A strategy to pay off home at retirement?

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Pepitoperez
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A strategy to pay off home at retirement?

Post by Pepitoperez » Sat Oct 06, 2018 7:12 am

I am 57 years old want to retire at 61, been investing in Vanguard for over 25 years. When I retire will have around $ 1.3 million. My house is worth $450k and will owe around $150k at fix rate 3.85 30 year mortgage. Should I take the $150k strategically from portfolio and pay off the mortgage at retirement?
Thanks for your thoughts....

teddytimtam
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Re: A strategy to pay off home at retirement?

Post by teddytimtam » Sat Oct 06, 2018 7:56 am

I definitely would and would not worry about capital gain taxes, interest rate, expected return, etc... Pay off your house, live 100% debt free and enjoy retirement. There's a peace of mind living with a paid for home. Your grass will feel greener when you walk outside :D

However, before doing so, I would do it in way where its the most tax efficient way when withdrawing from your portfolio. (if its 401k, Roth, cash, etc.)

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dratkinson
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Re: A strategy to pay off home at retirement?

Post by dratkinson » Sat Oct 06, 2018 8:04 am

Generally, I like the idea of being mortgage-free in retirement. One less thing to worry about.


Idea. You might be able to have your cake and eat it too. How? Maybe consider paying off your house with a reverse mortgage.

I have no idea how the numbers work out. Don't know if a RM is a good idea if it's more expensive than your home mortgage. So decision may depend upon the situation you want to leave for your heirs.



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heerekj1
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Re: A strategy to pay off home at retirement?

Post by heerekj1 » Sat Oct 06, 2018 8:40 am

Have you considered downsizing? We bought a house in a lower cost of living area by refinancing our house and then paid everything off when we sold and moved.

dknightd
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Re: A strategy to pay off home at retirement?

Post by dknightd » Sat Oct 06, 2018 9:08 am

Pepitoperez wrote:
Sat Oct 06, 2018 7:12 am
I am 57 years old want to retire at 61, been investing in Vanguard for over 25 years. When I retire will have around $ 1.3 million. My house is worth $450k and will owe around $150k at fix rate 3.85 30 year mortgage. Should I take the $150k strategically from portfolio and pay off the mortgage at retirement?
Thanks for your thoughts....
I've gone back and forth on this decision.
I've decided, for me, having the money to pay off the mortgage at any time is equal to having it paid off.
I think if I had the money in after tax investments I'd pay it off. But most of my money is in pretax retirement accounts.
If I took enough out of my pretax accounts to pay off the mortgage, it would bump me to a higher tax bracket. Withdrawals from my 403b pretax account are taxed as ordinary income. I like the idea of retiring with no mortgage, but I'd rather not pay extra taxes to do it. YMMV
Last edited by dknightd on Sat Oct 06, 2018 9:15 am, edited 1 time in total.

mortfree
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Re: A strategy to pay off home at retirement?

Post by mortfree » Sat Oct 06, 2018 9:14 am

You are looking ahead 3-4 years.

What do your numbers look like now? Mortgage amount and assets.

Where are your investments- pre-tax retirement, taxable, etc?

In the next 3-4 years, what are you doing with your paychecks? Are you maxing for retirement , etc?

If you do have 150k left when you retire at 61, I would think about doing 30k per year over 5 years or 50k per year over 3 years to payoff the mortgage.

Pepitoperez
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Re: A strategy to pay off home at retirement?

Post by Pepitoperez » Sat Oct 06, 2018 10:18 am

teddytimtam wrote:
Sat Oct 06, 2018 7:56 am
I definitely would and would not worry about capital gain taxes, interest rate, expected return, etc... Pay off your house, live 100% debt free and enjoy retirement. There's a peace of mind living with a paid for home. Your grass will feel greener when you walk outside :D

However, before doing so, I would do it in way where its the most tax efficient way when withdrawing from your portfolio. (if its 401k, Roth, cash, etc.)

Thanks for the input, it would feel nice to be mortgage free.

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whodidntante
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Re: A strategy to pay off home at retirement?

Post by whodidntante » Sat Oct 06, 2018 10:20 am

I would keep the low rate mortgage until it dies a natural death. To me, it's better to have liquidity when the debt you carry is cheap.

Pepitoperez
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Re: A strategy to pay off home at retirement?

Post by Pepitoperez » Sat Oct 06, 2018 10:25 am

I know logically that would make sense, as I would get a better return than the 3.85 fixed rate paying on mortgage. However, there is a physiological component of not having mortgage, etc. Thanks to all for your input.

Pepitoperez
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Re: A strategy to pay off home at retirement?

Post by Pepitoperez » Sat Oct 06, 2018 10:27 am

mortfree wrote:
Sat Oct 06, 2018 9:14 am
You are looking ahead 3-4 years.

What do your numbers look like now? Mortgage amount and assets.

Where are your investments- pre-tax retirement, taxable, etc?

In the next 3-4 years, what are you doing with your paychecks? Are you maxing for retirement , etc?

If you do have 150k left when you retire at 61, I would think about doing 30k per year over 5 years or 50k per year over 3 years to payoff the mortgage.
I like te approach of doing 3, 50 K payments to liquidate loan? Thanks....

teddytimtam
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Re: A strategy to pay off home at retirement?

Post by teddytimtam » Sat Oct 06, 2018 10:30 am

Pepitoperez wrote:
Sat Oct 06, 2018 10:25 am
I know logically that would make sense, as I would get a better return than the 3.85 fixed rate paying on mortgage. However, there is a physiological component of not having mortgage, etc. Thanks to all for your input.
If your house was paid for, would you go to a bank and take out a $150k loan at 3.85% to invest?

KlangFool
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Re: A strategy to pay off home at retirement?

Post by KlangFool » Sat Oct 06, 2018 10:32 am

OP,

You did not provide some key information. In general, it is a bad idea for you to pay off the mortgage.

A) What is your annual expense with or without the mortgage?

B) How much of your 1.3 million is in the taxable account, Roth IRA, and 401K?

C) How much tax do you have to pay in order to sell enough investment to pay off the 150K?

D) Do you plan to withdraw social security at 62 years old? Can you delay your social security withdrawal by a few years if you do not pay off the mortgage? Your social security income increase by about 8% for each year that you delayed the withdrawal.

E) Do you pay less tax or more tax at retirement if you pay off the mortgage?

F) What if we hit a recession right before you retire and after you pay off the 150K mortgage? What happened to you then?

G) What is your Asset Allocation (AA)?

In summary, I do not think it is safe for you to pay off the 150K mortgage. You have to do more calculation to make sure that it is right for you.

KlangFool

KlangFool
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Re: A strategy to pay off home at retirement?

Post by KlangFool » Sat Oct 06, 2018 10:34 am

Pepitoperez wrote:
Sat Oct 06, 2018 10:25 am
I know logically that would make sense, as I would get a better return than the 3.85 fixed rate paying on mortgage. However, there is a physiological component of not having mortgage, etc. Thanks to all for your input.
Pepitoperez,

If you do not have the liquidity (money) to deal with your retirement expense, the physiological component will be short-lived.

KlangFool

4ransom
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Re: A strategy to pay off home at retirement?

Post by 4ransom » Sat Oct 06, 2018 11:18 am

I am 70 years old with a 350K mortgage @ 3.5%. I could pay it off, but money would have to come from taxable and capitol gains would be considerable. Vanguard says my return over the last 10 years has been 10,4%. I have paid off a couple of mortgages over the years and agree it is great feeling but am not convinced it is the right things to do so I procrastinate and consider the mortgage payment as rent.

spectec
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Re: A strategy to pay off home at retirement?

Post by spectec » Sat Oct 06, 2018 11:56 am

We are both in our early 70's and we're with the "keep the mortgage" crowd for now. We could pay off our $135K mortgage, but at the price of reduced liquidity. So the net difference between our mortgage interest and our investment earnings is the price we pay for that convenience. I estimate that price, after adjusting for the effects of tax deductions on the mortgage interest, taxes on the taxable earnings, and accumulation of Roth earnings to be about $ 900/year net at most.

It's no problem in terms of remembering to make the monthly payment, since the mortgage payment is drafted from our checking account. The LTV ratio is very low, so the mortgage is extremely unlikely to put us under water even in a meltdown situation. I suppose as we get older, there might come a point when we need to simplify so much that we'd pay off the mortgage, but right now it's not a big deal for us.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

Mike Scott
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Re: A strategy to pay off home at retirement?

Post by Mike Scott » Sat Oct 06, 2018 12:05 pm

Paying off the mortgage is part of my pre-retirement plan but that will likely happen in the natural course of time. I am also in the camp of thinking that holding the money to pay off the mortgage is the nearly the same as paying it off because you can do so any time you choose.

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cheese_breath
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Re: A strategy to pay off home at retirement?

Post by cheese_breath » Sat Oct 06, 2018 12:40 pm

All I can say is when I retired I just kept making monthly mortgage payments until it was paid off a few years later. I preferred letting my investments grow some more rather than drawing them down to pay off the mortgage. But what you want to do is up to you.
The surest way to know the future is when it becomes the past.

delamer
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Re: A strategy to pay off home at retirement?

Post by delamer » Sat Oct 06, 2018 12:56 pm

KlangFool wrote:
Sat Oct 06, 2018 10:32 am
OP,

You did not provide some key information. In general, it is a bad idea for you to pay off the mortgage.

A) What is your annual expense with or without the mortgage?

B) How much of your 1.3 million is in the taxable account, Roth IRA, and 401K?

C) How much tax do you have to pay in order to sell enough investment to pay off the 150K?

D) Do you plan to withdraw social security at 62 years old? Can you delay your social security withdrawal by a few years if you do not pay off the mortgage? Your social security income increase by about 8% for each year that you delayed the withdrawal.

E) Do you pay less tax or more tax at retirement if you pay off the mortgage?

F) What if we hit a recession right before you retire and after you pay off the 150K mortgage? What happened to you then?

G) What is your Asset Allocation (AA)?

In summary, I do not think it is safe for you to pay off the 150K mortgage. You have to do more calculation to make sure that it is right for you.

KlangFool
Agreed. I also would consider how many years you have remaining on your mortgage.

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Watty
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Re: A strategy to pay off home at retirement?

Post by Watty » Sat Oct 06, 2018 2:07 pm

You need to look at the details of your situation but for me having a paid off house made a lot of sense when I retired since I needed less income each year to pay the mortgage. Some of the advantages are;

1) With less income I can do more Roth conversions in a low tax bracket before I start Social Security.

2) With lower income it is easier for me to qualify for an ACA healthcare subsidy before I start Medicare.

3) With the way Social Security is taxed more income can put you into a higher than expected effective tax bracket.
https://www.bogleheads.org/wiki/Taxatio ... y_benefits

4) Investing the money and earning a higher return is harder than it sounds because you have a sequence of returns risk. Here is a simplistic example that I have posted before.
If you do not pay it off then you will have more sequence of returns risk. For example in rough numbers if you just kept a $100K mortgage and also put $100K into a separate investing account which you also pay a $500 a month mortgage out of then;

a) If you get unlucky and get a modest 10% decline in the portfolio the first year then it would be down to $90K
b) You would also need to pay the $500 a month mortgage($6,000) so your portfolio would be down to $84K
c) To break even the next year you would need to gain back the $16K and another $6,000 for the next years mortgage payments which is $22K. That would take a 25.6% return on the remaining $84K just to break even.

Pepitoperez
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Re: A strategy to pay off home at retirement?

Post by Pepitoperez » Sat Oct 06, 2018 5:03 pm

KlangFool wrote:
Sat Oct 06, 2018 10:34 am
Pepitoperez wrote:
Sat Oct 06, 2018 10:25 am
I know logically that would make sense, as I would get a better return than the 3.85 fixed rate paying on mortgage. However, there is a physiological component of not having mortgage, etc. Thanks to all for your input.
Pepitoperez,

If you do not have the liquidity (money) to deal with your retirement expense, the physiological component will be short-lived.

KlangFool
Liquidity should not be an issue. Thanks.

Pepitoperez
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Re: A strategy to pay off home at retirement?

Post by Pepitoperez » Sat Oct 06, 2018 5:04 pm

spectec wrote:
Sat Oct 06, 2018 11:56 am
We are both in our early 70's and we're with the "keep the mortgage" crowd for now. We could pay off our $135K mortgage, but at the price of reduced liquidity. So the net difference between our mortgage interest and our investment earnings is the price we pay for that convenience. I estimate that price, after adjusting for the effects of tax deductions on the mortgage interest, taxes on the taxable earnings, and accumulation of Roth earnings to be about $ 900/year net at most.

It's no problem in terms of remembering to make the monthly payment, since the mortgage payment is drafted from our checking account. The LTV ratio is very low, so the mortgage is extremely unlikely to put us under water even in a meltdown situation. I suppose as we get older, there might come a point when we need to simplify so much that we'd pay off the mortgage, but right now it's not a big deal for us.
Thanks for your input....

runner540
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Re: A strategy to pay off home at retirement?

Post by runner540 » Sat Oct 06, 2018 5:07 pm

dratkinson wrote:
Sat Oct 06, 2018 8:04 am
Generally, I like the idea of being mortgage-free in retirement. One less thing to worry about.


Idea. You might be able to have your cake and eat it too. How? Maybe consider paying off your house with a reverse mortgage.

I have no idea how the numbers work out. Don't know if a RM is a good idea if it's more expensive than your home mortgage. So decision may depend upon the situation you want to leave for your heirs.



Welcome.
Um, what?!? Are you a salesperson of reverse mortgages? Please explain how borrowing against the home pays off that home.

JoeRetire
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Re: A strategy to pay off home at retirement?

Post by JoeRetire » Sat Oct 06, 2018 5:14 pm

Pepitoperez wrote:
Sat Oct 06, 2018 7:12 am
Should I take the $150k strategically from portfolio and pay off the mortgage at retirement?
No. Keep the $150k in your portfolio rather than putting it in the walls of your house.

Unless for some reason this inexpensive mortgage has been keeping you awake at night. In that case put the money into your walls and get some sleep.

KlangFool
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Re: A strategy to pay off home at retirement?

Post by KlangFool » Sat Oct 06, 2018 6:20 pm

Pepitoperez wrote:
Sat Oct 06, 2018 5:03 pm
KlangFool wrote:
Sat Oct 06, 2018 10:34 am
Pepitoperez wrote:
Sat Oct 06, 2018 10:25 am
I know logically that would make sense, as I would get a better return than the 3.85 fixed rate paying on mortgage. However, there is a physiological component of not having mortgage, etc. Thanks to all for your input.
Pepitoperez,

If you do not have the liquidity (money) to deal with your retirement expense, the physiological component will be short-lived.

KlangFool
Liquidity should not be an issue. Thanks.
Pepitoperez,

If the stock market and housing market crashes 50% at the same time before you retire, will you regret not having the 150K around? "Should not" is not a good enough answer.

KlangFool

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willthrill81
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Re: A strategy to pay off home at retirement?

Post by willthrill81 » Sat Oct 06, 2018 10:22 pm

KlangFool wrote:
Sat Oct 06, 2018 6:20 pm
Pepitoperez wrote:
Sat Oct 06, 2018 5:03 pm
KlangFool wrote:
Sat Oct 06, 2018 10:34 am
Pepitoperez wrote:
Sat Oct 06, 2018 10:25 am
I know logically that would make sense, as I would get a better return than the 3.85 fixed rate paying on mortgage. However, there is a physiological component of not having mortgage, etc. Thanks to all for your input.
Pepitoperez,

If you do not have the liquidity (money) to deal with your retirement expense, the physiological component will be short-lived.

KlangFool
Liquidity should not be an issue. Thanks.
Pepitoperez,

If the stock market and housing market crashes 50% at the same time before you retire, will you regret not having the 150K around? "Should not" is not a good enough answer.

KlangFool
Paying down the mortgage is similar, though obviously not identical, to putting the money into a bond. If the stock market crashes 50%, he would probably be glad to not have to make a mortgage payment. If the housing market crashes, he won't care unless he tries to sell the house. He will still have the same roof over his head.

Having a mortgage paid off at the time of retirement generally looks like a good way to reduce sequence of returns risk to me.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

KlangFool
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Re: A strategy to pay off home at retirement?

Post by KlangFool » Sat Oct 06, 2018 10:34 pm

willthrill81 wrote:
Sat Oct 06, 2018 10:22 pm
KlangFool wrote:
Sat Oct 06, 2018 6:20 pm
Pepitoperez wrote:
Sat Oct 06, 2018 5:03 pm
KlangFool wrote:
Sat Oct 06, 2018 10:34 am
Pepitoperez wrote:
Sat Oct 06, 2018 10:25 am
I know logically that would make sense, as I would get a better return than the 3.85 fixed rate paying on mortgage. However, there is a physiological component of not having mortgage, etc. Thanks to all for your input.
Pepitoperez,

If you do not have the liquidity (money) to deal with your retirement expense, the physiological component will be short-lived.

KlangFool
Liquidity should not be an issue. Thanks.
Pepitoperez,

If the stock market and housing market crashes 50% at the same time before you retire, will you regret not having the 150K around? "Should not" is not a good enough answer.

KlangFool
Paying down the mortgage is similar, though obviously not identical, to putting the money into a bond. If the stock market crashes 50%, he would probably be glad to not have to make a mortgage payment. If the housing market crashes, he won't care unless he tries to sell the house. He will still have the same roof over his head.

Having a mortgage paid off at the time of retirement generally looks like a good way to reduce sequence of returns risk to me.
willthrill81,

Please focus on OP's specific circumstances and look at my specific concerns. It looks like a very bad idea.

KlangFool

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willthrill81
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Re: A strategy to pay off home at retirement?

Post by willthrill81 » Sat Oct 06, 2018 10:38 pm

KlangFool wrote:
Sat Oct 06, 2018 10:34 pm
willthrill81 wrote:
Sat Oct 06, 2018 10:22 pm
KlangFool wrote:
Sat Oct 06, 2018 6:20 pm
Pepitoperez wrote:
Sat Oct 06, 2018 5:03 pm
KlangFool wrote:
Sat Oct 06, 2018 10:34 am


Pepitoperez,

If you do not have the liquidity (money) to deal with your retirement expense, the physiological component will be short-lived.

KlangFool
Liquidity should not be an issue. Thanks.
Pepitoperez,

If the stock market and housing market crashes 50% at the same time before you retire, will you regret not having the 150K around? "Should not" is not a good enough answer.

KlangFool
Paying down the mortgage is similar, though obviously not identical, to putting the money into a bond. If the stock market crashes 50%, he would probably be glad to not have to make a mortgage payment. If the housing market crashes, he won't care unless he tries to sell the house. He will still have the same roof over his head.

Having a mortgage paid off at the time of retirement generally looks like a good way to reduce sequence of returns risk to me.
willthrill81,

Please focus on OP's specific circumstances and look at my specific concerns. It looks like a very bad idea.

KlangFool
I did. I think it's a good idea, although it might be wise to spread out the extra mortgage payments enough so that the OP doesn't get into a higher than necessary tax bracket.

You seem to be overlooking the fact that no matter how big the remaining mortgage balance is, monthly payments must still be made. Paying off the mortgage will reduce the OP's expenses. And he already said that liquidity wasn't a problem.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

moghopper
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Re: A strategy to pay off home at retirement?

Post by moghopper » Sat Oct 06, 2018 10:48 pm

Pepitoperez wrote:
Sat Oct 06, 2018 10:25 am
I know logically that would make sense, as I would get a better return than the 3.85 fixed rate paying on mortgage. However, there is a physiological component of not having mortgage, etc. Thanks to all for your input.
There is another thread here where a quote from Jack suggests "selling to the sleeping point." I would put being debt free in the "I can sleep better" column every day - regardless of the return arbitrage that many suggest.

Starfish
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Re: A strategy to pay off home at retirement?

Post by Starfish » Sat Oct 06, 2018 11:16 pm

Pepitoperez wrote:
Sat Oct 06, 2018 7:12 am
I am 57 years old want to retire at 61, been investing in Vanguard for over 25 years. When I retire will have around $ 1.3 million. My house is worth $450k and will owe around $150k at fix rate 3.85 30 year mortgage. Should I take the $150k strategically from portfolio and pay off the mortgage at retirement?
Thanks for your thoughts....
It depends what is going to be your expected marginal tax rate and what are your monthly expenses.
Generating income to pay a mortgage and paying tax on the income is not necessarily a good idea.

Nissanzx1
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Re: A strategy to pay off home at retirement?

Post by Nissanzx1 » Sat Oct 06, 2018 11:25 pm

I would probably continue working past target retirement date using 100% of the earnings to attack mortgage.

You don't want the limitation of a mortgage in retirement, best to start retirement 100% debt free. Your asset base is strong but you'll likely need that money for travel/enjoyment/income.

Sorry I know it's probably not the answer you wanted, but that's what I would probably do.

desiderium
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Re: A strategy to pay off home at retirement?

Post by desiderium » Sat Oct 06, 2018 11:54 pm

Pepito,

I have the same physiology. I finished paying mine off recently. Similar age and timeline. I think at 150k the liquidity concern is small compared to the upsides. I would direct savings to the mortgage while you continue employment and try to get it done.

CurlyDave
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Re: A strategy to pay off home at retirement?

Post by CurlyDave » Sun Oct 07, 2018 1:18 am

teddytimtam wrote:
Sat Oct 06, 2018 10:30 am
...If your house was paid for, would you go to a bank and take out a $150k loan at 3.85% to invest?
In my case, the answer is heck yes.

I have mortgages on my house and 3 rental properties, at rates between 3.5 and 4.0% There is no reason to make an early payoff of money at such a favorable rate.

And, never forget that mortgages are paid off in nominal dollars, not inflation adjusted ones.

RickBoglehead
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Re: A strategy to pay off home at retirement?

Post by RickBoglehead » Sun Oct 07, 2018 6:47 am

Less than 3 years to retirement for us, 3% mortgage that adjusts in just over 3 years. We think we'll buy a new home, sell this home, sell cottage. Expect to net 50 - 75% of the cost of the new home. Plan on putting 20% down and getting a mortgage, and investing the balance. Market beats mortgage long term, plus we can afford downturns. Sleep fine.

If mortgage makes OP lose sleep, pay it off. For me, growing my assets is more important. I'll sleep fine.

basspond
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Re: A strategy to pay off home at retirement?

Post by basspond » Sun Oct 07, 2018 7:06 am

If you are using your portfolio principal and less then 10 years left or your can pay it off in 7 years by cash flowing then no.

nolesrule
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Re: A strategy to pay off home at retirement?

Post by nolesrule » Sun Oct 07, 2018 8:02 am

teddytimtam wrote:
Sat Oct 06, 2018 10:30 am
Pepitoperez wrote:
Sat Oct 06, 2018 10:25 am
I know logically that would make sense, as I would get a better return than the 3.85 fixed rate paying on mortgage. However, there is a physiological component of not having mortgage, etc. Thanks to all for your input.
If your house was paid for, would you go to a bank and take out a $150k loan at 3.85% to invest?
Would you liquidate investments to prepay rent?

It's a little more complicated than that.

The Wizard
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Re: A strategy to pay off home at retirement?

Post by The Wizard » Sun Oct 07, 2018 8:04 am

Answer depends on your particular financial details.
I agree with some of the others that doing a lump sum payoff of mortgage right before retirement isn't the best idea if interest rate is low or if payoff amount reduces your liquidity too much.

If you have an "old" mortgage, say 20 years along, then monthly payments are likely small compared to your income so not a big problem.
Similar if your net retirement income will be about the same as net working income.

Otherwise, perhaps it makes sense to work a few more years while making extra payments on the mortgage and/or refinance the mortgage to a lower monthly amount...
Attempted new signature...

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willthrill81
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Re: A strategy to pay off home at retirement?

Post by willthrill81 » Sun Oct 07, 2018 9:35 am

CurlyDave wrote:
Sun Oct 07, 2018 1:18 am
teddytimtam wrote:
Sat Oct 06, 2018 10:30 am
...If your house was paid for, would you go to a bank and take out a $150k loan at 3.85% to invest?
In my case, the answer is heck yes.

I have mortgages on my house and 3 rental properties, at rates between 3.5 and 4.0% There is no reason to make an early payoff of money at such a favorable rate.

And, never forget that mortgages are paid off in nominal dollars, not inflation adjusted ones.
How do you know this rate is favorable? You are likely comparing it to historically high rates, but we don't know whether mortgage rates will be above 10% in our lifetimes. Many believe that U.S. equities will only return 3-5% over the next decade (I don't personally think this will happen, but I acknowledge that it easily could), and bonds aren't likely to do much better than 3% over that same period. Given this, paying off a 3.85% mortgage may be the best risk-adjusted move the OP can take, especially if it can be done in a tax efficient manner.

The OP probably has a lot more than $150k in bonds in his portfolio. Selling off enough of those, which likely have a yield well below 3.85%, to pay off the mortgage is likely mathematically superior. For those opining about this reducing liquidity, keep in mind that eliminating a mortgage reduces the need for liquidity.
Last edited by willthrill81 on Sun Oct 07, 2018 9:37 am, edited 1 time in total.
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Dottie57
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Re: A strategy to pay off home at retirement?

Post by Dottie57 » Sun Oct 07, 2018 9:37 am

The Wizard wrote:
Sun Oct 07, 2018 8:04 am
Answer depends on your particular financial details.
I agree with some of the others that doing a lump sum payoff of mortgage right before retirement isn't the best idea if interest rate is low or if payoff amount reduces your liquidity too much.

If you have an "old" mortgage, say 20 years along, then monthly payments are likely small compared to your income so not a big problem.
Similar if your net retirement income will be about the same as net working income.

Otherwise, perhaps it makes sense to work a few more years while making extra payments on the mortgage and/or refinance the mortgage to a lower monthly amount...
Agree with working longer to pay it off.

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Re: A strategy to pay off home at retirement?

Post by willthrill81 » Sun Oct 07, 2018 9:40 am

Dottie57 wrote:
Sun Oct 07, 2018 9:37 am
The Wizard wrote:
Sun Oct 07, 2018 8:04 am
Answer depends on your particular financial details.
I agree with some of the others that doing a lump sum payoff of mortgage right before retirement isn't the best idea if interest rate is low or if payoff amount reduces your liquidity too much.

If you have an "old" mortgage, say 20 years along, then monthly payments are likely small compared to your income so not a big problem.
Similar if your net retirement income will be about the same as net working income.

Otherwise, perhaps it makes sense to work a few more years while making extra payments on the mortgage and/or refinance the mortgage to a lower monthly amount...
Agree with working longer to pay it off.
How can you recommend this when we don't know what the OP's spending needs are? His spending needs might be so low that they can be satisfied with his portfolio before and/or after the mortgage is paid off.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: A strategy to pay off home at retirement?

Post by Dottie57 » Sun Oct 07, 2018 10:45 am

willthrill81 wrote:
Sun Oct 07, 2018 9:40 am
Dottie57 wrote:
Sun Oct 07, 2018 9:37 am
The Wizard wrote:
Sun Oct 07, 2018 8:04 am
Answer depends on your particular financial details.
I agree with some of the others that doing a lump sum payoff of mortgage right before retirement isn't the best idea if interest rate is low or if payoff amount reduces your liquidity too much.

If you have an "old" mortgage, say 20 years along, then monthly payments are likely small compared to your income so not a big problem.
Similar if your net retirement income will be about the same as net working income.

Otherwise, perhaps it makes sense to work a few more years while making extra payments on the mortgage and/or refinance the mortgage to a lower monthly amount...
Agree with working longer to pay it off.
How can you recommend this when we don't know what the OP's spending needs are? His spending needs might be so low that they can be satisfied with his portfolio before and/or after the mortgage is paid off.
If OPis losing sleep over paying off mortgage before retiring then an option is to not retire. It may be an option which sets up his perspective. When considering a longer working life, he may decide having a mortgage in retirement is not so bad.

The best option is no longer available - pay extra each month.

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Re: A strategy to pay off home at retirement?

Post by The Wizard » Sun Oct 07, 2018 11:12 am

willthrill81 wrote:
Sun Oct 07, 2018 9:40 am
Dottie57 wrote:
Sun Oct 07, 2018 9:37 am
The Wizard wrote:
Sun Oct 07, 2018 8:04 am
Answer depends on your particular financial details.
I agree with some of the others that doing a lump sum payoff of mortgage right before retirement isn't the best idea if interest rate is low or if payoff amount reduces your liquidity too much.

If you have an "old" mortgage, say 20 years along, then monthly payments are likely small compared to your income so not a big problem.
Similar if your net retirement income will be about the same as net working income.

Otherwise, perhaps it makes sense to work a few more years while making extra payments on the mortgage and/or refinance the mortgage to a lower monthly amount...
Agree with working longer to pay it off.
How can you recommend this when we don't know what the OP's spending needs are? His spending needs might be so low that they can be satisfied with his portfolio before and/or after the mortgage is paid off.
Good point, but in this case it appears that OP plans to keep existing house and maintain approximate status quo for first years of retirement.
If spending needs are really low relative to either income or financial assets, then likely mortgage would have been paid off by now...
Attempted new signature...

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Re: A strategy to pay off home at retirement?

Post by The Wizard » Sun Oct 07, 2018 11:14 am

Dottie57 wrote:
Sun Oct 07, 2018 10:45 am

The best option is no longer available - pay extra each month.
It certainly is available.
That's what I did on my old conventional mortgage and now on my HELOC...
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Re: A strategy to pay off home at retirement?

Post by jabberwockOG » Sun Oct 07, 2018 11:22 am

The best plan in my opinion (and what I did) was to buckle up and do what ever it takes to pay that mortgage off before retirement. The OP has 4 years to pay off a 150k loan. Make paying off the loan the top financial priority second only to making enough % contribution to 401k to earn the full match amount from employer. Retiring early with a paid off home, as well as paid off reliable cars is a really good experience. And in the case where you will need ACA for health care for a few years before medicare the ability to adjust your income stream to lower healthcare costs is much easier if there are no big debts and resultant payments that require funding from retirement accounts.

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Re: A strategy to pay off home at retirement?

Post by Dottie57 » Sun Oct 07, 2018 11:58 am

The Wizard wrote:
Sun Oct 07, 2018 11:14 am
Dottie57 wrote:
Sun Oct 07, 2018 10:45 am

The best option is no longer available - pay extra each month.
It certainly is available.
That's what I did on my old conventional mortgage and now on my HELOC...
I started paying off extra early on in my mortgage - not much but it cut 13 years of of a 30 yr mortgage.

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Re: A strategy to pay off home at retirement?

Post by dknightd » Sun Oct 07, 2018 2:26 pm

CurlyDave wrote:
Sun Oct 07, 2018 1:18 am
And, never forget that mortgages are paid off in nominal dollars, not inflation adjusted ones.
I think this is an important point to remember.

Going into retirement with a fixed rate mortgage could be a good thing. It provides a hedge against inflation. This is one cost that I know will not go up in time. And I know that payment will go away in 8 years, which might be handy if my other expenses go up faster than inflation (think health care, among others)

Another consideration is that with a traditional mortgage interest is not compounded. But interest on your investments is compounded.

I think it is good to have a strategy. My strategy is to pay off my mortgage as scheduled. About 7 years after I retire. I can always change my mind later if things change. YMMV

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Re: A strategy to pay off home at retirement?

Post by jvini » Sun Oct 07, 2018 4:07 pm

Hi. I just posted this on a similar post, but maybe it seems relevant to your situation. Hope so.

I just paid mine off. After considering the variables, including peace of mind, it made sense.

I want to retire (or at least feel very comfortable doing so) in 5 years. I'll be 57. For the past 19 years we have never paid extra on our mortgage, but rather invested any extra, along with maxing 401ks and contributing to a brokerage account, every month. Now that we have about 2 million saved, also have enough for two private colleges, and have benefited from one of the longest bull markets in history, we felt it was time.

Rather than rebalance into bonds this year (I rebalance yearly usually) we sold 300k in etfs and paid off the house (worth about 1 million).

Yes, I could have left that 300k invested and kept the mortgage (3.75%). But as we near retirement, we didn't want to risk retiring just as the market crashed and we watched our portfolio lose that 300k. We would have kept invested, knowing it would come back, but all things considered, it just seemed like the right time. And going forward we keep investing a large amount each month, including the extra money that was going towards the mortgage. It's a never ending debate on this great site, with good points on both sides. Thoughts on this post are very welcome. Thanks!

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Re: A strategy to pay off home at retirement?

Post by thelimocat » Sun Oct 07, 2018 5:10 pm

Pepitoperez wrote:
Sat Oct 06, 2018 7:12 am
I am 57 years old want to retire at 61, been investing in Vanguard for over 25 years. When I retire will have around $ 1.3 million. My house is worth $450k and will owe around $150k at fix rate 3.85 30 year mortgage. Should I take the $150k strategically from portfolio and pay off the mortgage at retirement?
Thanks for your thoughts....
My first question! Is this $150 principle or principle and interest. You might get a payoff sheet just to see what it would really cost you. So where is your health insurance going to come from at 61. This could also figure into your numbers as well as Congress making more changes to the tax code costing you the interest deduction. Likewise at this point you may not have the interest to deduct. Goes back to my first question.

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Re: A strategy to pay off home at retirement?

Post by willthrill81 » Sun Oct 07, 2018 6:09 pm

The Wizard wrote:
Sun Oct 07, 2018 11:12 am
willthrill81 wrote:
Sun Oct 07, 2018 9:40 am
Dottie57 wrote:
Sun Oct 07, 2018 9:37 am
The Wizard wrote:
Sun Oct 07, 2018 8:04 am
Answer depends on your particular financial details.
I agree with some of the others that doing a lump sum payoff of mortgage right before retirement isn't the best idea if interest rate is low or if payoff amount reduces your liquidity too much.

If you have an "old" mortgage, say 20 years along, then monthly payments are likely small compared to your income so not a big problem.
Similar if your net retirement income will be about the same as net working income.

Otherwise, perhaps it makes sense to work a few more years while making extra payments on the mortgage and/or refinance the mortgage to a lower monthly amount...
Agree with working longer to pay it off.
How can you recommend this when we don't know what the OP's spending needs are? His spending needs might be so low that they can be satisfied with his portfolio before and/or after the mortgage is paid off.
Good point, but in this case it appears that OP plans to keep existing house and maintain approximate status quo for first years of retirement.
If spending needs are really low relative to either income or financial assets, then likely mortgage would have been paid off by now...
That's certainly possible but not necessarily true. The OP may have recently finished paying for kid's college or any number of other non-recurring expenses.

Without more data about the OP's overall financial status, it's hard for us to offer more concrete recommendations.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: A strategy to pay off home at retirement?

Post by JGoneRiding » Sun Oct 07, 2018 9:34 pm

We plan to pay off our similar rate mortgage by retirement. I do not however plan to take a large lump sum out of investments. We will figure out as we get closer exactly how much extra to pay to make it happen.

The reason we plan to do so is to lower income needs and there by control taxes and all the other things Watty laid out so well.

Why would you not simply start with that? Make a 3 to 5 year plan to pay off the mortgage without pulling from accounts at all.

The only thing I could say for sure i wouldn't do is pull it all out in 1 chunk.

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Re: A strategy to pay off home at retirement?

Post by HIinvestor » Mon Oct 08, 2018 3:24 am

We figured H would retire in 20xx and I calculated how much in extra principal each month we’d have to make so we would finish paying the mortgage before H retired since we expected our income to drop significantly when he retired.

Good news is we did manage to make last payment before he retired. The surprising news was that instead of having our income dropping in retirement, it has actually risen. Happily, our expenses have shrunken so our disposable income has risen even more. Still, it feels great to be debt-free, no matter how low the interest rate on the debt was!

For OP, since the remaining balance is $150k, it would take more each year to pay it off, as has been discussed upthread. To us, it’s really a personal decision with pros and cons. It is about what has you sleeping best at night, IMHO.

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