Reduce retirement savings to paydown mortgage

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t_man
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Reduce retirement savings to paydown mortgage

Post by t_man »

I've calculated our retirement 'budget' to the best of my abilities. Right now, we have more than 50x spending in our retirement accounts (factoring in SSN and a very small pension), we plan on retiring at 62.

The biggest factor is our mortgage. We are on track to pay it off before 60, but it somewhat prevents my wife from retiring now (which she would love to do).

The question is; should I reduce our retirement savings so we still get the 401k match and fully fund our Roth's and use the money to pay off the mortgage sooner? If the mortgage was paid off, I would tell my wife she can retire anytime she wants.
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Re: Reduce retirement savings to paydown mortgage

Post by brian91480 »

Sometimes posts on this forum make me laugh. This is one of them.

If it's true that you really have 50x expenses saved...

And you have access to that money, or, access to other money / income to get by for now if she quits...

And if your wife hates her job....

Don't over think this. You only live once. Let her retire with a clear conscious. Is this really a question?
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Re: Reduce retirement savings to paydown mortgage

Post by BernardShakey »

At 50X, I'd do what you suggest and pay it off more quickly. 50X is impressive. Curious, what is your interest rate and balance ?
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Re: Reduce retirement savings to paydown mortgage

Post by cchrissyy »

if you have 50x saved, how many X would it take to pay off the balance?

go for it

or

put that money aside and pay down it as scheduled

either way, she can retire right away with whatever X is left

then you decide do you want to continue working for more of a buffer or retire too.
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Re: Reduce retirement savings to paydown mortgage

Post by willthrill81 »

Pay off the mortgage yesterday and retire today! You're absolutely golden!
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Re: Reduce retirement savings to paydown mortgage

Post by t_man »

brian91480 wrote: Sun Sep 26, 2021 10:16 pm Sometimes posts on this forum make me laugh. This is one of them.

If it's true that you really have 50x expenses saved...

And you have access to that money, or, access to other money / income to get by for now if she quits...

And if your wife hates her job....

Don't over think this. You only live once. Let her retire with a clear conscious. Is this really a question?
The issue is the majority of our savings (ok, almost all) is in 401k/IRA accounts and we currently can't use that to pay off the mortgage w/o penalty and taxes... I wish I could go back and maybe not save so much in 401k's over the years, but that's past now...
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Re: Reduce retirement savings to paydown mortgage

Post by t_man »

BernardShakey wrote: Sun Sep 26, 2021 10:18 pm At 50X, I'd do what you suggest and pay it off more quickly. 50X is impressive. Curious, what is your interest rate and balance ?
I started investing pretty early, all in 401k. I knew if they took the money out of my check before I got it, it would be invested. If I invested after I got the check, it would be hard at a young age to still invest. The current balance for our retirement accounts is about $1.7m, we owe about $120k on the mortgage.
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Re: Reduce retirement savings to paydown mortgage

Post by FiveK »

t_man wrote: Sun Sep 26, 2021 10:35 pm The issue is the majority of our savings (ok, almost all) is in 401k/IRA accounts and we currently can't use that to pay off the mortgage w/o penalty and taxes... I wish I could go back and maybe not save so much in 401k's over the years, but that's past now...
How to withdraw funds from your IRA and 401k without penalty before age 59.5 and links therein might interest you.
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Re: Reduce retirement savings to paydown mortgage

Post by celia »

t_man wrote: Sun Sep 26, 2021 10:11 pm I've calculated our retirement 'budget' to the best of my abilities. Right now, we have more than 50x spending in our retirement accounts...
Pay off the mortgage right now, which will make the living expenses go down... and then your current assets might be 60x spending... (As a side comment, why don't you share your proposed retirement "budget" with your wife and have her look for what is missing.)

(factoring in SSN and a very small pension)...
Wow! If you have a 9-digit valued portfolio, that is impressive (and also sort of funny, IMO).
:oops:
t_man wrote: The issue is the majority of our savings (ok, almost all) is in 401k/IRA accounts and we currently can't use that to pay off the mortgage w/o penalty and taxes... I wish I could go back and maybe not save so much in 401k's over the years, but that's past now...
We can't re-do the past, but we can stop the future from getting worse. Since you apparently are still working, you probably haven't yet considered the "tax bomb" you might face at age 72 when RMDs start, if you don't change something before then.

Does anyone regret saving too much in tax-deferred?
Saving too much in tax deferred

Why don't you decrease your tax-deferred contributions while also doing some Roth conversions? Yes, both of these will make your taxes go up, but you will need to pay those taxes that you've been deferring sometime.
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Re: Reduce retirement savings to paydown mortgage

Post by harikaried »

t_man wrote: Sun Sep 26, 2021 10:11 pmuse the money to pay off the mortgage sooner?
You've previously mentioned stretch IRAs. How much of the mortgage would those accounts cover? What's your income tax rates now?

And to be clear, your taxable accounts consist of emergency fund cash and no investments? How large is that with the potential of using some as without a mortgage, monthly expenses are reduced -> smaller required emergency fund.
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Re: Reduce retirement savings to paydown mortgage

Post by aristotelian »

From a net worth standpoint, it should not make a difference whether or not you pay off the mortgage. If you are ready to retire with the paid off mortgage, you are also ready to retire with a mortgage plus additional leverage. That said, if it is psychologically important to you to have a paid off mortgage prior to retirement, go for it. The only question is what the leverage does to your asset allocation.
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Re: Reduce retirement savings to paydown mortgage

Post by Somethingwitty92912 »

brian91480 wrote: Sun Sep 26, 2021 10:16 pm Sometimes posts on this forum make me laugh. This is one of them.

If it's true that you really have 50x expenses saved...

And you have access to that money, or, access to other money / income to get by for now if she quits...

And if your wife hates her job....

Don't over think this. You only live once. Let her retire with a clear conscious. Is this really a question?
+1 2 and 3
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Re: Reduce retirement savings to paydown mortgage

Post by ruralavalon »

t_man wrote: Sun Sep 26, 2021 10:11 pm I've calculated our retirement 'budget' to the best of my abilities. Right now, we have more than 50x spending in our retirement accounts (factoring in SSN and a very small pension), we plan on retiring at 62.

The biggest factor is our mortgage. We are on track to pay it off before 60, but it somewhat prevents my wife from retiring now (which she would love to do).

The question is; should I reduce our retirement savings so we still get the 401k match and fully fund our Roth's and use the money to pay off the mortgage sooner? If the mortgage was paid off, I would tell my wife she can retire anytime she wants.

willthrill81 wrote: Sun Sep 26, 2021 10:30 pm Pay off the mortgage yesterday and retire today! You're absolutely golden!
+ 1.

Enjoy life debt free, she can retire now and you can retire early if you want.
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Re: Reduce retirement savings to paydown mortgage

Post by grabiner »

t_man wrote: Sun Sep 26, 2021 10:11 pm I've calculated our retirement 'budget' to the best of my abilities. Right now, we have more than 50x spending in our retirement accounts (factoring in SSN and a very small pension), we plan on retiring at 62.

The biggest factor is our mortgage. We are on track to pay it off before 60, but it somewhat prevents my wife from retiring now (which she would love to do).
I don't know why this should prevent you from retiring. Paying down your mortgage reduces the size of your retirement accounts, but it also reduces the amount you need to spend in retirement.

For example, suppose you spend $1000 to pay down your 3% mortgage, which has 10 years left. You will reduce the payment due in 10 years by $1343. Alternatively, suppose you use the $1000 to buy a 10-year bond in your Roth IRA yielding 3%. You will have $1343 in the Roth IRA after 10 years, which you can use to pay the final $1343 on the mortgage. Thus, in this situation, you will have just as much in retirement in either situation. (If it is break-even, it is better not to pay down the mortgage, because you retain the option of refinancing the mortgage if rates fall.)

Even if the rates aren't equal, you may come out ahead with 401(k) contributions because you retire in a lower tax bracket. Suppose that you pay down your 3% mortgage by $780. You will reduce the payment due in 10 years by $1048. Alternatively, suppose that you are in a 22% bracket and use the $780 to contribute $1000 to your 401(k) and buy a 10-year bond there yielding 2%. The bond will be worth $1219 in ten years, and if you then withdraw the money in a 12% tax bracket, you have $1073. Thus, despite the 1% gap between the bond yield and the mortgage rate, you come out ahead by contributing to the 401(k).
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Re: Reduce retirement savings to paydown mortgage

Post by Dottie57 »

t_man wrote: Sun Sep 26, 2021 10:11 pm I've calculated our retirement 'budget' to the best of my abilities. Right now, we have more than 50x spending in our retirement accounts (factoring in SSN and a very small pension), we plan on retiring at 62.

The biggest factor is our mortgage. We are on track to pay it off before 60, but it somewhat prevents my wife from retiring now (which she would love to do).

The question is; should I reduce our retirement savings so we still get the 401k match and fully fund our Roth's and use the money to pay off the mortgage sooner? If the mortgage was paid off, I would tell my wife she can retire anytime she wants.
How did you factor in SS and pension. In your 50x expenses? How old are you now?
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Re: Reduce retirement savings to paydown mortgage

Post by tashnewbie »

How big is your portfolio in terms of annual retirement expenses, without factoring in SS and pension?

How much do you have available in taxable accounts?

How much do you have in aggregate Roth IRA contributions?
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Re: Reduce retirement savings to paydown mortgage

Post by KlangFool »

t_man wrote: Sun Sep 26, 2021 10:11 pm
The question is; should I reduce our retirement savings so we still get the 401k match and fully fund our Roth's and use the money to pay off the mortgage sooner?
t_man,

How does paying 10+% to 20+% taxes in order to save less than 4% mortgage interest makes any sense?

Do you prefer to pay more taxes instead of spending your own money?

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Re: Reduce retirement savings to paydown mortgage

Post by KlangFool »

t_man wrote: Sun Sep 26, 2021 10:11 pm
I've calculated our retirement 'budget' to the best of my abilities. Right now, we have more than 50x spending in our retirement accounts (factoring in SSN and a very small pension), we plan on retiring at 62.
t_man,

Do you have enough to retire NOW? If not, how does paying more 10+% to 20+% taxes in order to pay down the less than 4% mortgage helps you?

In my case,

1) I can retire now.

2) I only pay down my mortgage after I max up all my tax-advantaged accounts.


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Re: Reduce retirement savings to paydown mortgage

Post by willthrill81 »

KlangFool wrote: Tue Sep 28, 2021 9:43 am
t_man wrote: Sun Sep 26, 2021 10:11 pm
I've calculated our retirement 'budget' to the best of my abilities. Right now, we have more than 50x spending in our retirement accounts (factoring in SSN and a very small pension), we plan on retiring at 62.
t_man,

Do you have enough to retire NOW? If not, how does paying more 10+% to 20+% taxes in order to pay down the less than 4% mortgage helps you?

In my case,

1) I can retire now.

2) I only pay down my mortgage after I max up all my tax-advantaged accounts.


KlangFool
Anyone who has 50x certainly has enough to retire right now.

We don't know what the tax implications of the OP paying off the mortgage would be nor the best strategy for doing so. The OP might have enough funds available with no tax implications (i.e., Roth contributions, savings account balance) to pay off the mortgage right now. It might be better for the OP to slowly pay off the mortgage in retirement while remaining in his/her tax bracket at the time. We just don't have enough information right now.
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Re: Reduce retirement savings to paydown mortgage

Post by KlangFool »

willthrill81 wrote: Tue Sep 28, 2021 9:51 am
Anyone who has 50x certainly has enough to retire right now.
willthrill81,

50X with pension and social security at 62 years old. It is not 50X current annual expense. And, the mortgage paid off at 60 years old. So, it is not certain that OP can retire now.

<<The biggest factor is our mortgage. We are on track to pay it off before 60, but it somewhat prevents my wife from retiring now (which she would love to do).>>

If OP can retire now, why would the mortgage matters?

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Re: Reduce retirement savings to paydown mortgage

Post by grabiner »

KlangFool wrote: Tue Sep 28, 2021 9:32 am
t_man wrote: Sun Sep 26, 2021 10:11 pm
The question is; should I reduce our retirement savings so we still get the 401k match and fully fund our Roth's and use the money to pay off the mortgage sooner?
t_man,

How does paying 10+% to 20+% taxes in order to save less than 4% mortgage interest makes any sense?
This is not the right way to frame the question, because taxes on a 401(k) are not a total loss. If you are in the 22% tax bracket, you have the option of paying $7800 against your mortgage or contributing $10,000 to the 401(k). But if you retire in the 22% bracket, you will lose 22% of the money when you take it out of the 401(k), so you will only get the value you would have from investing $7800 tax-free. So you can pay down the mortgage and earn the risk-free rate of the mortgage, or put the money into a 401(k) and earn the investment returns, where the low-risk return is equal to the return on bonds.

If you will retire in the 12% bracket, then contributing $10,000 to the 401(k) does give an extra tax benefit; you contribute $7800 and get the after-tax value of contributing $8800, for a 13% gain. (Even then, the 13% gain should be compared not to the one-year interest rate, but to the compounded savings; losing 13% to save 2% per year for 10 years is a good deal, while saving 1% per year is not.)

But if you will retire in a lower tax bracket, then the strategy above is the wrong comparison. If you don't max out all your retirement accounts, you should max out the 401(k) rather than the Roth IRA. You can still get Roth money in retirement: contribute $10,000 to the 401(k) for $7800 out of pocket, and then convert that money to a Roth IRA at 12% tax after you retire.

So, if you are retiring in a lower bracket, the correct question to ask is, "Should we contribute to the Roth IRA or pay down the mortgage?" Now, there is no tax savings involved; you can pay down $14,000 of the mortgage (two Roth IRA contributions' worth) and earn the risk-free rate of the mortgage, or contribute $14,000 to the Roth IRA and earn the tax-free return on investments. (You may prefer to invest the Roth IRA in stock, but since this increases your risk, a fair comparison would then be to move money in your 401(k) from stock to bonds to get the same risk level.)
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Re: Reduce retirement savings to paydown mortgage

Post by willthrill81 »

KlangFool wrote: Tue Sep 28, 2021 9:56 am
willthrill81 wrote: Tue Sep 28, 2021 9:51 am
Anyone who has 50x certainly has enough to retire right now.
willthrill81,

50X with pension and social security at 62 years old. It is not 50X current annual expense. And, the mortgage paid off at 60 years old. So, it is not certain that OP can retire now.

<<The biggest factor is our mortgage. We are on track to pay it off before 60, but it somewhat prevents my wife from retiring now (which she would love to do).>>

If OP can retire now, why would the mortgage matters?

KlangFool
Even if the OP's pension didn't begin for a decade, SS benefits would start no later than 8 years from now. So worst case scenario, the OP's portfolio is more than 40x. So the OP can certainly retire now.

Paying off the mortgage, as long as it can be done tax efficiently, both reduces sequence of returns risk, deleverages the OP's financial situation, and is likely to provide a higher guaranteed return than just about any other possible move.

grabiner has addressed the problems with your assumption that the immediate savings from tax-deferred contributions are equivalent to a mortgage interest rate. The only thing I will add is that with all of the OP's assets, pension, and SS benefits, it's very possible and maybe even likely that the OP will pay a higher tax rate in retirement than now. Remember that the taxation of SS benefits makes it difficult to remain in a low tax bracket.
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Re: Reduce retirement savings to paydown mortgage

Post by hand »

t_man wrote: Sun Sep 26, 2021 10:11 pm
The biggest factor is our mortgage. We are on track to pay it off before 60, but it somewhat prevents my wife from retiring now (which she would love to do).
Can you clarify how the mortgage prevents your wife from retiring now?

Is this because of a personal goal of paying off the mortgage before retirement?
Is this because of a financial issue where you won't be able to pay the mortgage if she retires?

With 50x, I would likely keep the mortgage (or better yet refinance into a new 30 year mortgage) and trust that the cheap safe leverage is likely to increase my overall returns, and will protect me from inflation in retirement.
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Re: Reduce retirement savings to paydown mortgage

Post by KlangFool »

willthrill81 wrote: Tue Sep 28, 2021 10:01 am
KlangFool wrote: Tue Sep 28, 2021 9:56 am
willthrill81 wrote: Tue Sep 28, 2021 9:51 am
Anyone who has 50x certainly has enough to retire right now.
willthrill81,

50X with pension and social security at 62 years old. It is not 50X current annual expense. And, the mortgage paid off at 60 years old. So, it is not certain that OP can retire now.

<<The biggest factor is our mortgage. We are on track to pay it off before 60, but it somewhat prevents my wife from retiring now (which she would love to do).>>

If OP can retire now, why would the mortgage matters?

KlangFool
Even if the OP's pension didn't begin for a decade, SS benefits would start no later than 8 years from now. So worst case scenario, the OP's portfolio is more than 40x. So the OP can certainly retire now.
willthrill81,

<<So worst case scenario, the OP's portfolio is more than 40x. >>

Let's assume that the pension and social security at 62 years old = 30K per year.

1.7 million = 50 (X - 30K)

50X = 3.2m

X = 64K

N = 1.7m/64K = 26.6

A better estimate would be OP is at around 25X of his current annual expense

<<Paying off the mortgage, as long as it can be done tax efficiently, >>

OP cannot. OP has to reduce 401K contribution in order to do this.

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Re: Reduce retirement savings to paydown mortgage

Post by willthrill81 »

KlangFool wrote: Tue Sep 28, 2021 10:30 amA better estimate would be OP is at around 25X of his current annual expense.
Even if that's accurate, the OP is still able to retire right now.
KlangFool wrote: Tue Sep 28, 2021 10:30 am OP cannot. OP has to reduce 401K contribution in order to do this.
As grabiner pointed out, we don't know how much, if any, tax arbitrage the OP might have in retirement. If the OP's current tax rate is 22% and will be paying 22% in retirement, there wouldn't be any arbitrage. And once SS benefits begin, tax arbitrage becomes even harder to achieve.
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Re: Reduce retirement savings to paydown mortgage

Post by t_man »

Dottie57 wrote: Mon Sep 27, 2021 8:10 pm
t_man wrote: Sun Sep 26, 2021 10:11 pm I've calculated our retirement 'budget' to the best of my abilities. Right now, we have more than 50x spending in our retirement accounts (factoring in SSN and a very small pension), we plan on retiring at 62.

The biggest factor is our mortgage. We are on track to pay it off before 60, but it somewhat prevents my wife from retiring now (which she would love to do).

The question is; should I reduce our retirement savings so we still get the 401k match and fully fund our Roth's and use the money to pay off the mortgage sooner? If the mortgage was paid off, I would tell my wife she can retire anytime she wants.
How did you factor in SS and pension. In your 50x expenses? How old are you now?
I used the SS estimator and the pension is fixed, no COLA. I'm currently 53, wife is 55
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Re: Reduce retirement savings to paydown mortgage

Post by t_man »

tashnewbie wrote: Tue Sep 28, 2021 9:27 am How big is your portfolio in terms of annual retirement expenses, without factoring in SS and pension?

How much do you have available in taxable accounts?

How much do you have in aggregate Roth IRA contributions?
Almost nothing in taxable accounts, just started that this year. I have about $200k in roths, we contribute the max each year. With out factoring in SS + pension, we currently have 25x expense
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Re: Reduce retirement savings to paydown mortgage

Post by t_man »

KlangFool wrote: Tue Sep 28, 2021 9:56 am
willthrill81 wrote: Tue Sep 28, 2021 9:51 am
Anyone who has 50x certainly has enough to retire right now.
willthrill81,

50X with pension and social security at 62 years old. It is not 50X current annual expense. And, the mortgage paid off at 60 years old. So, it is not certain that OP can retire now.

<<The biggest factor is our mortgage. We are on track to pay it off before 60, but it somewhat prevents my wife from retiring now (which she would love to do).>>

If OP can retire now, why would the mortgage matters?

KlangFool
I don't feel we could retire now (and I don't want too, wife is another story :happy ). I feel I can't really retire with almost all in taxable accounts, that's why I was thinking of lowering the contributions to use the excess to paydown mortgage and when that is done faster, my wife could retire sooner...
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Re: Reduce retirement savings to paydown mortgage

Post by Toons »

Please Pay Off The Mortgage
So Your Wife Can Retire
:happy :happy
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Re: Reduce retirement savings to paydown mortgage

Post by t_man »

KlangFool wrote: Tue Sep 28, 2021 10:30 am
willthrill81 wrote: Tue Sep 28, 2021 10:01 am
KlangFool wrote: Tue Sep 28, 2021 9:56 am
willthrill81 wrote: Tue Sep 28, 2021 9:51 am
Anyone who has 50x certainly has enough to retire right now.
willthrill81,

50X with pension and social security at 62 years old. It is not 50X current annual expense. And, the mortgage paid off at 60 years old. So, it is not certain that OP can retire now.

<<The biggest factor is our mortgage. We are on track to pay it off before 60, but it somewhat prevents my wife from retiring now (which she would love to do).>>

If OP can retire now, why would the mortgage matters?

KlangFool
Even if the OP's pension didn't begin for a decade, SS benefits would start no later than 8 years from now. So worst case scenario, the OP's portfolio is more than 40x. So the OP can certainly retire now.
willthrill81,

<<So worst case scenario, the OP's portfolio is more than 40x. >>

Let's assume that the pension and social security at 62 years old = 30K per year.

1.7 million = 50 (X - 30K)

50X = 3.2m

X = 64K

N = 1.7m/64K = 26.6

A better estimate would be OP is at around 25X of his current annual expense

<<Paying off the mortgage, as long as it can be done tax efficiently, >>

OP cannot. OP has to reduce 401K contribution in order to do this.

KlangFool
Please bear with me, I am new to this.... my pension + both SS @ 62 would be $55k/year (using the estimator). Right now, our annual expenses are about $75k/year, includes $21k/year on mortgage and $14k/year to roths.

If all my math is correct and I'm doing this all correctly (suspect!), I have determined with my wife that we would have about $83k/year total expense in retirement (no mortgage, no roth). Approx. $55k comes from SS + Pension, leaving approx. $29k/yr withdrawals. Our current taxable retirement assets are $1.7mil.
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Re: Reduce retirement savings to paydown mortgage

Post by t_man »

harikaried wrote: Mon Sep 27, 2021 3:10 pm
t_man wrote: Sun Sep 26, 2021 10:11 pmuse the money to pay off the mortgage sooner?
You've previously mentioned stretch IRAs. How much of the mortgage would those accounts cover? What's your income tax rates now?

And to be clear, your taxable accounts consist of emergency fund cash and no investments? How large is that with the potential of using some as without a mortgage, monthly expenses are reduced -> smaller required emergency fund.
One stretch IRA is small, $22k, has to be depleted in 4 years. The other would cover the mortgage, but both are taxable accounts.

My math/numbers does not include the emergency fund, we have 4x expenses in an online savings account, I generally prefer not to touch this unless there is, well, an emergency :happy
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Re: Reduce retirement savings to paydown mortgage

Post by t_man »

hand wrote: Tue Sep 28, 2021 10:16 am
t_man wrote: Sun Sep 26, 2021 10:11 pm
The biggest factor is our mortgage. We are on track to pay it off before 60, but it somewhat prevents my wife from retiring now (which she would love to do).
Can you clarify how the mortgage prevents your wife from retiring now?

Is this because of a personal goal of paying off the mortgage before retirement?
Is this because of a financial issue where you won't be able to pay the mortgage if she retires?

With 50x, I would likely keep the mortgage (or better yet refinance into a new 30 year mortgage) and trust that the cheap safe leverage is likely to increase my overall returns, and will protect me from inflation in retirement.
With what we currently pay on the mortgage, it would stretch us pretty thin to have her retire now and loose her full paycheck (I did give her the option to retire now anyway, or work at a reduced schedule, different low stress job, etc. but she doesn't feel she should do that).

We do have a personal goal to have it payed of before retirement, but that is not a deal breaker by any means.

I think the real issue (for me anyway) is we can't really use the retirement savings in taxable accounts to pay it down now, I really don't want to use the Roth to do it, but we could if we had too. I could use a taxable stretch IRA, but that would also incur taxes.

The simplest solution, at least to me, was to lower our contributions to the low end and use that money to pay off the mortgage. Doing this, by my math, will not change our tax bracket (but it does change the taxes, I know).
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t_man
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Re: Reduce retirement savings to paydown mortgage

Post by t_man »

Toons wrote: Wed Sep 29, 2021 4:40 pm Please Pay Off The Mortgage
So Your Wife Can Retire
:happy :happy
yup, thanks my goal and it will certainly extender her life with the stress of her current job gone!
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Re: Reduce retirement savings to paydown mortgage

Post by KlangFool »

t_man wrote: Wed Sep 29, 2021 4:51 pm
Please bear with me, I am new to this.... my pension + both SS @ 62 would be $55k/year (using the estimator). Right now, our annual expenses are about $75k/year, includes $21k/year on mortgage and $14k/year to roths.

If all my math is correct and I'm doing this all correctly (suspect!), I have determined with my wife that we would have about $83k/year total expense in retirement (no mortgage, no roth). Approx. $55k comes from SS + Pension, leaving approx. $29k/yr withdrawals. Our current taxable retirement assets are $1.7mil.
t_man,

<<Right now, our annual expenses are about $75k/year, includes $21k/year on mortgage and $14k/year to roths. >>

That means your current annual expense is 75K - 14K (Roth) = 61K per year.

<<$21k/year on mortgage>>

How much of that is property tax and house insurance? They do not go away even if you pay off the mortgage. Let's assume that is 5K per year.

Then, your actual annual expense with mortgage is 61K per year.

Then, your actual annual expense without mortgage is (61K -16K) = 45K per year.

<<I have determined with my wife that we would have about $83k/year total expense in retirement (no mortgage, no roth)>>

Please explain how do you get from 61K per year to 83K per year. 40% or more the inflation is on housing. You owned your house. Hence, that part of inflation probably does not affect you.

<<Approx. $55k comes from SS + Pension, leaving approx. $29k/yr withdrawals. Our current taxable retirement assets are $1.7mil.>>

Please explain why you cannot retire with 1.7 million now. Whether you pay off the mortgage does not matter.

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Re: Reduce retirement savings to paydown mortgage

Post by Dottie57 »

t_man wrote: Wed Sep 29, 2021 4:34 pm
Dottie57 wrote: Mon Sep 27, 2021 8:10 pm
t_man wrote: Sun Sep 26, 2021 10:11 pm I've calculated our retirement 'budget' to the best of my abilities. Right now, we have more than 50x spending in our retirement accounts (factoring in SSN and a very small pension), we plan on retiring at 62.

The biggest factor is our mortgage. We are on track to pay it off before 60, but it somewhat prevents my wife from retiring now (which she would love to do).

The question is; should I reduce our retirement savings so we still get the 401k match and fully fund our Roth's and use the money to pay off the mortgage sooner? If the mortgage was paid off, I would tell my wife she can retire anytime she wants.
How did you factor in SS and pension. In your 50x expenses? How old are you now?
I used the SS estimator and the pension is fixed, no COLA. I'm currently 53, wife is 55
Do you subtract SS and pension from expenses? Or do you use present value of those items.
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Re: Reduce retirement savings to paydown mortgage

Post by harikaried »

t_man wrote: Wed Sep 29, 2021 4:54 pmOne stretch IRA is small, $22k, has to be depleted in 4 years. The other would cover the mortgage, but both are taxable accounts.
Do you expect to pay different tax rates over the next 4 years? If all distributions are taxed at the same rate anyway, you could pay the taxes now. This could be instead of reducing 401k contributions, which then effectively shifts the retirement money to a longer depletion timeline.

If you're concerned about not having the money invested, whatever you sell from the stretch IRAs could be repurchased in say the 401k by exchanging from bonds/cash, so the net effect is you sell low yielding positions to pay down debt with higher interest rates.
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Re: Reduce retirement savings to paydown mortgage

Post by cchrissyy »

t_man wrote: Wed Sep 29, 2021 5:02 pm The simplest solution, at least to me, was to lower our contributions to the low end and use that money to pay off the mortgage. Doing this, by my math, will not change our tax bracket (but it does change the taxes, I know).
This sounds fine

i don't know how much of your total income is from each one of you, but, when she stops working, perhaps you will be in a lower marginal rate and therefore the value of contributing to your 401k is less than it used to be.
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Re: Reduce retirement savings to paydown mortgage

Post by dknightd »

harikaried wrote: Wed Sep 29, 2021 5:47 pm
t_man wrote: Wed Sep 29, 2021 4:54 pmOne stretch IRA is small, $22k, has to be depleted in 4 years. The other would cover the mortgage, but both are taxable accounts.
Do you expect to pay different tax rates over the next 4 years? If all distributions are taxed at the same rate anyway, you could pay the taxes now. This could be instead of reducing 401k contributions, which then effectively shifts the retirement money to a longer depletion timeline.

If you're concerned about not having the money invested, whatever you sell from the stretch IRAs could be repurchased in say the 401k by exchanging from bonds/cash, so the net effect is you sell low yielding positions to pay down debt with higher interest rates.
This is probably what I’d do. Those Ira have to be depleted soon. Why not use those funds to pay of mortgage.
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Re: Reduce retirement savings to paydown mortgage

Post by willthrill81 »

t_man wrote: Wed Sep 29, 2021 4:51 pm Please bear with me, I am new to this.... my pension + both SS @ 62 would be $55k/year (using the estimator). Right now, our annual expenses are about $75k/year, includes $21k/year on mortgage and $14k/year to roths.

If all my math is correct and I'm doing this all correctly (suspect!), I have determined with my wife that we would have about $83k/year total expense in retirement (no mortgage, no roth). Approx. $55k comes from SS + Pension, leaving approx. $29k/yr withdrawals. Our current taxable retirement assets are $1.7mil.
Why are you worried about withdrawing $29k annually from a $1.7m portfolio? That's a 1.7% withdrawal rate, nearly half the historic perpetual withdrawal rate. Even with 0% real returns, you could fund that expense for nearly 59 years. If your numbers are accurate, you can certainly retire right now. Whether your pension has a COLA or not is irrelevant with such a low withdrawal rate.

I'm not trying to be rude at all, but this isn't a situation where you 'feel' whether you can retire or not; it's mostly a math problem, and the math says that you're clearly good to go.
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Re: Reduce retirement savings to paydown mortgage

Post by faustinebastien01 »

If you’ve got 50x already saved, then your plan to pay off your mortgage earlier sits just right. It would also help your wife retire sooner. Good luck mr.
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t_man
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Re: Reduce retirement savings to paydown mortgage

Post by t_man »

Thank you for all the advice, seems like I'm on the right track and have a decent idea at least. I'll accelerate the mortgage payoff and accelerate the taxable account inventing.
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Re: Reduce retirement savings to paydown mortgage

Post by ruralavalon »

t_man wrote: Thu Sep 30, 2021 8:44 am Thank you for all the advice, seems like I'm on the right track and have a decent idea at least. I'll accelerate the mortgage payoff and accelerate the taxable account inventing.
In my opinion that is a good decision :D
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Re: Reduce retirement savings to paydown mortgage

Post by harikaried »

t_man wrote: Thu Sep 30, 2021 8:44 amaccelerate the taxable account investing
You seem to be using "taxable account" in different ways:
t_man wrote: Wed Sep 29, 2021 4:37 pmAlmost nothing in taxable accounts, just started that this year
vs
t_man wrote: Wed Sep 29, 2021 4:40 pmI feel I can't really retire with almost all in taxable accounts
The former I believe you're using it in the "usual" sense of a regular taxable brokerage account where you pay dividends and capital gains taxes. The latter it seems like you're referring to non-Roth accounts retirement accounts where you pay ordinary income taxes on distributions.

To be clear, you do not need to reduce retirement savings because you can pull from your stretch IRAs as you would likely be pulling out money at the same tax rate anyway especially for one that needs to be emptied within 4 years. It sounds like you were concerned about early withdrawal penalties, but there's different rules for inherited and you haven't been paying penalties for the stretch.
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Re: Reduce retirement savings to paydown mortgage

Post by alfredwallace »

At 50x expenses saved, you have to solve the problem of how to increase your retirement expenses. :D
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Re: Reduce retirement savings to paydown mortgage

Post by willthrill81 »

harikaried wrote: Thu Sep 30, 2021 9:31 am
t_man wrote: Thu Sep 30, 2021 8:44 amaccelerate the taxable account investing
You seem to be using "taxable account" in different ways:
t_man wrote: Wed Sep 29, 2021 4:37 pmAlmost nothing in taxable accounts, just started that this year
vs
t_man wrote: Wed Sep 29, 2021 4:40 pmI feel I can't really retire with almost all in taxable accounts
The former I believe you're using it in the "usual" sense of a regular taxable brokerage account where you pay dividends and capital gains taxes. The latter it seems like you're referring to non-Roth accounts retirement accounts where you pay ordinary income taxes on distributions.

To be clear, you do not need to reduce retirement savings because you can pull from your stretch IRAs as you would likely be pulling out money at the same tax rate anyway especially for one that needs to be emptied within 4 years. It sounds like you were concerned about early withdrawal penalties, but there's different rules for inherited and you haven't been paying penalties for the stretch.
That's an astute observation, and I believe that you're correct that the OP is incorrectly referring to tax-deferred accounts as taxable accounts.

I don't think that tax-deferred accounts are as bad as all that in retirement. At the OP's age, he and his wife could retire now and begin doing Roth conversions at least until they start SS benefits.
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t_man
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Re: Reduce retirement savings to paydown mortgage

Post by t_man »

alfredwallace wrote: Thu Sep 30, 2021 9:38 am At 50x expenses saved, you have to solve the problem of how to increase your retirement expenses. :D
I doubt I will have an issue with that (I hope) but I think it will be a struggle at first to go from saver to spender...
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t_man
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Re: Reduce retirement savings to paydown mortgage

Post by t_man »

willthrill81 wrote: Thu Sep 30, 2021 9:48 am
harikaried wrote: Thu Sep 30, 2021 9:31 am
t_man wrote: Thu Sep 30, 2021 8:44 amaccelerate the taxable account investing
You seem to be using "taxable account" in different ways:
t_man wrote: Wed Sep 29, 2021 4:37 pmAlmost nothing in taxable accounts, just started that this year
vs
t_man wrote: Wed Sep 29, 2021 4:40 pmI feel I can't really retire with almost all in taxable accounts
The former I believe you're using it in the "usual" sense of a regular taxable brokerage account where you pay dividends and capital gains taxes. The latter it seems like you're referring to non-Roth accounts retirement accounts where you pay ordinary income taxes on distributions.

To be clear, you do not need to reduce retirement savings because you can pull from your stretch IRAs as you would likely be pulling out money at the same tax rate anyway especially for one that needs to be emptied within 4 years. It sounds like you were concerned about early withdrawal penalties, but there's different rules for inherited and you haven't been paying penalties for the stretch.
That's an astute observation, and I believe that you're correct that the OP is incorrectly referring to tax-deferred accounts as taxable accounts.

I don't think that tax-deferred accounts are as bad as all that in retirement. At the OP's age, he and his wife could retire now and begin doing Roth conversions at least until they start SS benefits.
Yeah, I'm likely using improper terms. I think of taxable brokerage accounts as taxable, 401k as tax-deferred. Both really are taxable.

I think I will slowly draw down the stretch IRA's to payoff the mortgage. I want to try to not change tax brackets, but if I do, it's a 2% change.
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Re: Reduce retirement savings to paydown mortgage

Post by willthrill81 »

t_man wrote: Thu Sep 30, 2021 7:45 pm
willthrill81 wrote: Thu Sep 30, 2021 9:48 am
harikaried wrote: Thu Sep 30, 2021 9:31 am
t_man wrote: Thu Sep 30, 2021 8:44 amaccelerate the taxable account investing
You seem to be using "taxable account" in different ways:
t_man wrote: Wed Sep 29, 2021 4:37 pmAlmost nothing in taxable accounts, just started that this year
vs
t_man wrote: Wed Sep 29, 2021 4:40 pmI feel I can't really retire with almost all in taxable accounts
The former I believe you're using it in the "usual" sense of a regular taxable brokerage account where you pay dividends and capital gains taxes. The latter it seems like you're referring to non-Roth accounts retirement accounts where you pay ordinary income taxes on distributions.

To be clear, you do not need to reduce retirement savings because you can pull from your stretch IRAs as you would likely be pulling out money at the same tax rate anyway especially for one that needs to be emptied within 4 years. It sounds like you were concerned about early withdrawal penalties, but there's different rules for inherited and you haven't been paying penalties for the stretch.
That's an astute observation, and I believe that you're correct that the OP is incorrectly referring to tax-deferred accounts as taxable accounts.

I don't think that tax-deferred accounts are as bad as all that in retirement. At the OP's age, he and his wife could retire now and begin doing Roth conversions at least until they start SS benefits.
Yeah, I'm likely using improper terms. I think of taxable brokerage accounts as taxable, 401k as tax-deferred. Both really are taxable.

I think I will slowly draw down the stretch IRA's to payoff the mortgage. I want to try to not change tax brackets, but if I do, it's a 2% change.
The two should not be labeled the same way as the tax implications for both are completely different.

I think that you're plan to payoff the mortgage over time makes good sense.
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harikaried
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Re: Reduce retirement savings to paydown mortgage

Post by harikaried »

t_man wrote: Thu Sep 30, 2021 7:45 pmI want to try to not change tax brackets, but if I do, it's a 2% change
As in you're currently in 10% tax bracket and might bump up to 12% if you withdraw more from your stretch IRA? If so similar to someone's suggestion of doing Roth conversions (i.e., pay 10%-12% tax now to withdraw tax free vs potential future 22%+ marginal tax or interactions with Social Security), you could also do some Tax gain harvesting even if your taxable brokerage account is small as your long term gains are 0%.
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Re: Reduce retirement savings to paydown mortgage

Post by CurlyDave »

hand wrote: Tue Sep 28, 2021 10:16 am
...With 50x, I would likely keep the mortgage (or better yet refinance into a new 30 year mortgage) and trust that the cheap safe leverage is likely to increase my overall returns, and will protect me from inflation in retirement.
+1

Refinance now into a new fixed rate mortgage and then your wife can retire. You probably need her income to get the best rate on a refinance. Fixed rates over 30 years are as low as 2.5%. I have a lot of difficulty envisioning less than 2.5% return from a portfolio. And it is a nominal return not even inflation adjusted since the mortgage is fixed.
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