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We also disagree about the supposed financial experts. You jump on their opinions or at least the ones you like. I tend to think that most of them are just talking heads without much sense. The glidepath is a good example. It is an idea that generates attention but otherwise is a very expensive approach to minimizing a low risk possibility.
For others it is a brilliant way of entering retirement and instead of shedding equities like you did emotionally ,you actually go higher over time once the danger zone passes.
No emotion , just history and math .
It is an unemotional plan for avoiding major hits going in , while capturing higher gains down the road with the red zone theory you actually increase equities not decrease .
My guess is you shoot from the hip rather then read what they say…
Or run on recency bias as to how your time frame worked out in hindsite ….
There were quite a few time frames that got slammed for retirees getting ready to retire and it wasn’t a pleasant feeling …you never know when or if things will recover .
So things like the red zone theory which I do like prevent huge hits early on when you have the most money accumulated , yet let’s you increase those gains when it can be a lot safer doing the opposite of what most do which is shedding equities down the road. In the mean time they own to much when they are most exposed.
Let’s see ,should we go with the JRK seat of the pants method of planning or the advice and research of one of the most influential researchers in retirement planning today ?
Last edited by mathjak107; 06-18-2021 at 07:18 AM..
This subject comes up often and I have learned people are either for or against this tactic. Some people against say they get a better return from investing the money. The people who have paid it off have some level financial peace that they value. There is no right or wrong, it depends on your personal situation and investment approach.
I'm single, and my mortgage was paid off 7 years ago. I used my bonus check (free taxed money I never counted on and usually spent on vacations and home repairs) to pay off the taxes I owed for cashing in the payoff money. Painless. Security. There is no "we" in my house like plenty of you have.
1. The money I spent to pay off my mortgage has been taken out of the stock market. It is now locked in to an appreciating asset that I can live in, and is not subject to the whims of the market. I live in an area where housing values hold well. I do not need this money in my non retirement investment accounts. Its been replaced.
2. If I had left the money I spent to pay off the house fully invested; it would not change my life today, even if it had doubled. I easily lived on 1/4 of the money I made while working in my primary career.
3. When I paid off my mortgage, I did not decimate my non retirement savings or touch my retirement savings. I looked at it as "taking my profits gained that were on paper" and using it to give me security.
4. I have never been sorry for paying the mortgage off. Two years later, I stopped working suddenly, and the paid off mortgage enabled me to stay in my home and retire. I did not have to panic, look for a job, move, or sell my home like other highly paid persons I knew.
When you have decades to go , markets have pretty much always done well as well as averaged within a few points the same thing whether it was the booming 80’s or the Great Depression.
So long term returns on diversified funds become less and less risky the longer you go out …they may be volatile but volatility is not the same as risky ….volatile becomes risky the shorter the time frame you are dealing with .
So I wouldn’t fear a mortgage at 4% or less over the long haul and investing at high equity levels …in fact I would only be 100% equities during my accumulation stage .
But I would have a different view to go with a totally different allocation through what kitces calls the red zone which extended from pre retirement to about 5-10 years in to retirement
This is the retirement forum, though. People aren't generally thinking in "decades". Well, maybe some of the optimists.
This is the retirement forum, though. People aren't generally thinking in "decades". Well, maybe some of the optimists.
Misbelief there ..even at 65 most of us living off our own nest egg have money that won’t be used to eat with for two or three decades ..that is still long term money and it needs to be dealt with as such.
Plus the point of what I posted above is to illustrate how poorly one can do looking at average returns over very long periods of time when spending down .
You can have normal average returns yet have a poor retirement outcome because of sequence risk the first 10-15 years
Last edited by mathjak107; 06-18-2021 at 07:29 AM..
Taking on an extra $80,000.00 in debt would freak me out since the increase didn't come with a corresponding increase in home equity. Yeah I see the math working out but I also see pitfalls in that as well. It is lucky you have pension income to soften the blow should the housing market tank. The other aspect that bothers me is you are paying interest on money you borrowed to give to your daughter. Your daughter will benefit as that money becomes the equity upon which she can stabilize her finances. While your example will work for you it isn't quite as lucrative as you think. In my math while you might gain on the stock market, your costs to gain there comes at a cost of interest paid and the tax rebate is a poor return on that.
Is 2.5% really paying interest when a person factors in inflation? Lol Right or wrong that's how my mind works.
Leaving some sort of legacy for my daughter was mostly what I had earmarked that TSP money for. I hadn't looked at it as income generating before. The difference in tax is between being in the 15% bracket or 22% ( for now). I look at it s s spreading out the taxes and utility of the money ( as a whole). I'm justifying being able to do something or my daughter that at one time was only a dream by saying I have savings to back that up. She's getting some of it now while its useful to her at 24 rather than waiting until she's in her 60s and gets an inheritance.
I get people that would rather have their mortgage paid. I don't think it matters either way.
I have no plans to pay off my mortgage faster than my current pay schedule.
The calculations show the best path for me is to use extra money for investing.
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