I have a paid off home. It functions as a bond would, I have a HELOC that I can tap into for 3-7 years worth of living (currently set for three, i have an investment loan secured against the house which is tax deductible, my portfolio is otherwise too heavy into my fake bonds). In a downturn, I can toss capital into the stock market, just like you would with bonds. I'm 100% flexible by design, thats my situation.
FIRE assumes that in the bad year you still need money. If you sell your stocks during downturns, it hurts, which is why 4% is employed, it allows the stocks to grow (7%) during good years to compensate for bad years. f I don't sell during bad years, waiting for the upturn to repay my HELOC, it decreases my risk.
A paid off house can function like bonds. I'm not saying its ideal, but thats the effect it may have. Spend some time comparing how you can use your house like a bond fund, its very enlightening and educational. For myself, i save 3% interest on the mortgage loan that I otherwise would have. Bonds would have to yield 4%, given my tax structure, to increase my NW the same amount.
I have several other factors, like being Canadian, mortgages with 5 year terms and no interest deductions on mortages. I can also advance a mortage quite easily, but I can't lock it in for 30 years.
To stir the pot, a paid off house should be compared to your BOND portfolio. Its functionally similar. However, you should also limit your bond portfolio (
@boarder42), or be prepared for reading far too much about mortgages and returns ;) If you can't compare your mortgage to bonds, you've only done 80% of the work (assuming an 80/20 stock/bond ratio).
Bonds don't compare as well as stocks. It's much more fun to gloss over them, however if you can do it you'll have a much better understanding.