Author Topic: A tale of two paths  (Read 1063 times)

mistymoney

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A tale of two paths
« on: February 15, 2020, 09:10:32 AM »
Hi All,

I'm a relative newbie here, but have been putting money into retirements for about 20 years. I'm approaching a cross roads, and I'm sure its been a topic here previously - so would appreciate thoughts and any good threads to review.

The two paths

Bold road: retire with stache + large, long term, lower rate debts vis a vis investment order logics

Safe road: smaller stache + low overhead, no debts, paid off home, etc.

So - I have loosely followed the bold road for my investing philosophy - without really overthinking it - tried to stay out of high interest debt, didn't worry about low interest debt, aimed to maximize tax advantaged investments.

my debt payments will be about 3000/month for the next decade or so. (Mortgage PI and student loans). To retire with those outstanding, would need an additional $864,000 invested to think about retiring, vs paying off about 400k in debts.

I could likely refinance to longest payback terms - extend the payback to 30 years - so really indefinite in terms of retirement planning - to maybe 2000/month and just need $576,000 in invested funds.

On the bold road, once the debts are finally paid - definitely find yourself in clover. But bold road is a long one carrying those debts, and economic and market forces might throw a spanner into things. I've been aggressive so far - but I am worried about a potential prolonged bear market.

I'm putting together my plan to retire in the next 5-10 years, and now is the time I need to decide on this. I see a lot noting paid off houses, then there is the keep your mortgage thread. How does one choose?


ender

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Re: A tale of two paths
« Reply #1 on: February 15, 2020, 09:16:41 AM »
Choose based on your risk tolerance.

Mathematically, it's almost always going to be the case that paying off a mortgage early is suboptimal to keeping the money invested. There have been numerous threads here discussing this to death.

Emotionally though? It might not be the case. For some, it's a no brainer to pay it off even if that means extra working time. For others, there's no emotional impact.

seemsright

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Re: A tale of two paths
« Reply #2 on: February 15, 2020, 09:46:15 AM »
Hubby and I chose both paths. We want a large stache and no debts.

Know your why in paying off your house.

For us it was our goal first and foremost. We both as children had issues with housing, and food. We both grew up very poor. For us having our house paid off meant it became our fortress of solitude. That is valuable to us.


bacchi

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Re: A tale of two paths
« Reply #3 on: February 15, 2020, 09:55:01 AM »
my debt payments will be about 3000/month for the next decade or so. (Mortgage PI and student loans). To retire with those outstanding, would need an additional $864,000 invested to think about retiring, vs paying off about 400k in debts.

Please elaborate more.

The $864k is needed because of the interest+principal you'd need to pay on the debts. Correct?

But if you had an extra $400k, it would also throw off growth/dividends/interest AND the principal can be used.

To put it another way, because this $400k can be spent down, it's on a different path than your other investments.

mistymoney

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Re: A tale of two paths
« Reply #4 on: February 15, 2020, 10:22:53 AM »
my debt payments will be about 3000/month for the next decade or so. (Mortgage PI and student loans). To retire with those outstanding, would need an additional $864,000 invested to think about retiring, vs paying off about 400k in debts.

Please elaborate more.

The $864k is needed because of the interest+principal you'd need to pay on the debts. Correct? Yes

But if you had an extra $400k, it would also throw off growth/dividends/interest AND the principal can be used.

To put it another way, because this $400k can be spent down, it's on a different path than your other investments.

ooo - I see what you are saying! If the 400k is invested rather than used to pay off, I don't need the 864k because the money is there to pay off the debts and I can dip into the principal of the 400k to pay the minimums.

Thank you - that makes the bold path more doable. needing only 400k rather than 864k.

Seems like I was a little dense/being too literal. There is still the risk of 400k becoming 200k at an inopportune moment, but then the 200k will still be enough to make payments for quite a while and gives enough time for figuring things out. I think I can live with that risk.

bacchi

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Re: A tale of two paths
« Reply #5 on: February 15, 2020, 10:52:20 AM »
Seems like I was a little dense/being too literal. There is still the risk of 400k becoming 200k at an inopportune moment, but then the 200k will still be enough to make payments for quite a while and gives enough time for figuring things out. I think I can live with that risk.

The $400k should be invested more conservatively than your other investments. Put it in another account if it helps.

You could use cfiresim to see the chances of $400k lasting 10 years. Adjust the "Spending Plan" on the right to reflect your payments (not inflation adjusted, floor and ceiling are the same as initial spending, etc.) and the stock/bond allocation on the left to see what works. At 50/50, $400k can throw off $25k/year and would've lasted through the Depression and the stagflation 60s/70s.

mistymoney

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Re: A tale of two paths
« Reply #6 on: February 16, 2020, 07:16:22 AM »
Seems like I was a little dense/being too literal. There is still the risk of 400k becoming 200k at an inopportune moment, but then the 200k will still be enough to make payments for quite a while and gives enough time for figuring things out. I think I can live with that risk.

The $400k should be invested more conservatively than your other investments. Put it in another account if it helps.

You could use cfiresim to see the chances of $400k lasting 10 years. Adjust the "Spending Plan" on the right to reflect your payments (not inflation adjusted, floor and ceiling are the same as initial spending, etc.) and the stock/bond allocation on the left to see what works. At 50/50, $400k can throw off $25k/year and would've lasted through the Depression and the stagflation 60s/70s.

Thanks - I usually look at engaging data, and it gives similar info I think. I knew this question was super basic but I wasn't seeing it. The few replies here have been incredibly helpful in thinking through this more clearly.

Thanks All!

TomTX

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Re: A tale of two paths
« Reply #7 on: February 16, 2020, 07:50:07 AM »
I'm putting together my plan to retire in the next 5-10 years, and now is the time I need to decide on this. I see a lot noting paid off houses, then there is the keep your mortgage thread. How does one choose?

Mathematically, you typically want to either have a relatively fresh 30 year mortgage when you RE, or paid off.

ACA subsidies may play a part in the decision - or Bernie Sanders wins, we get medicare-for-all and it doesn't matter. 5-10 years off is a long time.

John Galt incarnate!

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Re: A tale of two paths
« Reply #8 on: February 16, 2020, 04:41:33 PM »
Hi All,

I'm a relative newbie here, but have been putting money into retirements for about 20 years. I'm approaching a cross roads, and I'm sure its been a topic here previously - so would appreciate thoughts and any good threads to review.

The two paths

Bold road: retire with stache + large, long term, lower rate debts vis a vis investment order logics

Safe road: smaller stache + low overhead, no debts, paid off home, etc.

How does one choose?

I like as much security as  possible so I took, what for for me,  was the "safe road"  to FIREtirement.

 If I  did not own my house (no mortgage)  I would not consider myself FIREd.

« Last Edit: February 16, 2020, 04:44:17 PM by John Galt incarnate! »