Money in the bank vs paying down/off the mortgage (getting married, payment)
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If not 70-100% equities it is a very questionable decision because sequence risk is big when thousands a month in interest is added in retirement while spending down to live .
the risk with a balanced portfolio may not be worth the additional sequence risk
What if, for example, you are in an auto accident and you are sued for an amount beyond your level of insurance? Asset protection is a consideration in risk management.
Personally I don’t let the liability aspect govern my investment choices ..I rather use insurance paid for with a small portion of the gains I get from investing where the best opportunity is .
I got a mortgage after a retired/built a new home.
I could pay it off if need be (and not be cleaned out) but right now I'm happy to have that money doing work for me and I have an interest rate just a tad over 3% so...
Personally I don’t let the liability aspect govern my investment choices ..I rather use insurance paid for with a small portion of the gains I get from investing where the best opportunity is .
Lawsuits can have awards that can exceed the levels of liability on your policies. If you are in a state that has a solid homestead exemption, it can at least offer you some or full protection on your home equity.
Lawsuits can have awards that can exceed the levels of liability on your policies. If you are in a state that has a solid homestead exemption, it can at least offer you some or full protection on your home equity.
Generally law suits tend to cap out at the low hanging fruit when you have liability insurance of a decent amount which is the policy .
My maternal grandparents passed away at 70 and 64 years old. My mother lived to be 93.5 years old thanks to modern medicine which kept her diabetic in check for many years.
It does not matter to me when I am no longer on this earth but I fully expect to live at least as long as my mother.
My maternal grandparents passed away at 70 and 64 years old. My mother lived to be 93.5 years old thanks to modern medicine which kept her diabetic in check for many years.
It does not matter to me when I am no longer on this earth but I fully expect to live at least as long as my mother.
Yes, several people made that point, and as already stated, I am 62 and my mother died last year at 91, and her mother died in 2001 at 94, so yeah, I'm aware that people live for a long time these days. I was referring to money being invested for retirement before it is needed in retirement, not after, but it's all good.
Generally law suits tend to cap out at the low hanging fruit when you have liability insurance of a decent amount which is the policy .
But having a protected home is always a plus
My father was on the opposite side of this situation. He suffered a TBI in an accident. He spent 2 months in a Neuro ICU, followed by almost 2 years of rehab. The other party’s insurance capped out at $1.5 million. While we are restricted on disclosure, you can imagine the sudden financial situation the other side was facing.
While working, we tried very hard to not having any debts: We paid cash for our cars, paid off mortgage on the 1st home in 2 years and the last pre-retirement home in 6 years.
In retirement, we could have paid cash for our current car and home but chose to get a car loan (0% interest for 5 years) and a mortgage (3.25% interest, 15 years then refinanced at 2.5% also 15 years).
When we sold our paid-for home in NY, we could have used the proceed to pay off about 60% of the ID mortgage but decided to invest it in RE. After the developer who bought the 300 acres farm next to our house refused our cash offer for the 2A riverfront lot next to our house, we turned around and invested in 2 hangars (one to keep our plane and one to rent out). The hangars have increased in value at least 25% in one year which is much higher than our 2.5% mortgage interest rate.
RE values have gone up tremendously in our area, we now have at least 60% equity in the house (appreciated ~67% in 3 years). This means that if we have to sell the house for whatever reasons, we would have no problems paying off the mortgage with the proceeds.
Bottom line is that we prefer having money in the bank instead of paying off our 'debts'. Our total current debt is roughly about the same as our cash reserve (which is now at ~ 6% of our total asset). We also don't have to worry about how to meet our payments if there are financial disasters such as losing our jobs (during our working years).
For us, we can cover our current living expenses (including our mortgage/car payments) with our income (SSs, pensions and parts of our dividends). We have been using my husband's RMDs to pay our income taxes. His RMD is <1% of our investable asset. In effect, we are drawing < 1% of our saving which is way below the 4% safe withdrawal rate. I will be collecting my own SS when I turn 70. The increase amount will cover ~ 60% of our income taxes further reducing our withdrawal rate.
There have been quite a few discussions in this thread regarding the pros and cons of having a mortgage, how to invest the money (use other people's money) etc. IMO, the decision to have a mortgage or not is based not only on just the numbers but also one's emotion.
There is no one best way, financial analysis or number which fits everybody. There are many factors in an individual financial situation: single/married, age, w or w/o heirs, amount & sources of 'fixed' income, healthcare insurance coverage/need, wealth level etc. Financial experts can offer all kinds of analysis or advices but one still needs to be investment knowledgeable to either figure out how to follow the advices or to hire a a good money manager.
Emotionally, we are quite conservative but have no problems of being in 'debt' in retirement. We are not incurring any risks in having a house and car payment and can sleep very well at night.
Bottom line is that each person just have to do their own analysis/research and decide what financial decision is best for their own financial and emotion well-being.
Very good post, especially the last sentences. However, 6% of portfolio debt when that includes a mortgage & 0% car loan is so low compared to total NW as to practically be noise. For most people, if the consideration of a mortgage or not is a serious decision, then the financial impact is more dire. I carry a mortgage, (recent refi, 30yr, 2.75%) and didn’t give it a second thought. Any home appreciates the same with or without a mortgage. And my only debt is the mortgage, but it is more like 25% of my After Tax NW. In order for the funds not used to pay off a mortgage to make any difference, it has to be quite a few $100k. Debating paying off an $80k mortgage is not a debate. The income from $80k is not going to make a hill of beans difference. Heck, in most states, you can’t even refi only $80k. If paying you mortgage impacts your income enough to warrant the debate, then paying it off is probably a better option. ESPECIALLY if the majority of your income is fixed. If your mortgage is less than 20% of your income and you only need 50% of it to live well, then, again, no debate. It doesn’t matter. Whatever makes you sleep better is correct.
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