Mortgage in Retirement Years?
 

Assuming you have current and continued solid financial solvency, and could own your residence outright with no financial impact on your lifestyle:

Given low mortgage rates 2.5%-3.5%, how would you feel about holding a mortgage on your residence in your retirement years?

Home mortgage in retirement
 

We decided to carry a mortgage at these low rates because investment returns are generally higher. The caveat - the cash you would have used to pay off the mortgage (and the Bond?) must be invested and not spent.

The question is: How would you feel?? :ohdear:

I'm a big fan of having no debt, but you can easily make 4+% in the market with relatively safe investments. There are no guarantees and the bottom could drop out. As long as you can live long enough for it to recover, it seems like a better route to maintain or build wealth. You do need to pay attention though. Dumping a big chunk into an equity fund or a money market fund and forgetting about it is not a good choice either.

That said, if you can afford a mortgage with your SS/pensions/etc. maybe just get the lowest possible payment and spend the rest? If you're not planning on bequeathing your assets, spend it. The house will still build wealth that someone will get when you check out.

I guess the bottom line is how risk averse you are and how liquid you are. If you have 500k in a checking account and are paying a mortgage, you're losing value due to inflation, do one or the other. Pay off the mortgage or open a vanguard account and start buying to your risk tolerance.

We paid off the mortgage (but not the bond) because it's a nice feeling. After the 2008 crash we became very savvy about where we put our money...keeping all our savings in the stock market hoping to get rich is akin to putting it on a table in Las Vegas. We still have some money in the market as a hedge on inflation, but the overwhelming majority is in other vehicles and investments. For us, it's about enjoying our wealth and sharing our wealth...we are well past the era of accumulating wealth.

Smart! actually, I like the phrase "we are well past the era of accumulating wealth". Yes, in retirement its about preserving wealth. . . Now sure about paying off the mortgage but not the bond, since both are expenses with rented money. I don't want any debt for retirement, as my income is limited with zero time to recover. . .

So if you can afford your lifestyle using investment money to bridge yourself to max Social Security, then using up 100% of your social security, and not spend your savings/investments, except for an ocassional big trip, you should be ok. A working couple with max social for both is at least $70K a year. . . which should be enough without dipping into remaining savings for awhile. . .

interest is always an added expense. . . you can't get around it. . . and the assumption that you can always make more in the market may not hold true during your holding period. . . maybe in the past, but that isn't your holding period

We are in our 70's and just refinanced at 2.75% for 30 years. Statistically the market will far out preform 2.75% AND I suspect I will not live 'til pay-off. From a purely logical view, it makes no sense to me to not reap the benefit of OPM (other people's money). On the other-hand, my wife thinks debt-free is better. So far, I've won this battle. It's about your individual comfort zone.

As for the bond, even though the interest rate is higher, I believe that a paid-off bond is not recoverable in resale.

JMHO

Not wise for a majority of people............unfortunately a majority of people who follow this misnomer die prior to the benefit. Waiting for SS max is supported by old financial advice.

To the OP original question, we have no problem with a mortgage in retirement, and actually planned for it for many of the reason cited above. We did however pay off the bond due to the much higher interest rate. So i guess to answer your question, we have no concerns having a monthly mortgage payment in retirement.

its now common advice from CFPs for people who have large 401K savings from many years of employment. And the years of investments since 401Ks have evolved have been very good ones. . . and people working part time after 65 learned from their depression era parents. . . don't always need to take it right away.

max social security start is now 69 i believe, and you are thinking that majority of people will die between 65 and 69? The median age of death is approximately 78. If you believe that you will die prior to 70, I agree, but if you only have 4 more years to live assuming you are in good shape from outside living in the villages, you've got bigger issues than money. But waiting gives you a higher income during your largest decade of active traveling. . . (phrased analytically to support my thesis) :boxing2:

so I am not sure I understand how you get to your generalized answer. . .

I have only put down 20% on all the homes and condos (14) I have owned I have better things to do with my money,I’m 82 and in 3 rd year of new mortgage and quite comfortable with the rate

Could we get ahead by having a mortgage on our home probably yes.

However it is nice having no debt except for the bond.

When we are here longer and if we decide this is our house for years to come the bond will go away.

Real estate people have told us that most of the time you will not recover the bond if you pay it off early.

I started taking my SS when I hit full retirement age, in my case 65 and 10 months, which I do not regret doing. A financially very conservative friend of mine waited until age 70. As I do not need the income I put it into the stock market. My thought was and still is that if congress needs the money they will reduce or eliminate SS payments or tax away SS to recipients having over a certain level of income. Given the pandemic IMHO this could happen sooner rather than later...

People are risk averse in different ways. I still have a fixed rate mortgage on my house but it is in lieu of a mortgage I would need on a rental property which would of course come at a higher interest rate.

We just sold a house in the villages with no mortgage. We bought a new house with a 2.7 mortgage. Using the money in relatively safe investments. Can pay off at any time.

No, No, No silly boy, Trix are for kids.
Not assuming they die by 70.........even thou a lot do.


If you do a spreadsheet, (as an example) a couple can take in a couple hundred thousand dollars during the period from early SS to late SS. As a result, at 71 they have over $300k more in saving. Now........how long before the late SS catches up with the early SS and eliminates the $300k pot???? The answer: Well past most people's life expectancy.

oh, that argument! Yes, I know of that argument, I haven't spent much time with it, as one of my projects, after this pandemic work load is eliminated and my work load goes back to normal, is to build a universal retirement planning calculator, to input annual expenses and all income sources, tax rates, etc, to play what if games to optimize different goals at different age brackets with the goal of maximizing taxable assets and minimize tax deferred assets, which pass tax free to heirs . . . ie, the opposite of a working couple, as now one is not working, and has limited time left. .

CFP requires like 4 years of work history to get the final participation trophy. . . after passing the exam. . .

Also note, that there are situations in which to take extra money out of tax deferred retirements accounts instead of spending taxable assets down, resulting in the very win-win of tax free going in and tax free coming out,

but thanks for clarifying your argument, as always. .

sportsguy

Is this right?? about 35mil people in their 60's and 5mil people die in their 60's??


Higher than I though.

So being a financial modeler, the model only took 5 minutes to build, using today's social security answers, as I am 62, and just barely qualified for the max, assuming total income only:

and the answer is
Taking full retirement at 67, (estimated for modeling purposes for my age) equals the same total income as taking it a 62 at 85 years old

Taking full retirement at 70, equals the same total income as taking it a 62 at 84 years old.

Taking but not using between 62 and 69yrs, 11 months and 30 days, assumes a benefits savings of about $234K, assuming taking benefits on your birthday as month 1, using benefit inflation model of 2%, $242K at 3% and $250K at 4% annual benefit increase.

However, I think that the real issue is cost of life style, which isn't being taken into account, as at age 70, the annual income difference is 45.5K per year versus $37.2 per year at 4% inflation if taken at age 62. . . or 8,000+ more a year for a cushion, $16K for a max couple if delayed.

So enough with the financial planning, I have to get outside on a 50 degree new england december day

In my opinion, it is more than a financial calculation. I had my one and only mortgage of $35K when I was 29. I couldn't sleep, so I paid it off in about 3 years. I have been totally debt free since then. I would guess that, if you actually compared people who live debt free to those who routinely borrow money, you will find that the debt free people have achieved a substantially higher net worth.

:clap2:



Mine knocks on the door of 90, probably I'm assuming 1% more return.


But either age, 85 or 90................80% of retirees do not live that long. Bummer.


50 degrees & lobster sounds pretty good.


Happy Holidays.


:MOJE_whot:

"The break-even point represents when the cumulative benefits even out. So if you wait until age 70 to start taking benefits, it would take you until age 79 to break even with the benefit amount you’d receive if you started taking them at age 62. If you were to start receiving benefits at age 66, it would take you until age 75 to break even with the benefits you’d receive if you started them at 62."

How to Calculate Your Social Security Break-Even Age - SmartAsset

Wrong. Bad model.

How so?

The model from that website does not take everything into account.


For a fee, Coach could give you a valid model.


:coolsmiley:

Interesting.

In our case we could easily make the payments but the idea of being debt free appeals to both of us.

We were able to take advantage of what was called the marriage loophole.

I took SS at 65 and a year later my wife turned 65. She filed and than stopped it.

As a result she could on her own get half of my SS and delay taking hers until age 70 when she got 40% more based on her earning.

There are alot of poor models out there, and all depends upon the level at which one qualifies, ie the starting point, as well as the rate of benefit inflation, so when I am down there full time, I will help out anyone with their model. . . The rate of benefit increase will push out the 62 yo starting as there will be a higher amount versus the starting point given today. .. but the model doesn't include any inflation increase in the 70 yo start, so if that is included, then you get closer to dewilson's age of 90. . . again, all about future assumptions, which will be wrong but you won't know how wrong until we get there. . .

But the reason why I have a problem with the cumulative earnings cross over, is that there is a behavioral finance component to the decision, which is called "sufficing income level". Everyone has an income level above which they don't want to work harder as their current income level suffices their desires. So the difference in income level in perpetuity is important for me to maintain a life style for the time i have remaining, given my own personal history. . . ie, that 22% increase in monthly income between taking at 70 and taking at 62 will be significant if there is any shortfall in the economy during my 70's, or other financial issues. . .its 11% more over 67, which makes the decision a bit harder to wait. . . but that's a 3.0%-4.0% increase in perpetual salary per year of waiting. . .

so that's why this total cumulative benefit analysis is not bogus, but not an applicable model to judge when to take the money, but lifestyle with income/assets and total expenses are more important. But that requires a much more thoughtful and personalized financial model with different goals.

My mortgage decisions are guided in part by what I want to leave in my will.

So, if whoever is getting the house makes you mad, you can always take out a huge mortgage? Just kidding.

Better yet a reverse mortgage? Also only kidding.

I'm still struggling with: "what I want to leave in my will"
:crap2:

This is a decision you will need to make based on all the information you have. I agree with and have a mortgage currently beause the rate was so low and my investment rate of return has been in the double digits. Why would you not borrow at say 2.5% if you make 10% or more? Financially it is a sound move for me.
Social security is the same if you are in poor health or none of your relatives live to 60 or you need it to live yes take it now, but if you have the means to do without until 70 (by pensions, cash or you continue to work ) the Social secity is returning a rate of about 8% ( I believe ) for the years leading to 70, You may consider a delay even if you wait a year per the tables you should end the same. You can figure it out,,,in mine if I live to I think it was 79 I will have more money. Since my parents lived to 86 and did not have a healthly lifestyle that should not be an issue. My financial planner made my life expectency 90 ( he also said it was just a guess and he would adjust to my idea if I knew something ) But you also never know, I have seen children die 20-30 years younger than their parents. You also could talk about quality of life and what will you need the monies for after a certain age....

That's not a lifestyle choice, that's being guided by the afterlife. . .

I am not sure how a planner deals with that one. . . . other than an amortization table. . .

I don't owe anyone except the tax man and I will the rest of my days.

Thanks for those numbers. I am more interested in the full retirement age (66 and 4 months) vs. age 70 scenario. When I ran the numbers assuming 2% COLA but no investment return on the money, the benefits would be equal at age 81. Assuming 5% return on all benefits (as an annual rate applied monthly) pushed the age out to 87.

Bingo.

Spreadsheets, or in my case a 20 line Fortran program (I'm an old school PDE solver), are wonderful things.

There are so many financial know it all's in the Villages. Paying off your home is a personal choice if you can do so. Paying off your bond saves 6%. Do what makes sense to you.

Refi Costs
 

I started to refi with Citizens First last year to take advantage of the lower rates. they wanted closing costs of $17,000 to refi $300,000. To me, it was just legalized usury and we canceled the loan. Then they said they would lower the closing costs by $7,000 which kind of supported my opinion.

Plan to stay here another (fingers crossed) 25 years and with no one to leave my estate to, will just go with a Reverse Mortgage.

Atta boy! Ben Franklin would be proud of you. “Never a borrower nor a lender be”.

really, I would not want a. mortgage during retirement years