Are there many of you in this camp that are paying a mortgage in FIRE?
I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.
Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage. The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.
Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework. Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.
At the time of our estimated FIRE date, we'll have 2 to 3 years remaining on our mortgage. Will probably pay the balance off then just for convenience sake. Knowing full well that it is not financially optimal.
If only 2-3 years, I'm sure I'd do the same. If we do 30 year mortgage- we'll still have 15+ to go when we FIRE, so the tax burden even at reduced LTCG rates would be significant.
I'm currently planning to keep my mortgage in FIRE. Then again, my mortgage is more in the $7500 range per year, so it's not a huge burden. If at any point it makes sense to pay it off, I'd be fine with that as well. I don't think it will make a huge difference for me either way. I'll also be young enough that I'm planning to get private insurance the first several years of FIRE since the cost will still be reasonable. This will allow me to convert more Traditional money to Roth and harvest some cap gains. I do have a hard time wrapping my head around how to optimize income to reduce taxes and keep ACA subsidies in early retirement. I plan to have enough of a buffer that I don't need ACA subsidies at least in the early years.
You're worried about a LTCG hit, but keep in mind that you only pay taxes on the money earned, not the principal you put in. If you only have a 5-7 year timeframe (where you mentioned paying your mortgage down and you could instead invest), you won't have a ton of capital gains to pay on anything you invest. And if you do, it means you're paying more taxes because you earned more money so you're still coming out way ahead.
Based on what you said (payments of $20k per year, 15 years left at FIRE), I assumed a $375k mortgage at 3.5% for 30 years. Assume you start paying extra 10 years in (5 years from FIRE), you'd have to pay an extra $3600/month for 5 years to get the mortgage to 0 in those 5 years. If instead you invested that $3600/mo at 5%, you'd have $245,842 in 5 years, of which $29,842 would be capital gains. If you paid 15% tax, you'd still have $241,365 after paying taxes. Paying normal mortgage payments, your balance would be $235,551 at that time. So after paying taxes, you'd be ahead by $5814. If you're in the 20% cap gains bracket, you'd still be ahead ~$4300. At a 10% rate of return and 20% tax, you'd be $32.5k ahead. This is all assuming you pay off your mortgage the day you retire. Obviously, there is a risk of losing money over the 5 years as well, so you'll have to decide if it's worth the additional risk to you. But I don't think LTCG tax is a good reason to start paying off your mortgage instead of investing 5-7 years out from FIRE.