Author Topic: FIRE # with a mortgage  (Read 764 times)

TheAnonOne

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FIRE # with a mortgage
« on: September 24, 2020, 12:47:28 PM »
Team,

I am trying to pin down a realistic FIRE #, I have been shooting for something like 40k a year in spending cash.

We all know, that's around 1MM.

Great.

Problem comes when you have a mortgage. This is outside of my FIRE budget above, and I owe something around 450k.

I have read that you don't really need enough, via the 4% rule, to cover the payment. Rather, you really only need enough to cover the balance as a whole.

So either, I need...

1m (spending) + 450k = 1.450m

OR

1m (spending) + (2500/m *12*25) = 1.750m

It can be fairly drastic, as far as the difference goes. Curious how others are handling this.


PS. I know you could downsize, there are property taxes and insurance as part of a mortgage payment etc etc etc, but trying to focus purely on the thought process here, rather than specifics.

terran

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Re: FIRE # with a mortgage
« Reply #1 on: September 24, 2020, 01:12:03 PM »
1m (spending) + 450k = 1.450m

I currently rent, plan to slow travel without a home base for a time after retirement, and may or may not buy a house at some point during retirement, so I need enough to cover any of those possibilities, but if I was planning to own a house when I retired this is the one I would pick. No sense having enough to cover a mortgage payment indefinitely when the mortgage term is finite. Make sure you account for a property taxes and insurance that are part of your payment though, as those will always be part of your spending.

Simpli-Fi

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Re: FIRE # with a mortgage
« Reply #2 on: September 24, 2020, 01:21:18 PM »
no correct way to sum it up...but I would just add the mortgage to your spending (if you are fixed rate); so your 40k is now $70k or whatever; closer to 2mil now.

Jimbo

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Re: FIRE # with a mortgage
« Reply #3 on: September 24, 2020, 01:24:45 PM »
no correct way to sum it up...but I would just add the mortgage to your spending (if you are fixed rate); so your 40k is now $70k or whatever; closer to 2mil now.

No, because then you oversaved... The mortgage payments will eventually end. If you account for this cost forever, it leads to overestimation of your stache requirements.

Jimbo

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Re: FIRE # with a mortgage
« Reply #4 on: September 24, 2020, 01:29:12 PM »
I remember a poster mentioning a bucket method to estimate this... Not sure exactly how best to do it though. Sorry. 

bacchi

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Re: FIRE # with a mortgage
« Reply #5 on: September 24, 2020, 01:30:56 PM »
cFireSim can handle this. Subtract the mortgage (principal and interest only) from your expenses and add it to the bottom under Extra Spending.

Jimbo

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Re: FIRE # with a mortgage
« Reply #6 on: September 24, 2020, 01:35:53 PM »
So using the OP numbers, what would cFireSim say is the required number?

bacchi

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Re: FIRE # with a mortgage
« Reply #7 on: September 24, 2020, 01:57:47 PM »
So using the OP numbers, what would cFireSim say is the required number?

Only OP has the real numbers but...

A $450k mortage at 3.5% is $2017/month in PI.

$1.45M portfolio from 2020 to 2050 with additional spending of $2017*12 yields 2 failures, or a 98% success.

Eta: The usual suspects fail -- namely, 1929 and 1966.

A $1.5M portfolio has 1 failure, 1966.

As someone mentioned above, the TI has to included in the annual budget.

A 2020-2060 withdrawal with a 30 yr mortgage (2020-2050) has 3 failures, with 1965 being included.
« Last Edit: September 24, 2020, 02:01:26 PM by bacchi »

TheAnonOne

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Re: FIRE # with a mortgage
« Reply #8 on: September 24, 2020, 02:10:21 PM »
So using the OP numbers, what would cFireSim say is the required number?

Only OP has the real numbers but...

A $450k mortage at 3.5% is $2017/month in PI.

$1.45M portfolio from 2020 to 2050 with additional spending of $2017*12 yields 2 failures, or a 98% success.

Eta: The usual suspects fail -- namely, 1929 and 1966.

A $1.5M portfolio has 1 failure, 1966.

As someone mentioned above, the TI has to included in the annual budget.

A 2020-2060 withdrawal with a 30 yr mortgage (2020-2050) has 3 failures, with 1965 being included.

The mortgage would be in addition to the spending of 3333 monthly (40k a year) So it's more like $5,400, but the point being, it doesn't last forever.

bacchi

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Re: FIRE # with a mortgage
« Reply #9 on: September 24, 2020, 02:25:29 PM »
So using the OP numbers, what would cFireSim say is the required number?

Only OP has the real numbers but...

A $450k mortage at 3.5% is $2017/month in PI.

$1.45M portfolio from 2020 to 2050 with additional spending of $2017*12 yields 2 failures, or a 98% success.

Eta: The usual suspects fail -- namely, 1929 and 1966.

A $1.5M portfolio has 1 failure, 1966.

As someone mentioned above, the TI has to included in the annual budget.

A 2020-2060 withdrawal with a 30 yr mortgage (2020-2050) has 3 failures, with 1965 being included.

The mortgage would be in addition to the spending of 3333 monthly (40k a year) So it's more like $5,400, but the point being, it doesn't last forever.

Right. Put $40000 at the top under "Initial Yearly Spending" and your annualized principal and interest at the bottom under "Extra Spending."

jamesbond007

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Re: FIRE # with a mortgage
« Reply #10 on: September 24, 2020, 02:32:22 PM »
I include mortgage payments in my yearly spending even after it is paid off. The reason for this is that we must pay for health insurance. So including this will ensure I am covered in times of need.

Malcat

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Re: FIRE # with a mortgage
« Reply #11 on: September 25, 2020, 04:30:33 AM »
What you are forgetting to factor in is that the extra money saved to pay off the mortgage also earns interest.

Re-run your numbers and you will understand it better.

DK

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Re: FIRE # with a mortgage
« Reply #12 on: September 25, 2020, 06:29:32 AM »
keep in mind mtg will end, and also, as the years go back the mtg cost will 'decrease' due to inflation....those calculators assume an inflation adjusted increase in spending yr to yr, your mtg portion of spending will never increase (assuming you have a fixed rate)

Malcat

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Re: FIRE # with a mortgage
« Reply #13 on: September 25, 2020, 06:38:05 AM »
keep in mind mtg will end, and also, as the years go back the mtg cost will 'decrease' due to inflation....those calculators assume an inflation adjusted increase in spending yr to yr, your mtg portion of spending will never increase (assuming you have a fixed rate)

That too.

Yes, basically, the same logic applies when analyzing whether or not to pay off your mortgage at any time. The math stays the same.

ChpBstrd

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Re: FIRE # with a mortgage
« Reply #14 on: September 25, 2020, 03:23:08 PM »
All the above is true, but it does not get the OP to a single FIRE number. Perhaps if OP could name an acceptable historical failure percentage, Cfiresim could provide an acceptable outcome.

Even that however, would be assuming the future will turn out anything like the past. It could be we don't see a return of 20th century stock market performance as the US declines in the 21st century, and the value of that $500k house drops to $150k in five years.

TheAnonOne

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Re: FIRE # with a mortgage
« Reply #15 on: September 25, 2020, 03:26:41 PM »
All the above is true, but it does not get the OP to a single FIRE number. Perhaps if OP could name an acceptable historical failure percentage, Cfiresim could provide an acceptable outcome.

Even that however, would be assuming the future will turn out anything like the past. It could be we don't see a return of 20th century stock market performance as the US declines in the 21st century, and the value of that $500k house drops to $150k in five years.

Those are some pretty grim predictions. Alternatively, the USA is one of the few places with an expanding population and growth could continue strong for a very long time.


Lucky13

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Re: FIRE # with a mortgage
« Reply #16 on: September 25, 2020, 03:40:53 PM »
I didn't really think about a FIRE number before I paid off my mortgage... maybe because it seemed like becoming debt-free would take forever, or I wasn't sure I could actually do it.

Retire-Canada

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Re: FIRE # with a mortgage
« Reply #17 on: September 25, 2020, 07:11:54 PM »
Curious how others are handling this.

I currently have a ~$300K mortgage. I fired with the mortgage payments baked into my planned spend at 4%WR. We are likely going to move to a bigger house and I'll have a mortgage for a long enough time dealing with it separately didn't seem to be worth the hassle.