirees have a mortgage

Post by Kenkat » Sat Nov 16, 2019 10:40 am

retiredjg wrote:
Sat Nov 16, 2019 9:44 am
I am a retiree with a mortgage by choice because interest rates were so low when I bought it made more sense to me to have the mortgage.

In the decision to pay cash vs take out a mortgage, the 2.875% interest rate won out because I expect my 50/50 portfolio to do better than 2.875%.
Right.

Mortgage rates in 1990 - 10%
Mortgage rates in 2019 - 3% (or less)

That seems like an important factor as well. You can make a pretty good case for not paying off a 2.875% mortgage.

UpperNwGuy
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Re: More retirees have a mortgage

Post by UpperNwGuy » Sat Nov 16, 2019 10:42 am

Many retirees have mortgages because they move to the Sun Belt soon after retiring and buy a new house, often larger than the one they sold up north. They justify the larger house because they want the grandchildren to visit.

Nowizard
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Re: More retirees have a mortgage

Post by Nowizard » Sat Nov 16, 2019 10:48 am

Mortgage by choice has been beneficially involved in our investing for many years. We are in the RMD stage and continue with a small mortgage based on current interest rates.

Tim

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HueyLD
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Re: More retirees have a mortgage

Post by HueyLD » Sat Nov 16, 2019 10:54 am

They want children and grandchildren to visit. But the young ones may lose interest after a couple of visits because they prefer to visit other places.

I have seen retirees with big homes with just two oldies most of the time. Some decided to pay for for all expenses (airfare, room and board, transportation, etc.) for their offsprings to come visit. But it can get expensive for an average retiree.

NoblesvilleIN
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Re: More retirees have a mortgage

Post by NoblesvilleIN » Sat Nov 16, 2019 3:22 pm

I'm wondering if they are not comparing apples to apples. I skimmed the article and did not see if they distinguish between a traditional mortgage and a HELC. We paid our mortgage off several years ago, but still have an HELC. I recently pulled a credit report and it showed the HELC as being the full amount of the line even though we currently have a zero balance. We are retired. The HELC is there if we need it. I'm sure we are not the only retirees with a zero balance HELC. If the study is counting the line of credit, with a zero balance, as a mortgage, it could greatly skew the numbers. Just a thought.

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FIREchief
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Re: More retirees have a mortgage

Post by FIREchief » Sat Nov 16, 2019 3:33 pm

A huge mortgage is a great form of asset protection. (that said, I rent.....)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Starfish
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Re: More retirees have a mortgage

Post by Starfish » Sat Nov 16, 2019 3:46 pm

What about taxes?
To pay a mortgage one has to generate income and pay (marginal) taxes on that income.
Same problem with rent.
What about sequence of returns risk?

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JoeRetire
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Re: More retirees have a mortgage

Post by JoeRetire » Sat Nov 16, 2019 3:50 pm

grok87 wrote:
Sat Nov 16, 2019 9:00 am
i'm not retired yet but i wonder if one factor might be increased uncertainty around health care costs and desire for liquidity.
Perhaps for some. Uncertainty around health care costs has nothing to do with my decision to keep a mortgage while retired.
Don't be a lemming.

Big Dog
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Re: More retirees have a mortgage

Post by Big Dog » Sat Nov 16, 2019 3:53 pm

we have a mortgage (3%), but its a liquidity play only. No concern about health care costs as COBRA will get us to Medicare.

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JoeRetire
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Re: More retirees have a mortgage

Post by JoeRetire » Sat Nov 16, 2019 3:56 pm

grok87 wrote:
Sat Nov 16, 2019 9:54 am
i'm wondering if it makes sense to refinance just before i retire to extend the term of the mortgages
It might. It probably depends on the rate you can get at that time.
Don't be a lemming.

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JoeRetire
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Re: More retirees have a mortgage

Post by JoeRetire » Sat Nov 16, 2019 4:00 pm

Stoic9 wrote:
Sat Nov 16, 2019 10:28 am
Starting our 3rd year retired (62/59). A part of the plan included 0 debt. To do so we sold our 3 year old house that had a 3.25% mortgage (couldn't pass up their money) and moved into one of our free houses with zero mortgage. Now we are thinking about buying a new house, probably take a mortgage as my portfolio makes a lot more than their money for 3.5%.
Wow. That's a quick turnaround from a 0 debt plan.
Don't be a lemming.

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David Jay
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Re: More retirees have a mortgage

Post by David Jay » Sat Nov 16, 2019 4:03 pm

grok87 wrote:
Sat Nov 16, 2019 9:54 am
it's a good point. i'm wondering if it makes sense to refinance just before i retire to extend the term of the mortgages
I upped the limit of my HELOC before retirement. At my CU there is no cost for holding a zero balance HELOC and the line of credit is good for 10 years.

Quick and easy way to access home equity, in my case I just do an online transfer from the HELOC to my checking account.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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grok87
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Re: More retirees have a mortgage

Post by grok87 » Sat Nov 16, 2019 6:19 pm

David Jay wrote:
Sat Nov 16, 2019 4:03 pm
grok87 wrote:
Sat Nov 16, 2019 9:54 am
it's a good point. i'm wondering if it makes sense to refinance just before i retire to extend the term of the mortgages
I upped the limit of my HELOC before retirement. At my CU there is no cost for holding a zero balance HELOC and the line of credit is good for 10 years.

Quick and easy way to access home equity, in my case I just do an online transfer from the HELOC to my checking account.
yes, but they can pull the line of ctedit at any time right?
RIP Mr. Bogle.

Trader Joe
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Re: More retirees have a mortgage

Post by Trader Joe » Sat Nov 16, 2019 6:26 pm

grok87 wrote:
Sat Nov 16, 2019 9:00 am
According to the center for retirement research at boston college, the percent of early stage retirees (65-79) with a mortgage is now 46% vs. 24% in 1990.
for late stage retirees (80+) it is now 26% vs. 3% in 1990.

https://squaredawayblog.bc.edu/squared- ... -mortgage/

the article mentions a few things that may be behind it including changes in attitude toward debt, rising house prices etc.

i'm not retired yet but i wonder if one factor might be increased uncertainty around health care costs and desire for liquidity.

cheers,
grok
I do not know of anyone near the age of 50 years old (including myself) that has a mortgage. There is simply no reason.

littlebird
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Re: More retirees have a mortgage

Post by littlebird » Sat Nov 16, 2019 6:46 pm

I live in a very large senior community. When I first moved here 26 years ago, I was given the impression by real estate people and the local newspaper that only a small percentage of buyers took mortgages. Now in talking to people, I come across many people who have mortgages. The almost universal explanation? Some variation of “we lost a lot of money in 2008-9”.

drawpoker
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Re: More retirees have a mortgage

Post by drawpoker » Sat Nov 16, 2019 8:29 pm

Trader Joe wrote:
Sat Nov 16, 2019 6:26 pm
I do not know of anyone near the age of 50 years old (including myself) that has a mortgage. There is simply no reason.
You are joking, right? Can't be serious post.

There are soooo many valid reasons, too numerous to list. It would require unnecessary waste of bandwidth to elaborate.

Know what else? I don't care much for the whole premise here. As the pointy-headed "experts" at Boston U. behind this study are grouping retirees into only two classes - "early retirees" ages 65-79, then jumping to "late stage" as age 80 & up.

What happened to the "middle stage" ? By the same token, where is the true "early" retiree grouping? People retiring before 65? There is a whole bunch of them out there.

If the pointy heads have grouped traditional first mortgages with HELOC's for their so-called research study - that's even dumber. Any fool knows that it is smart to get your HELOC approved while you are still working. Much more difficult if you are unemployed or retired. Doesn't cost a thing if you never use it; it is just there in case of need

IMO
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Re: More retirees have a mortgage

Post by IMO » Sat Nov 16, 2019 8:34 pm

MrBobcat wrote:
Sat Nov 16, 2019 10:20 am
grok87 wrote:
Sat Nov 16, 2019 9:00 am
the article mentions a few things that may be behind it including changes in attitude toward debt, rising house prices etc.

i'm not retired yet but i wonder if one factor might be increased uncertainty around health care costs and desire for liquidity.

cheers,
grok
I think the changing attitude towards debt is a big factor, that and I also thinks it represents an overall deterioration in the average seniors finances which don't represent the average bogleheads finances. It's more of a I don't have the liquid resources to pay off the mortgage vs I have better use for my money than paying off cheap debt.
I'd agree with this thought. I do think many on this site kinda lose touch with the average person out there in regards to finances.

drawpoker
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Re: More retirees have a mortgage

Post by drawpoker » Sat Nov 16, 2019 8:35 pm

grok87 wrote:
Sat Nov 16, 2019 6:19 pm

yes, but they can pull the line of ctedit at any time right?
This happened during the Great Recession when real estate values dropped so drastically. Not unusual for houses with a market valuation of $350,000 to fall way below $200,000. Ergo, the lenders extending the home equity credit lines responded accordingly.

7eight9
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Re: More retirees have a mortgage

Post by 7eight9 » Sat Nov 16, 2019 8:37 pm

drawpoker wrote:
Sat Nov 16, 2019 8:29 pm
Trader Joe wrote:
Sat Nov 16, 2019 6:26 pm
I do not know of anyone near the age of 50 years old (including myself) that has a mortgage. There is simply no reason.
You are joking, right? Can't be serious post.

There are soooo many valid reasons, too numerous to list. It would require unnecessary waste of bandwidth to elaborate.

Know what else? I don't care much for the whole premise here. As the pointy-headed "experts" at Boston U. behind this study are grouping retirees into only two classes - "early retirees" ages 65-79, then jumping to "late stage" as age 80 & up.

What happened to the "middle stage" ? By the same token, where is the true "early" retiree grouping? People retiring before 65? There is a whole bunch of them out there.

If the pointy heads have grouped traditional first mortgages with HELOC's for their so-called research study - that's even dumber. Any fool knows that it is smart to get your HELOC approved while you are still working. Much more difficult if you are unemployed or retired. Doesn't cost a thing if you never use it; it is just there in case of need
We took out a mortgage when I was 39. Paid it off before I was 40. Not a fan of gambling. Any fool knows that if you have the money you should have a paid off house, a Japanese car, a couple of bucks in the bank --- no worries. Ref. John Goodman's soliloquy in The Gambler.
I guess it all could be much worse. | They could be warming up my hearse.

IMO
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Re: More retirees have a mortgage

Post by IMO » Sat Nov 16, 2019 8:53 pm

7eight9 wrote:
Sat Nov 16, 2019 8:37 pm
drawpoker wrote:
Sat Nov 16, 2019 8:29 pm
Trader Joe wrote:
Sat Nov 16, 2019 6:26 pm
I do not know of anyone near the age of 50 years old (including myself) that has a mortgage. There is simply no reason.
You are joking, right? Can't be serious post.

There are soooo many valid reasons, too numerous to list. It would require unnecessary waste of bandwidth to elaborate.

Know what else? I don't care much for the whole premise here. As the pointy-headed "experts" at Boston U. behind this study are grouping retirees into only two classes - "early retirees" ages 65-79, then jumping to "late stage" as age 80 & up.

What happened to the "middle stage" ? By the same token, where is the true "early" retiree grouping? People retiring before 65? There is a whole bunch of them out there.

If the pointy heads have grouped traditional first mortgages with HELOC's for their so-called research study - that's even dumber. Any fool knows that it is smart to get your HELOC approved while you are still working. Much more difficult if you are unemployed or retired. Doesn't cost a thing if you never use it; it is just there in case of need
We took out a mortgage when I was 39. Paid it off before I was 40. Not a fan of gambling. Any fool knows that if you have the money you should have a paid off house, a Japanese car, a couple of bucks in the bank --- no worries. Ref. John Goodman's soliloquy in The Gambler.
So I'm curious, why did you take a mortgage in the 1st place?

In any event, this reiterates my last post on this topic. I don't think an average person at 40 out there can make the decision to pay off their mortgage.

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Re: More retirees have a mortgage

Post by montanagirl » Sat Nov 16, 2019 9:03 pm

Kenkat wrote:
Sat Nov 16, 2019 10:40 am
retiredjg wrote:
Sat Nov 16, 2019 9:44 am
I am a retiree with a mortgage by choice because interest rates were so low when I bought it made more sense to me to have the mortgage.

In the decision to pay cash vs take out a mortgage, the 2.875% interest rate won out because I expect my 50/50 portfolio to do better than 2.875%.
Right.

Mortgage rates in 1990 - 10%
Mortgage rates in 2019 - 3% (or less)

That seems like an important factor as well. You can make a pretty good case for not paying off a 2.875% mortgage.

Except that houses cost a lot less. I bought my starter in 1990 for $21,400 @ 12%. It was a smart buy.

If rates went way up I bet prices would go through the floor.

drawpoker
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Re: More retirees have a mortgage

Post by drawpoker » Sat Nov 16, 2019 9:08 pm

7eight9 wrote:
Sat Nov 16, 2019 8:37 pm
...... Any fool knows that if you have the money you should have a paid off house, a Japanese car, a couple of bucks in the bank --- no worries. Ref. John Goodman's soliloquy in The Gambler.
Sorry, but, um, that's not quite it, doesn't cover it. However, that was good advice for the post-WWII era, though (just before the invention of the low-cost mutual fund :wink: )

Any fool knows - at the end of the day - it is all about Net Worth. That is the all-important consideration.

And that very rarely has an association with "paid off house" "Japanese car" (or other personal property of depreciating assets) bank balances, and so on.

Smart investment moves can certainly include mortgage(s) well into retirement age.

7eight9
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Re: More retirees have a mortgage

Post by 7eight9 » Sat Nov 16, 2019 9:10 pm

IMO wrote:
Sat Nov 16, 2019 8:53 pm
7eight9 wrote:
Sat Nov 16, 2019 8:37 pm
drawpoker wrote:
Sat Nov 16, 2019 8:29 pm
Trader Joe wrote:
Sat Nov 16, 2019 6:26 pm
I do not know of anyone near the age of 50 years old (including myself) that has a mortgage. There is simply no reason.
You are joking, right? Can't be serious post.

There are soooo many valid reasons, too numerous to list. It would require unnecessary waste of bandwidth to elaborate.

Know what else? I don't care much for the whole premise here. As the pointy-headed "experts" at Boston U. behind this study are grouping retirees into only two classes - "early retirees" ages 65-79, then jumping to "late stage" as age 80 & up.

What happened to the "middle stage" ? By the same token, where is the true "early" retiree grouping? People retiring before 65? There is a whole bunch of them out there.

If the pointy heads have grouped traditional first mortgages with HELOC's for their so-called research study - that's even dumber. Any fool knows that it is smart to get your HELOC approved while you are still working. Much more difficult if you are unemployed or retired. Doesn't cost a thing if you never use it; it is just there in case of need
We took out a mortgage when I was 39. Paid it off before I was 40. Not a fan of gambling. Any fool knows that if you have the money you should have a paid off house, a Japanese car, a couple of bucks in the bank --- no worries. Ref. John Goodman's soliloquy in The Gambler.
So I'm curious, why did you take a mortgage in the 1st place?

In any event, this reiterates my last post on this topic. I don't think an average person at 40 out there can make the decision to pay off their mortgage.
We had 50% to put down. We didn't have the other 50%. Eschewing all other investment alternatives we paid the remainding 50% off in a year. And we had a couple of Japenese cars (paid off). Took John Goodman's advice to heart (before he ever gave it).
I guess it all could be much worse. | They could be warming up my hearse.

7eight9
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Re: More retirees have a mortgage

Post by 7eight9 » Sat Nov 16, 2019 9:23 pm

drawpoker wrote:
Sat Nov 16, 2019 9:08 pm
7eight9 wrote:
Sat Nov 16, 2019 8:37 pm
...... Any fool knows that if you have the money you should have a paid off house, a Japanese car, a couple of bucks in the bank --- no worries. Ref. John Goodman's soliloquy in The Gambler.
Sorry, but, um, that's not quite it, doesn't cover it. However, that was good advice for the post-WWII era, though (just before the invention of the low-cost mutual fund :wink: )

Any fool knows - at the end of the day - it is all about Net Worth. That is the all-important consideration.

And that very rarely has an association with "paid off house" "Japanese car" (or other personal property of depreciating assets) bank balances, and so on.

Smart investment moves can certainly include mortgage(s) well into retirement age.
If you can beat the mortage risk free than I agree. Otherwise you are gambling. Best of luck.
I guess it all could be much worse. | They could be warming up my hearse.

texasdiver
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Re: More retirees have a mortgage

Post by texasdiver » Sat Nov 16, 2019 11:04 pm

The biggest advantage to having a paid off mortgage in retirement comes if your income source is mainly taxable such as traditional IRA, 401(k) or pension dollars. Because you will be able to reduce your taxable income by an amount equal to what your mortgage payment would have been.

If your mortgage is 2k per month and you are paying for it out of a traditional 401(k) or IRA then you basically need to add $24k to your annual taxable income to cover the mortgage. Depending on your tax bracket that can be real money. At the 24% tax bracket you'd need to withdraw an additional $5,760 to cover the taxes. So you'll be withdrawing about $30k per year to cover your $24k mortgage.

If you are paying for the mortgage out of a Roth or taxable savings then it's not really an issue.

Roslo
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Re: More retirees have a mortgage

Post by Roslo » Sun Nov 17, 2019 3:08 am

drawpoker wrote:
Sat Nov 16, 2019 9:08 pm
7eight9 wrote:
Sat Nov 16, 2019 8:37 pm
...... Any fool knows that if you have the money you should have a paid off house, a Japanese car, a couple of bucks in the bank --- no worries. Ref. John Goodman's soliloquy in The Gambler.
Sorry, but, um, that's not quite it, doesn't cover it. However, that was good advice for the post-WWII era, though (just before the invention of the low-cost mutual fund :wink: )

Any fool knows - at the end of the day - it is all about Net Worth. That is the all-important consideration.

And that very rarely has an association with "paid off house" "Japanese car" (or other personal property of depreciating assets) bank balances, and so on.

Smart investment moves can certainly include mortgage(s) well into retirement age.
The original poster was referring to this classic John Goodman scene from The Gambler:

https://www.youtube.com/watch?v=xdfeXqHFmPI

The scene starts with John Goodman saying "You get up $2.5 million...". In this movie, $2.5 million is merely "a couple of bucks". (And, given the way some Bogleheads talk about the need for many millions in retirement, arguably is here on this forum too.)

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Re: More retirees have a mortgage

Post by catdude » Sun Nov 17, 2019 3:54 am

OK, here's a related question... I don't have a mortgage on my house; should I go out and get one? And invest the $$$? Mind you, I don't particularly want to do that, but if it's such a savvy idea, well, maybe I should. I'm 64, retired, and have enough assets to qualify for a mortgage.
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MathWizard
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Re: More retirees have a mortgage

Post by MathWizard » Sun Nov 17, 2019 4:52 am

I am debt free and don't plan to ever have debt again. Maybe that's why I'll never be uber-rich.

Mathematically, I understand the benefit of low-cost leverage, but I have just seen people get caught in a cash flow crunch.

There are people on the other side of the loan that think that giving you the dollars at such a low interest rate is s better risk adjusted rate of return than the alternatives.

In a world of near zero interest rates, and an inverted yield curve, I want to minimize the amount that I need for essential living expenses. I see clouds on the horizon, and want to steer a cautious heading.

Maybe this is just a behavioral thing, but investor behavior is important in success.

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grok87
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Re: More retirees have a mortgage

Post by grok87 » Sun Nov 17, 2019 6:58 am

catdude wrote:
Sun Nov 17, 2019 3:54 am
OK, here's a related question... I don't have a mortgage on my house; should I go out and get one? And invest the $$$? Mind you, I don't particularly want to do that, but if it's such a savvy idea, well, maybe I should. I'm 64, retired, and have enough assets to qualify for a mortgage.
i am not in favor of carrying a mortgage to "invest" the funds in the stock market or other risky assets. I have a mortgage but i also have the funds to pay it off. those funds are invested in treasury and muni bonds with a similar duration to the mortgage. the after tax yield i get on those bonds is less than the after tax cost of the mortgage. so there is a net carrying cost to me for the mortgage. but it is worth it to me to have the liquidity available.
RIP Mr. Bogle.

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grok87
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Re: More retirees have a mortgage

Post by grok87 » Sun Nov 17, 2019 7:01 am

drawpoker wrote:
Sat Nov 16, 2019 8:35 pm
grok87 wrote:
Sat Nov 16, 2019 6:19 pm

yes, but they can pull the line of ctedit at any time right?
This happened during the Great Recession when real estate values dropped so drastically. Not unusual for houses with a market valuation of $350,000 to fall way below $200,000. Ergo, the lenders extending the home equity credit lines responded accordingly.
yep.
but as far as i know they can pull the lines of credit at any time. don't think they have to give a reason, like your house is underwater now.

that's why i'm not in favor of home equity lines of credit as a source of emergency liquidity. it's the classic "buying trip insurance on the titanic from a fellow passenger"
RIP Mr. Bogle.

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HueyLD
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Re: More retirees have a mortgage

Post by HueyLD » Sun Nov 17, 2019 7:08 am

catdude wrote:
Sun Nov 17, 2019 3:54 am
OK, here's a related question... I don't have a mortgage on my house; should I go out and get one? And invest the $$$? Mind you, I don't particularly want to do that, but if it's such a savvy idea, well, maybe I should. I'm 64, retired, and have enough assets to qualify for a mortgage.
Hypothetically, another major stock market crash arrives after you invested the money from mortgage cash out. Will your life style be seriously impacted by losing say 50% of the former home equity? Will you be forced to default on the mortgage and lose your home?

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Re: More retirees have a mortgage

Post by grettman » Sun Nov 17, 2019 7:30 am

I choose to pay of my mortgage before retirement. I am paying it off with new money, not by selling anything. I want to clear the mortgage because I want to minimize sequence of returns risk as I enter retirement. In retirement, it is much easier for me to forgo discretionary expenses (vacations for example) to minimize the amount of selling I need to do versus fixed costs associated with shelter.

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midareff
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Re: More retirees have a mortgage

Post by midareff » Sun Nov 17, 2019 8:14 am

retiredjg wrote:
Sat Nov 16, 2019 9:44 am
I am a retiree with a mortgage by choice because interest rates were so low when I bought it made more sense to me to have the mortgage.

In the decision to pay cash vs take out a mortgage, the 2.875% interest rate won out because I expect my 50/50 portfolio to do better than 2.875%.
I am a retiree with a mortgage by choice because interest rates were so low when I bought it made more sense to me to have the mortgage.

In the decision to pay cash vs take out a mortgage, the 3.00% interest rate won out because I expect my 50/50 portfolio to do better than 3.00%.

The ten year scorecard is mortgage 3.00%, portfolio 8.74%. ... maybe it makes me look smarter than I am, maybe not. Between the gains on investment capital and the tax break on the interest the rear view mirror says right idea.

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Re: More retirees have a mortgage

Post by Chicken Little » Sun Nov 17, 2019 8:44 am

grok87 wrote:
Sat Nov 16, 2019 9:00 am
According to the center for retirement research at boston college, the percent of early stage retirees (65-79) with a mortgage is now 46% vs. 24% in 1990.
for late stage retirees (80+) it is now 26% vs. 3% in 1990.
It would be nice to know the answer.

Participants here are widely regarded by themselves as a group of outliers. For this topic, I would tend to agree. I am very skeptical that a significant portion of the mortgage change reflects older homeowners voluntarily retaining a mortgage to maintain liquidity?

Lower rates almost certainly have an impact, but this cohort (certainly the 80+) grew up with the concept that a core tenet of "independence" was home ownership. The "get off my land", outright type of ownership. I doubt most of the increase is voluntary.

First, she said, Americans today “seem to have less aversion to debt” than the generation that grew up after the Great Depression and was instilled with frugality.

I would go with that explanation, but rephrase it as "seemed to have succumbed to debt despair". Objectively, from the perspective of a path that ends in financial independence, it seems that most people have houses and cars and vacations and tuition(s) that they can't really afford. I wouldn't call it a loss of aversion, more acquiescence. I don't have the money, but they're going to give it to me, so why shouldn't I have it?

Of course, this fits in well with my narrative of total-debt-armageddon, so I'll include it as a feather-in-my-cap until disproven.

Remember, there's no free lunch unless you borrowed money to pay for it.

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JoeRetire
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Re: More retirees have a mortgage

Post by JoeRetire » Sun Nov 17, 2019 8:47 am

Trader Joe wrote:
Sat Nov 16, 2019 6:26 pm
I do not know of anyone near the age of 50 years old (including myself) that has a mortgage. There is simply no reason.
LOL! You gotta get out more!
Don't be a lemming.

Chicken Little
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Re: More retirees have a mortgage

Post by Chicken Little » Sun Nov 17, 2019 8:48 am

P.S. How much of this elderly mortgage debt am I holding in TBM? Should I be more discretionary in my lending?

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JoeRetire
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Re: More retirees have a mortgage

Post by JoeRetire » Sun Nov 17, 2019 8:52 am

drawpoker wrote:
Sat Nov 16, 2019 8:29 pm
Know what else? I don't care much for the whole premise here. As the pointy-headed "experts" at Boston U. behind this study are grouping retirees into only two classes - "early retirees" ages 65-79, then jumping to "late stage" as age 80 & up.

If the pointy heads have grouped traditional first mortgages with HELOC's for their so-called research study - that's even dumber.
That's Boston College, not "Boston U."

[Comment removed by Moderator Misenplace]

I'm just sayin'

:wink:
Don't be a lemming.

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billthecat
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Re: More retirees have a mortgage

Post by billthecat » Sun Nov 17, 2019 8:53 am

texasdiver wrote:
Sat Nov 16, 2019 11:04 pm
The biggest advantage to having a paid off mortgage in retirement comes if your income source is mainly taxable such as traditional IRA, 401(k) or pension dollars. Because you will be able to reduce your taxable income by an amount equal to what your mortgage payment would have been.

If your mortgage is 2k per month and you are paying for it out of a traditional 401(k) or IRA then you basically need to add $24k to your annual taxable income to cover the mortgage. Depending on your tax bracket that can be real money. At the 24% tax bracket you'd need to withdraw an additional $5,760 to cover the taxes. So you'll be withdrawing about $30k per year to cover your $24k mortgage.

If you are paying for the mortgage out of a Roth or taxable savings then it's not really an issue.
But the interest is deductible.
We cannot direct the winds but we can adjust our sails.

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grok87
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Re: More retirees have a mortgage

Post by grok87 » Sun Nov 17, 2019 9:50 am

billthecat wrote:
Sun Nov 17, 2019 8:53 am
texasdiver wrote:
Sat Nov 16, 2019 11:04 pm
The biggest advantage to having a paid off mortgage in retirement comes if your income source is mainly taxable such as traditional IRA, 401(k) or pension dollars. Because you will be able to reduce your taxable income by an amount equal to what your mortgage payment would have been.

If your mortgage is 2k per month and you are paying for it out of a traditional 401(k) or IRA then you basically need to add $24k to your annual taxable income to cover the mortgage. Depending on your tax bracket that can be real money. At the 24% tax bracket you'd need to withdraw an additional $5,760 to cover the taxes. So you'll be withdrawing about $30k per year to cover your $24k mortgage.

If you are paying for the mortgage out of a Roth or taxable savings then it's not really an issue.
But the interest is deductible.
it may be deductible. i suspect for many people it is not really deductible anymore under the new tax law.
RIP Mr. Bogle.

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Re: More retirees have a mortgage

Post by ChrisC » Sun Nov 17, 2019 10:57 am

midareff wrote:
Sun Nov 17, 2019 8:14 am
retiredjg wrote:
Sat Nov 16, 2019 9:44 am
I am a retiree with a mortgage by choice because interest rates were so low when I bought it made more sense to me to have the mortgage.

In the decision to pay cash vs take out a mortgage, the 2.875% interest rate won out because I expect my 50/50 portfolio to do better than 2.875%.
I am a retiree with a mortgage by choice because interest rates were so low when I bought it made more sense to me to have the mortgage.

In the decision to pay cash vs take out a mortgage, the 3.00% interest rate won out because I expect my 50/50 portfolio to do better than 3.00%.

The ten year scorecard is mortgage 3.00%, portfolio 8.74%. ... maybe it makes me look smarter than I am, maybe not. Between the gains on investment capital and the tax break on the interest the rear view mirror says right idea.
Your portfolio, I assume, consists of equities, fixed income assets, and perhaps cash if it is anything like mine. Should you be comparing the return on your fixed income assets and cash component in your portfolio to the interest rate on your mortgage to make this an apples to apples comparison of risk and return? Just saying . . .

My overall portfolio over the relevant time period of when I took out the mortgage exceeds the 2.75% mortgage rate I have on my primary residence, but I have stupid cash (CDs, savings and checking accounts) in my porfolio that would be sufficient to retire the mortgage. The return on my cash is a bit lower than the 2.75% mortgage rate (and that is after recently obtaining a jumbo 5 year CD at 3.50%). I have wondered about paying off my mortgage and decided that I like my liquidity better than being free from low interest debt.

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Re: More retirees have a mortgage

Post by delamer » Sun Nov 17, 2019 11:58 am

There’s a difference between a 70-year-old with $1,000,000 in liquid assets holding a $100,000 mortgage versus a 70-year-old with $250,000 in liquid assets holding a $100,000, even if their incomes are the same.

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