More retirees have a mortgage

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Barsoom
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Re: More retirees have a mortgage

Post by Barsoom » Mon Nov 18, 2019 1:17 pm

delamer wrote:
Mon Nov 18, 2019 1:12 pm
Barsoom wrote:
Mon Nov 18, 2019 1:07 pm
I planned to be debt-free when I retired (this past summer).

The only debt I have is my mortgage. The mortgage was a 5/15 ARM with a fixed 5-year period at 2%, variable annually after that. The amount was $100,000 on a $300,000 home. Payments were about $650/mo.

It's now been five years; the balance is $70,000 and the rate was just adjusted to 4%, resulting in new payments of about $710/mo.

I'm not sure if it's best to pay off the mortgage from my IRA or keep it. My retirement portfolio is not yet fully funded and diversified. That won't happen until January.

-B
How can you be retired but not consider your retirement portfolio fully funded? How will you add to it if you aren’t working?
My pension lump sum was deferred while the interest rates were still falling. I initially rolled over my 401(k) to an IRA after I retired. I filed for my pension to be distributed to me at the end of November, which is a few weeks away.

I will be "fully funded" at the end of November. At that point, my FA will begin deploying the cash to build my diversified portfolio.

-B

delamer
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Re: More retirees have a mortgage

Post by delamer » Mon Nov 18, 2019 1:20 pm

Barsoom wrote:
Mon Nov 18, 2019 1:17 pm
delamer wrote:
Mon Nov 18, 2019 1:12 pm
Barsoom wrote:
Mon Nov 18, 2019 1:07 pm
I planned to be debt-free when I retired (this past summer).

The only debt I have is my mortgage. The mortgage was a 5/15 ARM with a fixed 5-year period at 2%, variable annually after that. The amount was $100,000 on a $300,000 home. Payments were about $650/mo.

It's now been five years; the balance is $70,000 and the rate was just adjusted to 4%, resulting in new payments of about $710/mo.

I'm not sure if it's best to pay off the mortgage from my IRA or keep it. My retirement portfolio is not yet fully funded and diversified. That won't happen until January.

-B
How can you be retired but not consider your retirement portfolio fully funded? How will you add to it if you aren’t working?
My pension lump sum was deferred while the interest rates were still falling. I initially rolled over my 401(k) to an IRA after I retired. I filed for my pension to be distributed to me at the end of November, which is a few weeks away.

I will be "fully funded" at the end of November. At that point, my FA will begin deploying the cash to build my diversified portfolio.

-B
Got it.

Thanks.

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JoeRetire
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Re: More retirees have a mortgage

Post by JoeRetire » Mon Nov 18, 2019 4:46 pm

willthrill81 wrote:
Mon Nov 18, 2019 12:49 pm
Do you disagree with the widely held definition of sequence of returns risk itself? If not, then there's nothing to disagree about because we're talking about straightforward math. A mortgage represents an fixed outflow of cash that must be paid every month, even if your portfolio is tanking.
Just like property taxes. Just like utilities. Just like food. Lather, rinse repeat.

What you might be getting at is that any withdrawal strategy will result in retirees withdrawing some amount of cash, which is obviously correct.
Thank you. That's indeed what I was getting at.

You can choose to reduce your sequence of returns risk if you are afraid. But it won't go away by just getting rid of your mortgage.
Don't be a lemming.

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willthrill81
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Re: More retirees have a mortgage

Post by willthrill81 » Mon Nov 18, 2019 4:51 pm

JoeRetire wrote:
Mon Nov 18, 2019 4:46 pm
willthrill81 wrote:
Mon Nov 18, 2019 12:49 pm
What you might be getting at is that any withdrawal strategy will result in retirees withdrawing some amount of cash, which is obviously correct.
Thank you. That's indeed what I was getting at.

You can choose to reduce your sequence of returns risk if you are afraid. But it won't go away by just getting rid of your mortgage.
Right, eliminating your mortgage does not eliminate a retiree's exposure to sequence of returns risk, and I've never said otherwise. But reducing fixed expenses (e.g. paying off one's mortgage) enables retirees to be more flexible with their withdrawals, and that increased flexibility results in less exposure to sequence of returns risk.
Last edited by willthrill81 on Mon Nov 18, 2019 4:52 pm, edited 1 time in total.
“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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JoeRetire
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Re: More retirees have a mortgage

Post by JoeRetire » Mon Nov 18, 2019 4:52 pm

willthrill81 wrote:
Mon Nov 18, 2019 4:51 pm
JoeRetire wrote:
Mon Nov 18, 2019 4:46 pm
willthrill81 wrote:
Mon Nov 18, 2019 12:49 pm
What you might be getting at is that any withdrawal strategy will result in retirees withdrawing some amount of cash, which is obviously correct.
Thank you. That's indeed what I was getting at.

You can choose to reduce your sequence of returns risk if you are afraid. But it won't go away by just getting rid of your mortgage.
No, it won't. But reducing fixed expenses enables retirees to be more flexible with their withdrawals, and that increased flexibility results in less sequence of returns risk.
Sure. Going to all cash would reduce the sequence of returns risk too. I guess it depends on how scared you are.
Don't be a lemming.

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willthrill81
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Re: More retirees have a mortgage

Post by willthrill81 » Mon Nov 18, 2019 5:04 pm

JoeRetire wrote:
Mon Nov 18, 2019 4:52 pm
willthrill81 wrote:
Mon Nov 18, 2019 4:51 pm
JoeRetire wrote:
Mon Nov 18, 2019 4:46 pm
willthrill81 wrote:
Mon Nov 18, 2019 12:49 pm
What you might be getting at is that any withdrawal strategy will result in retirees withdrawing some amount of cash, which is obviously correct.
Thank you. That's indeed what I was getting at.

You can choose to reduce your sequence of returns risk if you are afraid. But it won't go away by just getting rid of your mortgage.
No, it won't. But reducing fixed expenses enables retirees to be more flexible with their withdrawals, and that increased flexibility results in less sequence of returns risk.
Sure. Going to all cash would reduce the sequence of returns risk too. I guess it depends on how scared you are.
That would be very extreme, very possibly to the point of being illogical (e.g. stocks are risky, so don't have any at all). And emotions like fear are not the only factors at work here. Stock market risk, interest rate risk, inflation risk, longevity risk, etc. are all very real. While emotions are used by nearly every investor, they are not necessarily the only factors that impact how one balances the various risks faced in the real world.

We must be careful as well not to project our own risk assessments onto others. I might view the long-term risk of stock ownership very differently than someone else. That doesn't make me right and them wrong, nor vice versa. It's a difference of perspective without a clearly objective answer. Such is the case here as well. Historically, retirees would have usually done better to retain their mortgage so that they could invest more into assets like stocks. But at the same time, it's wrong to ignore the fact that in some cases, retaining their mortgage would have resulted in retirees being significantly worse off as well (e.g. negative arbitrage). What I often try to do in such threads as these is to point out that sequence of returns risk is indeed greater for retirees by retaining the mortgage vs. eliminating it and that it's not merely a question of average investment returns outperforming one's mortgage rate because averages gloss over the potentially serious sequence of returns problem (e.g. high returns later may not be able to make up for poor returns if I go broke today).
“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

LittleMaggieMae
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Re: More retirees have a mortgage

Post by LittleMaggieMae » Mon Nov 18, 2019 5:11 pm

I skimmed the thread... and didn't see this possibility: perhaps more 60 yo and ups have mortgages because 10-11 years ago when the bottom fell out of the housing market they BOUGHT additional "investment properties". I've had between 2 and 3 mortgages since 2009 (as I've bought and sold investment houses). I currently have a small balance on my primary home and then the other mortgages have been on investment/rental properties. I currently have 2 rentals each with a mortgage. I'm 55 now but I imagine I'll still have the rentals/mortgages when I'm 65... My older siblings bought additional properties between 2009 and 2015 as did some of my friends/coworkers. We've all got multiple mortgages. Since I am sitting on an amazing amount of "home equity", I imagine the others who bought and held/rented out during that time are also sitting on a alot of equity. The mortgages don't keep me up at night.

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JoeRetire
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Re: More retirees have a mortgage

Post by JoeRetire » Mon Nov 18, 2019 5:14 pm

willthrill81 wrote:
Mon Nov 18, 2019 5:04 pm
We must be careful as well not to project our own risk assessments onto others. I might view the long-term risk of stock ownership very differently than someone else. That doesn't make me right and them wrong, nor vice versa. It's a difference of perspective without a clearly objective answer.
Yup.

As with many questions here, things like holding a mortgage in retirement, taking social security early when you don't need it, etc - these are all significantly impacted by your personal views.

If you are scared by debt you may choose one path. If you feel that taking benefits early is the same as "getting mine" you may choose a particular path, etc, etc. If you fear an imminent great depression, you may behave in a particular way.

Sometimes folks are happier with certain choices even if the math says a different path would be financially more effective. Sleeping better at night might be well worth a fair amount of future money.

In the end all of us can only provide answers based on our own point of view.
Don't be a lemming.

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willthrill81
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Re: More retirees have a mortgage

Post by willthrill81 » Mon Nov 18, 2019 5:16 pm

LittleMaggieMae wrote:
Mon Nov 18, 2019 5:11 pm
I skimmed the thread... and didn't see this possibility: perhaps more 60 yo and ups have mortgages because 10-11 years ago when the bottom fell out of the housing market they BOUGHT additional "investment properties". I've had between 2 and 3 mortgages since 2009 (as I've bought and sold investment houses). I currently have a small balance on my primary home and then the other mortgages have been on investment/rental properties. I currently have 2 rentals each with a mortgage. I'm 55 now but I imagine I'll still have the rentals/mortgages when I'm 65... My older siblings bought additional properties between 2009 and 2015 as did some of my friends/coworkers. We've all got multiple mortgages. Since I am sitting on an amazing amount of "home equity", I imagine the others who bought and held/rented out during that time are also sitting on a alot of equity. The mortgages don't keep me up at night.
That's possible, but the preponderance of the evidence seems to suggest that those in the age ranges studied are simply unable to pay off their mortgage. Keep in mind that the median net worth, including home equity, of 65-69 year olds is about $210k right now. At that level, they can afford to basically own the median home free and clear and have very little left over.
“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

surfstar
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Re: More retirees have a mortgage

Post by surfstar » Mon Nov 18, 2019 5:19 pm

willthrill81 wrote:
Mon Nov 18, 2019 4:51 pm
JoeRetire wrote:
Mon Nov 18, 2019 4:46 pm
willthrill81 wrote:
Mon Nov 18, 2019 12:49 pm
What you might be getting at is that any withdrawal strategy will result in retirees withdrawing some amount of cash, which is obviously correct.
Thank you. That's indeed what I was getting at.

You can choose to reduce your sequence of returns risk if you are afraid. But it won't go away by just getting rid of your mortgage.
Right, eliminating your mortgage does not eliminate a retiree's exposure to sequence of returns risk, and I've never said otherwise. But reducing fixed expenses (e.g. paying off one's mortgage) enables retirees to be more flexible with their withdrawals, and that increased flexibility results in less exposure to sequence of returns risk.
You're reducing expenses, yet also reducing the funds your accounts. Is X amount less per month expenses better than +Y amount more in your accounts?
Which is better for actually reducing SOR risk?

Not sure which way will we go - but seems likely we'll be continuing to hold our 3.5% 30yr mortgage after [planned hopeful] early retirement.

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willthrill81
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Re: More retirees have a mortgage

Post by willthrill81 » Mon Nov 18, 2019 5:29 pm

surfstar wrote:
Mon Nov 18, 2019 5:19 pm
willthrill81 wrote:
Mon Nov 18, 2019 4:51 pm
JoeRetire wrote:
Mon Nov 18, 2019 4:46 pm
willthrill81 wrote:
Mon Nov 18, 2019 12:49 pm
What you might be getting at is that any withdrawal strategy will result in retirees withdrawing some amount of cash, which is obviously correct.
Thank you. That's indeed what I was getting at.

You can choose to reduce your sequence of returns risk if you are afraid. But it won't go away by just getting rid of your mortgage.
Right, eliminating your mortgage does not eliminate a retiree's exposure to sequence of returns risk, and I've never said otherwise. But reducing fixed expenses (e.g. paying off one's mortgage) enables retirees to be more flexible with their withdrawals, and that increased flexibility results in less exposure to sequence of returns risk.
You're reducing expenses, yet also reducing the funds your accounts. Is X amount less per month expenses better than +Y amount more in your accounts?
Which is better for actually reducing SOR risk?
Mathematically, sequence of returns risk has been less by paying off the mortgage despite the reduction in income producing assets.

Here's an example. A retiree wanted to mortgage their paid off home in order to get $100k to invest (assume no closing costs), and got a 30 year mortgage at a 4% rate (roughly the current rate). The monthly payment would be $477.42, which works out to $5,729 annually. That's a 5.73% withdrawal rate of the $100k borrowed. According to FIRECalc, with a 60/40 AA, the success rate of a 30 year 5.73% withdrawal rate was just 51.3%. That was a lot of sequence of returns risk.
“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

delamer
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Re: More retirees have a mortgage

Post by delamer » Mon Nov 18, 2019 5:59 pm

LittleMaggieMae wrote:
Mon Nov 18, 2019 5:11 pm
I skimmed the thread... and didn't see this possibility: perhaps more 60 yo and ups have mortgages because 10-11 years ago when the bottom fell out of the housing market they BOUGHT additional "investment properties". I've had between 2 and 3 mortgages since 2009 (as I've bought and sold investment houses). I currently have a small balance on my primary home and then the other mortgages have been on investment/rental properties. I currently have 2 rentals each with a mortgage. I'm 55 now but I imagine I'll still have the rentals/mortgages when I'm 65... My older siblings bought additional properties between 2009 and 2015 as did some of my friends/coworkers. We've all got multiple mortgages. Since I am sitting on an amazing amount of "home equity", I imagine the others who bought and held/rented out during that time are also sitting on a alot of equity. The mortgages don't keep me up at night.
The report is focused on personal residences, not investment properties.

LittleMaggieMae
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Re: More retirees have a mortgage

Post by LittleMaggieMae » Mon Nov 18, 2019 6:12 pm

delamer wrote:
Mon Nov 18, 2019 5:59 pm
LittleMaggieMae wrote:
Mon Nov 18, 2019 5:11 pm
I skimmed the thread... and didn't see this possibility: perhaps more 60 yo and ups have mortgages because 10-11 years ago when the bottom fell out of the housing market they BOUGHT additional "investment properties". I've had between 2 and 3 mortgages since 2009 (as I've bought and sold investment houses). I currently have a small balance on my primary home and then the other mortgages have been on investment/rental properties. I currently have 2 rentals each with a mortgage. I'm 55 now but I imagine I'll still have the rentals/mortgages when I'm 65... My older siblings bought additional properties between 2009 and 2015 as did some of my friends/coworkers. We've all got multiple mortgages. Since I am sitting on an amazing amount of "home equity", I imagine the others who bought and held/rented out during that time are also sitting on a alot of equity. The mortgages don't keep me up at night.
The report is focused on personal residences, not investment properties.
That's a good point.

surfstar
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Re: More retirees have a mortgage

Post by surfstar » Mon Nov 18, 2019 6:14 pm

willthrill81 wrote:
Mon Nov 18, 2019 5:29 pm
surfstar wrote:
Mon Nov 18, 2019 5:19 pm

You're reducing expenses, yet also reducing the funds your accounts. Is X amount less per month expenses better than +Y amount more in your accounts?
Which is better for actually reducing SOR risk?
Mathematically, sequence of returns risk has been less by paying off the mortgage despite the reduction in income producing assets.

Here's an example. A retiree wanted to mortgage their paid off home in order to get $100k to invest (assume no closing costs), and got a 30 year mortgage at a 4% rate (roughly the current rate). The monthly payment would be $477.42, which works out to $5,729 annually. That's a 5.73% withdrawal rate of the $100k borrowed. According to FIRECalc, with a 60/40 AA, the success rate of a 30 year 5.73% withdrawal rate was just 51.3%. That was a lot of sequence of returns risk.
Interesting.
Something we'll have to delve into deeper when we approach our retirement date. Thanks!

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willthrill81
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Re: More retirees have a mortgage

Post by willthrill81 » Mon Nov 18, 2019 6:18 pm

surfstar wrote:
Mon Nov 18, 2019 6:14 pm
willthrill81 wrote:
Mon Nov 18, 2019 5:29 pm
surfstar wrote:
Mon Nov 18, 2019 5:19 pm

You're reducing expenses, yet also reducing the funds your accounts. Is X amount less per month expenses better than +Y amount more in your accounts?
Which is better for actually reducing SOR risk?
Mathematically, sequence of returns risk has been less by paying off the mortgage despite the reduction in income producing assets.

Here's an example. A retiree wanted to mortgage their paid off home in order to get $100k to invest (assume no closing costs), and got a 30 year mortgage at a 4% rate (roughly the current rate). The monthly payment would be $477.42, which works out to $5,729 annually. That's a 5.73% withdrawal rate of the $100k borrowed. According to FIRECalc, with a 60/40 AA, the success rate of a 30 year 5.73% withdrawal rate was just 51.3%. That was a lot of sequence of returns risk.
Interesting.
Something we'll have to delve into deeper when we approach our retirement date. Thanks!
By waiting until close to your retirement date to pay off your mortgage, there might be more adverse tax implications. For instance, you might have to pull enough from your tax-deferred accounts to pay it off that doing so would move you into a higher marginal tax bracket, which is precisely what happened to my parents this year. Paying down the mortgage over a period of several years is often preferable.
“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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FIREchief
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Re: More retirees have a mortgage

Post by FIREchief » Wed Nov 20, 2019 6:27 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 nice apartment, a Japanese car, a couple of bucks in the bank --- no worries. Ref. John Goodman's soliloquy in The Gambler.
Fixed!!! Why have a bunch of money tied up in a deteriorating asset that constantly hits you with unexpected liabilities? Downsize and enjoy!! :sharebeer
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

MikeG62
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Re: More retirees have a mortgage

Post by MikeG62 » Thu Nov 21, 2019 8:40 am

Early retired in early 2016 with no mortgage. Mortgage was paid off several years prior to that.
Real Knowledge Comes Only From Experience

Count of Notre Dame
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Re: More retirees have a mortgage

Post by Count of Notre Dame » Sun Dec 01, 2019 12:27 pm

Not sure if this has been said already but the older generation who didn't have mortgages also didn't experience falling interest rates and didn't refinance. The current generation keeps refinancing to lower rates, thinking their payment will lower but resetting the same payoff period. They keep delaying the final payoff date thinking they are making a wise financial move.

Shallowpockets
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Re: More retirees have a mortgage

Post by Shallowpockets » Sun Dec 01, 2019 12:55 pm

People here who are carrying their mortgage into retirement based on the reasons given here are not the ones represented in any study of retired people with mortgages.
Posters here have and had a choice. The ones in the study do not have a choice. The ones without a choice do not post or even read Bogleheads.

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JoeRetire
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Re: More retirees have a mortgage

Post by JoeRetire » Sun Dec 01, 2019 12:56 pm

Count of Notre Dame wrote:
Sun Dec 01, 2019 12:27 pm
Not sure if this has been said already but the older generation who didn't have mortgages also didn't experience falling interest rates and didn't refinance. The current generation keeps refinancing to lower rates, thinking their payment will lower but resetting the same payoff period. They keep delaying the final payoff date thinking they are making a wise financial move.
You think entire generations of people all do the same thing?
Don't be a lemming.

jminv
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Re: More retirees have a mortgage

Post by jminv » Sun Dec 01, 2019 1:35 pm

Doesn't matter if you can afford it, ie, pay cash for it if you wanted to and/or easily pay the mortgage on one person's retirement. Mortgage rates have been low for a long time and some people have higher tolerances for risk for the money they would otherwise put into the house. It's probably not surprising either that as nominal interest rates have decreased that people would be more willing to have a mortgage.

The problem is if they use a mortgage to buy a house that is beyond their means individually. One person passes on, other person has to move. I have seen that happen a lot and it's sad. It can also be difficult on the children as well who have to help the survivor through the process. Mortgages also often lead people to buy houses that are larger than they need.

Count of Notre Dame
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Re: More retirees have a mortgage

Post by Count of Notre Dame » Sun Dec 01, 2019 1:45 pm

JoeRetire wrote:
Sun Dec 01, 2019 12:56 pm
Count of Notre Dame wrote:
Sun Dec 01, 2019 12:27 pm
Not sure if this has been said already but the older generation who didn't have mortgages also didn't experience falling interest rates and didn't refinance. The current generation keeps refinancing to lower rates, thinking their payment will lower but resetting the same payoff period. They keep delaying the final payoff date thinking they are making a wise financial move.
You think entire generations of people all do the same thing?
No, but every person I know in their 30-40s is doing that right now. I'm making a broad generalization that applies to the average. Also, older generations didn't move. They bought one house and paid it off. My generation buys a new house every 7 years and loses ~3% of the value of the home each time they do so in commissions, etc. I'm no different - I just bought a home and have a mortgage due to be paid off in 30 years, when I am age 65. I'd rather pay it off at 50, which is in my debt snowball plan to do so after my wife's student loans are paid off.

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JoeRetire
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Re: More retirees have a mortgage

Post by JoeRetire » Sun Dec 01, 2019 4:49 pm

Count of Notre Dame wrote:
Sun Dec 01, 2019 1:45 pm
No, but every person I know in their 30-40s is doing that right now. I'm making a broad generalization that applies to the average. Also, older generations didn't move. They bought one house and paid it off. My generation buys a new house every 7 years and loses ~3% of the value of the home each time they do so in commissions, etc. I'm no different - I just bought a home and have a mortgage due to be paid off in 30 years, when I am age 65. I'd rather pay it off at 50, which is in my debt snowball plan to do so after my wife's student loans are paid off.
I humbly submit that you don't know enough people to generalize that much.
Don't be a lemming.

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willthrill81
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Re: More retirees have a mortgage

Post by willthrill81 » Sun Dec 01, 2019 5:12 pm

Count of Notre Dame wrote:
Sun Dec 01, 2019 1:45 pm
JoeRetire wrote:
Sun Dec 01, 2019 12:56 pm
Count of Notre Dame wrote:
Sun Dec 01, 2019 12:27 pm
Not sure if this has been said already but the older generation who didn't have mortgages also didn't experience falling interest rates and didn't refinance. The current generation keeps refinancing to lower rates, thinking their payment will lower but resetting the same payoff period. They keep delaying the final payoff date thinking they are making a wise financial move.
You think entire generations of people all do the same thing?
No, but every person I know in their 30-40s is doing that right now. I'm making a broad generalization that applies to the average. Also, older generations didn't move. They bought one house and paid it off. My generation buys a new house every 7 years and loses ~3% of the value of the home each time they do so in commissions, etc. I'm no different - I just bought a home and have a mortgage due to be paid off in 30 years, when I am age 65. I'd rather pay it off at 50, which is in my debt snowball plan to do so after my wife's student loans are paid off.
My observations are very similar to yours. Most of those I know over the age of 70 have not moved in a long while or else they paid for their current home with the proceeds from their prior home where they paid off their mortgage in far fewer than 30 years. Most of those we see who are younger than 40 are moving every few years, taking out a new 30 year mortgage every time and using what little home equity they had from their prior home to 'trade up' to a more expensive home.

What may be more to the point is that mortgages have become bigger and with longer terms today than they were decades ago.
“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

smitcat
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Re: More retirees have a mortgage

Post by smitcat » Sun Dec 01, 2019 5:48 pm

willthrill81 wrote:
Sun Dec 01, 2019 5:12 pm
Count of Notre Dame wrote:
Sun Dec 01, 2019 1:45 pm
JoeRetire wrote:
Sun Dec 01, 2019 12:56 pm
Count of Notre Dame wrote:
Sun Dec 01, 2019 12:27 pm
Not sure if this has been said already but the older generation who didn't have mortgages also didn't experience falling interest rates and didn't refinance. The current generation keeps refinancing to lower rates, thinking their payment will lower but resetting the same payoff period. They keep delaying the final payoff date thinking they are making a wise financial move.
You think entire generations of people all do the same thing?
No, but every person I know in their 30-40s is doing that right now. I'm making a broad generalization that applies to the average. Also, older generations didn't move. They bought one house and paid it off. My generation buys a new house every 7 years and loses ~3% of the value of the home each time they do so in commissions, etc. I'm no different - I just bought a home and have a mortgage due to be paid off in 30 years, when I am age 65. I'd rather pay it off at 50, which is in my debt snowball plan to do so after my wife's student loans are paid off.
My observations are very similar to yours. Most of those I know over the age of 70 have not moved in a long while or else they paid for their current home with the proceeds from their prior home where they paid off their mortgage in far fewer than 30 years. Most of those we see who are younger than 40 are moving every few years, taking out a new 30 year mortgage every time and using what little home equity they had from their prior home to 'trade up' to a more expensive home.

What may be more to the point is that mortgages have become bigger and with longer terms today than they were decades ago.
Interesting read on history of mortgages in the US....
https://www.thetruthaboutmortgage.com/c ... rly-1900s/

tesuzuki2002
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Re: More retirees have a mortgage

Post by tesuzuki2002 » Sun Dec 01, 2019 10:23 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.
I mean I have a 3% mortgage and I have been paying extra... simply because I don't exactly want to pay the bank... But my investments have been doing more better than 3%... I still just want to pay it down and more on...

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Jerry55
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Re: More retirees have a mortgage

Post by Jerry55 » Mon Dec 02, 2019 12:34 am

I guess carrying a mortgage is a very personal choice, and for different reasons...
I had the ability to retire @ 55, and didn't want to carry a mortgage into retirement. I therefore took out a 15 year loan in 1992, and made extra payments (payment divided by 12 to be included into each monthly payment) and eliminated it in 13 years, for my 50th birthday present to myself, in 2005.

I retired @ 57, and that was in 2012 and no longer have that Albatross hanging around my neck. It was a "Feel Good" move, one that I was very happy with. I doubled up on my investments with my over 50 contributions, and have never looked back.

I'm not poo-poo'ing those who carry one, because, like I said in the beginning....it's a personal choice. I'm almost 65 now, with still no regrets.
Retired CSRS on 12/19/2012 @ age 57 w/39 years | Good Bye Tension, Hello Pension !!!

CZjc1330
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Re: More retirees have a mortgage

Post by CZjc1330 » Mon Dec 02, 2019 1:21 am

The study as noted is flawed. I paid off my mortgage long before I retired. Probably influenced by parents who lived during the depression and saw a lot of misery. Yes, I am frugal used to keep cars for at least 7 years. But then got married and little lady had other ideas. Oh well ...
I agree that most people who have a mortgage do, at least in my experience, because they have to.
What has not been mentioned by others is the enormous psychic pleasure one derives by not having a mortgage, especially when you are no longer working. That benefit should not be overlooked.

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Re: More retirees have a mortgage

Post by vested1 » Mon Dec 02, 2019 6:23 am

I would contend that the outlook of paying off a mortgage or keeping it is often a convenient justification for what one is currently doing, (somewhat similar to SS claiming strategy). I was certainly guilty of justifying our mortgage during the first 3.5 years of retirement, defending my choice for all the reasons listed here. My particular excuses were logical and ultimately defendable.

- My mortgage was about 1/2 of what I would have to pay renting a similar house.
- The amount of money I would have to withdraw from retirement funds subject to taxation made it seem crazy to do so.
- I could (probably) make more money keeping the money invested than using it to pay off the mortgage.

On the flip side:

- If I did nothing other than pay regular mortgage payments the house would be paid off in 2040, at my age 88. My parents died with a mortgage, both at age 90 after 72 years of marriage.
- The over-performance of our investments for the last 9 years was undeniable, and far above expectations. Previous estimates placed our IRA balances much lower. Why not use some of that tremendous gain for a greater purpose?
- Spreading out withdrawals of money subject to tax over multiple tax years would slash the tax burden.
- Most compelling, we wanted to move, so selling the house and buying elsewhere for cash was much more attractive with a much lower mortgage balance at the time of the sale. We lowered our mortgage balance by over 100k in less than a year before selling. Zero capital gains was appreciated.

So now I have a new, even more convenient outlook on paying off a mortgage. It's nice to have no debt. I offer no judgement of those who embrace their own debt.

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Re: More retirees have a mortgage

Post by grabiner » Mon Dec 02, 2019 10:46 am

vested1 wrote:
Mon Dec 02, 2019 6:23 am
- Most compelling, we wanted to move, so selling the house and buying elsewhere for cash was much more attractive with a much lower mortgage balance at the time of the sale. We lowered our mortgage balance by over 100k in less than a year before selling. Zero capital gains was appreciated.
This should be argument in favor of keeping the mortgage, rather than paying it down. Paying down the mortgage before selling is inherently neutral. It increases the amount of cash you will get when you sell your home, but that is reduced by the amount of cash you put into the mortgage; you earned interest on the mortgage prepayment but could have also earned interest if you invested the cash. (This may be better or worse depending on the returns of your investments and mortgage, but it is also likely to be a small difference for a short-term investment.)

And if you use most of your liquid assets to pay down a mortgage, you will have to make buying a new home contingent on selling your current home, or get a bridge loan.
Wiki David Grabiner

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willthrill81
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Re: More retirees have a mortgage

Post by willthrill81 » Mon Dec 02, 2019 10:49 am

grabiner wrote:
Mon Dec 02, 2019 10:46 am
vested1 wrote:
Mon Dec 02, 2019 6:23 am
- Most compelling, we wanted to move, so selling the house and buying elsewhere for cash was much more attractive with a much lower mortgage balance at the time of the sale. We lowered our mortgage balance by over 100k in less than a year before selling. Zero capital gains was appreciated.
This should be argument in favor of keeping the mortgage, rather than paying it down. Paying down the mortgage before selling is inherently neutral. It increases the amount of cash you will get when you sell your home, but that is reduced by the amount of cash you put into the mortgage; you earned interest on the mortgage prepayment but could have also earned interest if you invested the cash.
But the after-tax interest earned on the cash is very likely less than the after-tax interest not paid due to the mortgage prepayment. I don't see how that changes the equation.
“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: More retirees have a mortgage

Post by Ron » Mon Dec 02, 2019 2:27 pm

willthrill81 wrote:
Sun Dec 01, 2019 5:12 pm
<snip...> My observations are very similar to yours. Most of those I know over the age of 70 have not moved in a long while or else they paid for their current home with the proceeds from their prior home where they paid off their mortgage in far fewer than 30 years. Most of those we see who are younger than 40 are moving every few years, taking out a new 30 year mortgage every time and using what little home equity they had from their prior home to 'trade up' to a more expensive home.

What may be more to the point is that mortgages have become bigger and with longer terms today than they were decades ago.
I/wife represent your remark...

Both age 71, married for 5 decades and we're in our fourth (and hopefully final) home during our years together, taking the profit from each home and rolling it into the next (e.g. no cash out).

The first house (early 70's) had an interest rate of 8%. The second and third had an interest rate of 10% (not including points paid to reduce the rate). Our final/current home, built in 1994 had an interest rate of 6.875 plus 2% points.

In our past, the idea to retire a note/mortgage ASAP was of primary importance to us. While we had the advantage of deduction of mortgage interest, we still did not agree with the idea of getting $.50 credit on our FIT for every dollar spent. The government can keep their credit; I'd rather keep my entire dollar.

That being the case, unlike today, we chose to pay off our mortgage notes as soon as we could. In fact, with our current home, we "saved" over $120k in foregone interest (interest we did not have to pay), by paying off our 30-year initial term in 5.5 years. That was done by paying extra on the principal every month with additional funds available from overtime, tax refunds, and the like.

While I didn't comment earlier since I/we were not of the target group discussed, I did want to respond to the comment given. However, we did ensure that we had no loan liabilities when entering retirement and could never see carrying a note/mortgage into retirement. That was our reality of the time, and I'm sure it would have to be revisited if we entered retirement today in this low interest environment.

Our financial retirement goals were quite simple; maximize income while minimizing expenses. Both filing for SS last year at age 70 satisfied the first, having no outstanding debts (beyond minor monthly expenses, paid off every month) satisfied the second.

FWIW,

- Ron

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Re: More retirees have a mortgage

Post by Count of Notre Dame » Tue Dec 03, 2019 12:58 am

JoeRetire wrote:
Sun Dec 01, 2019 4:49 pm
Count of Notre Dame wrote:
Sun Dec 01, 2019 1:45 pm
No, but every person I know in their 30-40s is doing that right now. I'm making a broad generalization that applies to the average. Also, older generations didn't move. They bought one house and paid it off. My generation buys a new house every 7 years and loses ~3% of the value of the home each time they do so in commissions, etc. I'm no different - I just bought a home and have a mortgage due to be paid off in 30 years, when I am age 65. I'd rather pay it off at 50, which is in my debt snowball plan to do so after my wife's student loans are paid off.
I humbly submit that you don't know enough people to generalize that much.
You are right that I shouldn't generalize. I am just trying to explain why more retirees have mortgages with my personal experience.

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Re: More retirees have a mortgage

Post by phxjcc » Tue Dec 03, 2019 1:42 am

Fat-Tailed Contagion wrote:
Sun Nov 17, 2019 1:17 pm
I don't understand why a Retiree would NOT have a Fixed-Rate Mortgage.

Assuming a Retiree has enough to pay off a mortgage, then locking in a Fixed-Rate Mortgage for 30 years would:

1. Allow investment of amount not used to pay off mortgage (opportunity cost of capital)

2. Allow inflation to reduce the inflation-adjusted payments over the life of mortgage

3. Allow the bank to hold some risk of catastrophic loss of house

Why would anyone NOT have a mortgage?

- FATTY
Add to the above...that assuming that the current mortgage starts at FRA, there is a ~ 70% chance that you will die less than 1/2 way through the mortgage and a 90% chance that you will die at 25 years into it.
Mortgages are not callable without cause, so other than psychological factors (primarily fear, which is not rational) why would one NOT have a mortgage. If I said that I am going to have a mortgage and keep all of my funds in CD's because I fear a prolonged market crash, 96% of BH's would say that I am the one being ruled by my emotions rather than looking at the numbers.

Tell me why those with no mortgage in retirement are not doing the same.

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Re: More retirees have a mortgage

Post by texasdiver » Tue Dec 03, 2019 2:25 am

phxjcc wrote:
Tue Dec 03, 2019 1:42 am
Fat-Tailed Contagion wrote:
Sun Nov 17, 2019 1:17 pm
I don't understand why a Retiree would NOT have a Fixed-Rate Mortgage.

Assuming a Retiree has enough to pay off a mortgage, then locking in a Fixed-Rate Mortgage for 30 years would:

1. Allow investment of amount not used to pay off mortgage (opportunity cost of capital)

2. Allow inflation to reduce the inflation-adjusted payments over the life of mortgage

3. Allow the bank to hold some risk of catastrophic loss of house

Why would anyone NOT have a mortgage?

- FATTY
Add to the above...that assuming that the current mortgage starts at FRA, there is a ~ 70% chance that you will die less than 1/2 way through the mortgage and a 90% chance that you will die at 25 years into it.
Mortgages are not callable without cause, so other than psychological factors (primarily fear, which is not rational) why would one NOT have a mortgage. If I said that I am going to have a mortgage and keep all of my funds in CD's because I fear a prolonged market crash, 96% of BH's would say that I am the one being ruled by my emotions rather than looking at the numbers.

Tell me why those with no mortgage in retirement are not doing the same.
If your primary source of retirement income is traditional IRAs or 401k savings, then holding a mortgage will require the withdraw additional 401k savings in an amount equal to the mortgage payments for which you will owe income taxes. If your mortgage payment (minus taxes and insurance) is 2k per month then you'll be recording additional income equal to 24k per year to cover the mortgage which will generate additional income tax equal to $5,760 if you are in the 24% tax bracket or $7,680 if you are in the 32% tax bracket. If the bulk of your retirement savings is in taxable savings and Roths then you won't have this problem. But that is probably a minority of retirees.

This might be the biggest reason why at least *some* retirees are not eager to hold a mortgage in retirement.

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