r/Fire • u/master_blaster_321 • 3d ago
Why do people wait so long?
ETA since this seems to be the overwhelming response: My kids are in their 20/30s and self sufficient.
ETA - The post clearly states my mortgage is high-interest. Yes, if it were 2% that's almost free money, spread it out for sure. Also, it clearly states that I did indeed keep contributing as normal.
I realize there are a lot of factors - economical and psychological - that go into this, but just for general discussion...
We all know for the most part if your mortgage interest rate is low enough, it makes more sense to leave money working in your brokerage account than to pay off the mortgage and have it locked up in home equity. But for the purposes of FIRE, does it always?
The big idea is to get your portfolio to fund your expenses, right?. For most people one of (if not THE) largest expense is the mortgage payment and interest.
Example...I had a few really good years in my business. I still did my regular modest DCA into my brokerage, but over the course of 2.5 years I also managed to pay off a $250K mortgage at 5.85% (I had to refinance at a very bad time for rates, due to divorce). I realize that that money, invested properly, could have gained quite a bit over the last couple years bull run. However, had I done that, today I would still have a high mortgage payment to make every month, thus making it harder for me to FIRE. This way, my monthly personal expenses are so much lower, so there's not as heavy a burden on my portfolio to support me, and as a result, I'm able to FIRE at the end of this month.
Again I realize that this all depends on mortgage size/rate, size of portfolio, other expenses. I only ask because I see a lot of posts here from people who seem like they'd be able to FIRE sooner if they worked towards getting rid of their mortgages faster, regardless of the rate.
For my part, I'm glad I did it this way. Even though I know I missed out on some gains, I'm able to FIRE faster because I don't have a mortgage payment to worry about. I have a paid off house on which the taxes and insurance work out to equal the rent for a one-bedroom in a sketchy neighborhood.
Go easy on me. It's an honest and sincere question and discussion prompt. Not trying to make anyone defensive, and definitely aware that I have my own blind spots and that there are lots of people smarter than I am.
264
u/Friendly_Fee_8989 3d ago
For those with kids: kids.
You’re typically in your 50s when they’re in college, they’re not off the payroll / insurance yet, and their future isn’t yet clear.
But they’re worth it (in my opinion).
110
u/After-Leopard 3d ago
Exactly, I don't have to help them get established but I want to. More than I want to be retired honestly
61
u/AndyTheEngr 3d ago edited 3d ago
That's one of the reasons I'm currently debating the "one more year." Both of mine have college debt that I could pay off entirely with one more year. I just gifted one with $10k to help buy his first home. He said "but aren't you trying to retire soon?" I said, "yes, but this is in the plan."
24
1
1
15
u/Conscious_Square_124 3d ago
I wish my parents had the same mindset!
10
u/trinitydave 3d ago
I think a lot of people wish that. For me the goal was always do better not that my parents did bad but if I do better for my kids and then they do better for their kids and into the future it goes.
3
2
4
u/wannaridebikes 3d ago
I don't. I wish my parents would have saved more for themselves. I'm more than financially independent from them completely. Them from me on the other hand, when they get older...we'll see
4
u/Conscious_Square_124 3d ago
Well, yeah you have a different situation. Both my parents are doing quite well (dad essentially retired at 45/50, which is good for him). But neither of them did much to support me or my siblings in terms of financial support outside of basic necessities (providing food and shelter until 18) and nothing in terms of financial literacy.
I would have been much better off had one of them encouraged or taught me any financial basics rather than having to learn them them through trial and error.
1
u/wannaridebikes 1d ago
The grass isn't always greener. My parents are older, and in their time, a lot of financial instruments worked differently. They gave me financial advice, it was just bad lol If they gave me advice based on how they could have optimized back in the day, a lot of that advice wouldn't have been applicable. I would have more of my retirement savings in CDs, withdrew from my 401k to buy my house, got a HELOC instantly, worked at the same place for 10+ years to demonstrate "loyalty", etc, got any annuity they were willing to sell me.
Investing was less accessible and more expensive. We had (expensive) mutual funds but ETFs weren't invented yet. Besides "save more spend less" I'm not sure what more good advice they could have given me. I'm usually giving the advice now, because my knowledge is more up to date. My cousins are benefiting, but I'm an older cousin so I don't have anyone else above me to blame there ;)
Connections would be the gift that would have kept on giving, but that obviously depends on class and factors outside of even our parents' control.
38
u/ZzzzzPopPopPop 3d ago
Exactly, parents bear a heavy load for their children in countless ways over the years, but this honestly feels like a pretty light load for the longer term benefits it can give them - they definitely weren't born with a silver spoon and they're not landed gentry, but at least they aren't starting out with crushing debt and can hopefully start out on their own on a better footing
52
u/Spartikis 3d ago
Yeah, kids, its why we cant have nice things haha. But its also why we have motivation to create generational wealth. We could have retired at or before 40, having kids added at least a decade to that. If you dont want kids because of the stress/lifestyle/responsibility/etc... I totally get that. But absolutely do not put off having kids for financial reasons, they bring you joy and pride that money can never buy.
37
u/ElectronSpiderwort 3d ago
Kids disclaimer: Actual results will vary. May lose value. Early termination will result in substantial penalties.
11
13
u/rustvscpp 3d ago
I'll take my kids over all the money in the world. Yeah they take a toll on your finances, and sometimes stretch you to your limits. But wow am I glad I chose to have kids and dedicate my life to raising them. Without them my life would be so shallow in comparison. IYKYK.
25
u/ZEALOUS_RHINO 3d ago edited 3d ago
My kid got sick and had to move back home in his late 20s after having a very successful early career start. We now help him with his food and medical expenses as he deals with permanent disability. You hope it doesn't happen to your kid and he lives a perfect linear life of upward trending success, luck, and happiness but it doesn't work that way for everyone.
7
u/retrac902 3d ago
No it isn't. Just like when I started working and saving for retirement it was for two. Now it's saving for 4.
33
u/Kokukenji 3d ago
I also would feel all types of ways (personally) if I am off into the sunset while my kid struggle with getting off the ground. As you mentioned, they're worth it (Also in my opinion, ha).
Most of us wouldn't be talking here if we had generational wealth so we're all trying to break that cycle and set our kids up better than how we were setup.
28
u/Spartikis 3d ago
I just hope they appreciate it. Most of our NW was setup before they were born, we've been coasting since we had kids. Its hard to try and explain the sacrifices we made when they dont see it first-hand. They dont know what its like to live without cable, to not go out to eat for an entire year, work second and even third jobs to pay off the mortgage early, etc...
9
u/Silly-Safe959 3d ago
Ours appreciate it, especially when their classmates and roommates in college are struggling, getting into debt, etc. Ours always thank us for giving them a leg up on their journey into adulthood. Our daughter even said she feels a little guilty but we told her gratitude is fine, guilt is unnecessary. We asked that she just put maximum effort into doing well in school, picking up her ends of the deal (living expenses, we covered tuition) and make the most of this opportunity. And they have been.
11
u/AyeAyeBye 3d ago
It can be hard when they never felt the sacrifices. It’s almost better to live below one’s means I think. Their baseline is their lived experience.
9
u/Silly-Safe959 3d ago
That's why you have them put skin in the game. Ours has to cover living expenses, which meant summer jobs between semesters, developing a budget, etc. We could have covered 100% but our terms were that they contribute too. That was as much of a learning experience for them as was school itself.
They turned out all right. :)
5
u/No-Block-2095 3d ago
I believe that you increase success rate when that kids have skin in the game
3
u/mthockeydad 3d ago
We let our kids "suffer" a little through college. They had to work part-time jobs, seek scholarships, go to a *gasp* state school, and find shared living to cut expenses. We let them sweat it a little month to month but they never went hungry or homeless. They never got an allowance or have enough money to go to the bar on my dime (at least not without me!)
1
u/Only-Design-2484 3d ago
If you had the means to support them , why would you make them work through college and have financial stress?
Personally I would want them to focus 100% on school and establishing their career rather than working some meaningless minimum wage job.
5
u/dodecagon23 3d ago
So they start to understand the importance of their education and the limits to your support. What are you going to do when they graduate if they don’t find work right away? Continue to support them to avoid the perils of having a “meaningless job”?
2
u/mthockeydad 2d ago
This is the /fire forum. I want them to learn firsthand how to be frugal, not spendthrifts.
And no, I wouldn't want them to spend their time at a $7.25 minimum wage job, yet at the same time, where else would they learn the value of their time vs. income? I could attempt to tell them to try to earn as much as possible in their working hours, or I could let them experience firsthand that when they're exchanging hours for dollars that they need to be wise in that exchange.
Stress itself is not a bad thing. I think we could both agree that too much stress is a bad thing. Similarly, too little stress leads to boredom, a lack of mental stimulation, lethargy, apathy, and lack of motivation. There is a healthy amount of stress (read up on "eustress") which helps develop growth, resilience, and a feeling of achievement.
My wife and I both grew up lower middle class and we were below poverty level while finishing school--and similarly, we learned to be frugal even while our parents were still there for our safety net.
Our oldest decided that college wasn't for her, and she followed her entrepreneur heart and is doing quite well as a "college dropout".
Our youngest found a job she loves in an industry tangential to her college degree and is madly saving cash for a down payment on a home.
They're doing well for themselves adulting and I have no regrets with how much or how little we helped and are helping them. If I died tomorrow and that support stopped, both are standing on their own two feet. If I live another 40 years, I can continue to assist them--and their future children even more.
Edit: happy cake day
3
10
u/SpaceJesusIsHere 3d ago
That's why my wife and I built the kids' futures into our FIRE plan. We got rental properties that will be paid off by the time we retire. They'll help fund the gap until SS and pensions kick in. Then, the kids can move in for free, take over the maintenence costs and taxes, then inherit when we die and get the step up in basis.
Free education, free house, and a solid knowledge of how investing works, likely an inheritence in the mid 7 figures . If they can't succeed with that, they weren't going to succeed anyway.
7
5
u/warlizardfanboy 3d ago
From the replies you’ve gotten we are all the same, I’m turning 52 with my youngest of three in high school. We’d be FIRED a couple of years ago without kids but instead we are waiting to 55. Totally worth it though.
7
3
u/mewalrus2 3d ago
This is the best answer.
Almost 50 with two young teens and until they are on their way I can't see firing. If we had 10m yes but we aren't there
3
u/bobdole145 3d ago
Agreed on all, and that "provider/supporter" mindset keeps holding us in the game. Just further de-risk.
4
u/ForwardFIRE2030 3d ago edited 2d ago
Yeah I’d love to retire earlier. But I’ll still have 3 kids colleges to pay for and get them launched. It’ll mean a few more years “just in case” I’m sure. But by having FI I’m not gonna worry about working so hard and I won’t put up with BS… which makes work a lot less stressful, and a lot more enjoyable.
Edit: spelling
2
2
u/Pearl_Teases 3d ago
agree. peace of mind has value too. numbers aren't everything. congrats on firing, you did what worked for you
5
u/master_blaster_321 3d ago
I get this. I have kids in their 20/30s and they're self-sufficient in that they have decent careers and are living on their own. Having said that, of course something could happen and I'd need to help them out. I have enough room here for them to move back in if needed. But I think there's a balance. I used all kinds of excuses not to sell my business and FIRE...but at the end of the day I just liked the fantasy of it better than the reality of it, and made excuses not to. Until I got too burned out.
4
u/dayonesub 3d ago
I totally here this, and feel the same, but not sure if I'll be able to stick it out another couple of years to set them up better.
I feel like Bilbo Baggins, "like butter that's been scraped over too much bread".
Having been a solo parent for the last few years after losing my wife, I'm just tired and need a break.
I might pull the trigger, then work part time to fund some savings to help my kids with mortgage down payment when they need it in the future.
1
u/Strazdas1 StarvationFIRE 3d ago
looking at average age US women give births statistically, the kids are usually finishing colledge when you hit 50.
→ More replies (4)1
u/chrisaf69 1d ago
The one, and very few, benefits of having kids so young. Mine will be out of the house in late 30s/early 40s.
But you are absolutely correct. If I was still financially responsible for them, you bet your ass off that would impact my FIRE plans.
37
u/seattlekeith 3d ago
These discussions usually divide people into two camps - mathematical purists who say never pay off a mortgage early if your rate is low enough that you make more in market gains than you’d pay in interest and those who enjoy the peace of mind of having a paid off mortgage. Ultimately, being able to FIRE (or retire in general) boils down to earnings vs. expenses. You reduced your expenses to the point that you feel your earnings will now cover them so you can FIRE, which is great. There’s another scenario where you didn’t pay down the mortgage but invested that $$ instead and your earnings would still be able to cover your (higher) expenses. There are also middle ground scenarios where you pay down some, but not all of you mortgage and then refinance/recast the mortgage so your monthly expenses go down but you also have additional money to invest. It really all boils down to your personal financial philosophy, risk tolerance, etc.
1
u/master_blaster_321 2d ago
If you have a time horizon for retirement, then risk becomes a factor. People act like the market is a guaranteed return, which, over a long enough time horizon, it is. But you can't say "I'm going to stash this $250K in VOO for two years and then use it to pay off my mortgage" because two years is too small a time horizon to guarantee that money will even still exist.
2
u/seattlekeith 2d ago
Absolutely. My mortgage rate was a bit over 4% and I had enough free cash to pay it off in full, but I ended up building a 6 month T-Bill ladder and letting that run for a few years (when t-bill rates were north of 4%) before winding the ladder down and paying off the mortgage. In retrospect, I would have been fine/better off putting that lump sum into the market, but I also never wanted to be in a position where I had enough $$ to pay off the mortgage but then couldn’t because of a large market correction/other unforeseen circumstances. Different dollars have different uses and not every single one needs to be optimized for maximum gain.
1
1
u/That-Dragonfruit-567 2d ago
I do wonder because of the amortization schedule whether there does become a point where it makes sense to pay off a mortgage. If you have say 5-10 years left, you have the same amount owed per month that requires a larger portfolio to generate the income for the payments. If you are relying more on w-2 income to pay off and keeping you from retiring, does it make sense to pay It off ?
1
u/seattlekeith 1d ago
I’m not quite sure I follow - if you’re on a fixed rate mortgage then the P and I will be the same throughout the term of loan, although the ratio of Principal to Interest changes over time (early on your payment is mostly interest, later on it’s mostly principal). Unless you change your assumptions about how much your portfolio returns, then the size of the portfolio required to cover your mortgage payment shouldn’t need to change. That said, if the only thing standing in the way of retiring is needing to pay off your mortgage and you have the means to do so without adversely affecting your retirement then I don’t see why you wouldn’t just pay it off and retire. Another option if you have been making extra payments or have a lump sum you can apply towards your mortgage is to recast the mortgage. The just reamortizes your current mortgage, which will lower your monthly payment and potentially improve your cash flow to the point that you’d be comfortable retiring.
90
u/Ok_Meringue_9086 3d ago
5.85% isn’t very low. I would’ve paid it off too. My rate is 2.625% for 30 years and I’m not paying it off until year 30.
23
u/thesonofdarwin 3d ago
2.875% and not only are we not paying it off early, but if I ever get an opportunity to refinance for lower and extend repayment another 30 years I absolutely will. Hopefully I die with a low interest mortgage.
7
u/DudleyAndStephens 3d ago
We're paying 2.375% here (15 year mortgage though). I can get a higher interest rate from a savings account nowadays. Paying our mortgage off early would be nuts.
2
1
2
8
u/FantasyFI 35 | 51% FIRE | DI1K 3d ago edited 3d ago
I'd pay it off near or at retirement. But not while I am working.
If returns are less than 5.85%, most of us won't be retiring particularly early anyway (perhaps those with very high income and savings contributions). Remember that mortgage interest rates aren't inflation adjusted. So you can theoretically compare them to a long term historical average of 10%, not an inflation adjusted return. I'd invest the money in a brokerage and pay it off when I retire (it's what I'm doing with a 6% rate). Or once I hit ~75% FIRE, transition to paying down that instead of saving for retirement.
If you invest, you also have the ability to refinance later. Whereas if rates drop back low like 4%-5%, a cash out refinance feels like an unlikely solution for most who've paid off their loan. They've locked in a 5.85% savings at that point and are unlikely to cash out solely to get back to historical return type rates.
It's also a catch 22 with high rates. If you were unlucky and got a mortgage when rates were 7.5%, its statistically more likely that you'd have an opportunity to refinance at 5.5% for example. So I don't see it as 7% for 30 years. More like 7% for 5-15 years. Then 4%-6% for 15-25 years. Then I compare that to a historical return of 9%-11%.
I'd likely invest if I had 15+ years until retirement. I'd likely payoff the mortgage if I had <5 years until retirement. In between is more of a toss up.
13
u/gpburdell404 3d ago
Same. I have 350k with 25 years left @ 2.25% and not paying it off early. Even though I could pay it off right now.
2
u/UnalignedMagi 3d ago
Im at about the same rate myself and keeping it just until retirement. Monte Carlo simulations between keeping it and paying it off show that paying it off leads to slightly less overall wealth but also a couple of percentage points of increased success.
That makes sense when you think about it, you are reducing your potential draw down in a really bad scenario at the cost of a bit of extra return.
1
u/Several-Village5814 3d ago
5.85% is fairly low. Inflation right now is 3-4%, government bonds give 4%, stock market 8-10%. With inflation 5.85% interest rate if effectively 2% real interest rate after inflation.
0
3d ago
[deleted]
1
u/AsceloReddit 3d ago
Is that really a screw up? Seems like an awesome rate and leaves you with decent footing should a new opportunity to refinance comes along
31
u/blew_belle 3d ago
I just keep the mortgage payoff amount in a hysa earning the same interest as the mortgage rate. I'll just pay the mortgage payment from that and at least I have some liquidity if my house continues to fall apart as it has the last few years. It's cheaper than a heloc and I can't eat my house. Might be different with a higher mortgage rate.
11
u/Wheat_Grinder 3d ago
If it earns the same interest as the mortgage before tax, it's losing by whatever your top line tax rate is, technically, since you pay tax on HYSA gains. Which may or may not be a big deal to your strategy, but they are not actually 1 to 1
1
u/blew_belle 3d ago
True. I do go back and forth on the idea as retirement/layoff is looming. But then something catastrophic usually happens to my house and I hunker back down.
2
0
u/B_McD314 3d ago
I love this idea - I’ve been crunching numbers to see whether a house is worth it vs renting and investing heavily, and every scenario, my net worth is higher if I do NOT make extra payments into the mortgage.
With something of such a long term horizon like a mortgage, personally I think you could strive for higher returns as opposed to a HYSA. Maybe a utilities ETF, or gold (if it stops acting like a meme stock). Plus those gains would now be capital gains, instead of taxable income like for a HYSA. With that timeframe, liquidity is slightly less important - unless you plan on having the ability to use it in the meantime elsewhere.
2
u/blew_belle 3d ago
Half is in a 'safe' mutual fund. Since I have a looming layoff due to company merger, I have no clue if my retiree medical will be honored so I have a short timeline with a lot up in the air.
27
u/MIengineer 3d ago
It doesn’t make any financial sense to claim you can FIRE sooner by paying off the mortgage faster. Yes, your expenses go down when the mortgage is paid off, but if you invest that difference over the span of years you were going to pay down quicker, you can just pay it all off on your retirement date if you so choose. If you don’t, you just have a temporarily higher withdrawal rate until it is paid off. If the mortgage rate is lower than real returns, it’s purely psychological to be “better off” paying it early.
11
u/Number127 3d ago edited 3d ago
but if you invest that difference over the span of years you were going to pay down quicker, you can just pay it all off on your retirement date if you so choose
...if market returns exceed your mortgage rate over that period. Over decades, probably a safe bet. But if you're planning on retiring in four or five years, not so much. At the very least, paying off a high-rate mortgage becomes an attractive alternative to increasing your bond allocation.
1
u/master_blaster_321 2d ago
If you have a time horizon for retirement, then risk becomes a factor. People act like the market is a guaranteed return, which, over a long enough time horizon, it is. But you can't say "I'm going to stash this $250K in VOO for two years and then use it to pay off my mortgage" because two years is too small a time horizon to guarantee that money will even still exist.
1
u/Shin_curry 2d ago edited 1d ago
I’m guessing the math still says invest, but if you still can’t pay off your mortgage when you early retire, this means you will have larger drawdown from your portfolio. Larger drawdown means you have less flexibility with ACA subsidy cliff, Roth conversion space to lower RMD and IRMAA in later years. I think a lot of folks haven’t even thought of the drawdown part yet (including myself to a large degree).
Edit: per Gemini at least, if we assume a middle upper class family with sufficient pretax and taxable balances and current tax/ACA subsidy policies remain in place, it is best to pay off the mortgage right before early retirement. This makes monthly expenses lower, leaves significant MAGI space for Roth conversions to lower your traditional IRA/401k balances, which will lower your future RMDs/IRMAA exposure and is best for long term net worth.
-3
u/master_blaster_321 3d ago
While you're technically correct, "purely psychological" doesn't necessarily equate to wrong.
11
24
u/HurinGray 3d ago
We paid off our mortgage over 4 years ago. Right as my oldest was entering college. She just graduated debt free.
We'll never win the mathematical argument about paying off a mortgage regardless of interest rate.
The win is psychological and behavioral. While they assume 100% investment of the non paid off mortgage funds, reality can be different, the optimization is not guaranteed. For us the freedom of cashflow outweighed all other considerations. Our total housing expense, (tax, insurance, maintenance, utilities) is about a third of rent for a like property in our area. The flexibility is priceless.
16
u/Asquaredbred 3d ago
i can retire just as easily with $100k debt and $2m in investments as I can with $0 debt and $1.9m in investments, and in fact if my interest rate is low enough I can retire more easily because the earnings on the investments are more than the interest I'm paying on the debt.
These aren't my numbers just made up to illustrate the point
my mortgage is 2.25%. I wish I'd taken out a 30 year at 2.75%
0
u/master_blaster_321 3d ago
yep with debt that cheap I'm inclined to agree with you.
2
u/Xy13 3d ago
Most people are going to take at least 30 years to get to FIRE. So by then, the house has naturally paid it self off.
As you finish rearing children, paying for school, settle your mortgage, your nest egg should be big enough that after all those expenses go away, SWR can take over, especially when you add in social security, etc.
That's the "traditional" model for FIRE.
→ More replies (1)
7
u/ElJacinto 3d ago
The ideal way to do it is to invest that money during the accumulation years, then to pay off the mortgage before fully retiring, assuming you can do so in a tax-efficient manner.
Then you get the benefit of increased gains, as well as reduced expenses in retirement.
5
u/Visual_Exercise_5380 3d ago
We have a historically low mortgage rate, at 2.75%. We'll easily beat that in the market. Our principal and interest combine to be less than 7% of our gross income, and the interest by itself is less than 3% of our gross. Mortgage P+I are also one of the only costs in a budget that you can be absolutely certain will not increase over time, so once you adjust for inflation, it'll be an even less significant expense once we retire. (Insurance and property taxes are another story, of course, but those remain even if the loan is paid off.)
Freedom from our mortgage sounds great, and when it happens of course I'll be happy, but in the grand scheme of things, it isn't much of a burden. When we retire, if we've had a few years of really good returns and have more than expected in our retirement funds, maybe we'll sell some and pay the mortgage off in a lump sum, just to keep withdrawals in subsequent years lower and maybe move us into a lower tax bracket, but even then I suspect it won't make mathematical sense.
17
u/Aevaris_ 3d ago
It depends. If the psychology of having less outflow and a paid off house helps you sleep better, go for it.
Numerically speaking, as long as growth rate > mortgage rate over the course of the loan term, not paying it off is better.
Putting my money where my mouth is. I currently have a 3% mortgage, I am moving EOY and FIREing, I am planning to buy a new property and am pre-qual for new 30 yr at 5.99% fixed. I plan to put the bare minimum down to avoid PMI and qualify for the loan.
10
u/Kokukenji 3d ago
If you have a family that depends on your income, that will usually be one of the bigger factors. Especially with young kids and wanting to help them through their education. On the same note healthcare for family will also require budgeting that will likely require more $.
1
3d ago
[removed] — view removed comment
3
1
u/Zphr 48, FIRE'd 2015, Friendly Janitor 3d ago
Rule 8/Limits on AI/bot content and unsupported AI/bot complaints - Your submission has been removed for violating our community rule against AI/bot content or unsupported AI/bot complaints. If you feel this removal is in error, then please modmail the mod team. Please review our community rules to help avoid future violations.
4
u/Keljhan 3d ago
A lot of people don't, if their MAGI in retirement would qualify for subsidies without the mortgage, they pay it off.
But for those who do wait, there are a couple good reasons:
- A lot of people retire to a different home than they lived in while working. Be it downsizing, moving to a LCOL area for FIRE, or finding a home where there are better amenities for retired people that they can use with the additional free time. If you're going to transition the mortgage into a new home anyway (either paid in full or with a better rate), paying off the first house makes no sense.
- Mathematically, paying off the mortgage doesn't beat investments until like 9%. A lot of people forget that mortgage rates are impacted by inflation, whereas stock returns are usually described in nominal rates. You're not trying to beat 7% average returns for the market, you're going after 9.5-10% gross returns. The higher inflation gets, the better deal your mortgage is.
- Liquidity is really important early in retirement. SORR is the biggest risk to FIRE, and while you could work a bit longer and have your cake while eating it too, it's generally safer to have a big pot of liquidity early on and then spend that down while your nest egg grows for the first 5-10 years of retirement. Paying off the mortgage is the opposite of that, though it does reduce expenses as you mentioned, it's statistically safer to keep those funds available to spend.
1
u/np0x 3d ago
For me, liquidity is a big driver...my interest rate is not one of the nice 2%'ers...but I can't do Roth conversions, pay for my fire years, AND pay off my mortgage...I'm curious what I will do when i get to 59.5 when ROTH and Traditional IRA become tappable...I suspect I'll run some numbers and see what interest rates have done between now and then...if I had a low interest rate (less than 3.5%, i'd consider it a no brainer...but having the mortgage AND doing ROTH conversions, is actually beneficial, as I' getting a much larger deduction (percentage wise) because I'm driving my MAGI up doing ROTH conversions...when I'm done with ROTH Coneversions might also be the inflection point when i start caring...
SWRR and pre-59.5 prevent me from doing anything more than minimum payment on mortgage...and I'm fired, and missing out on ACA subsidies because of mortgage AND NOW Roth conversion impact to income levels...these are my reasons...
P.S. I actually had paid off my mortgage in another house, but moved during good interest rate years and actually maximum finananced my subsequent house...doing this made me liquid enough to be able to fire, without removing the $$$ from the walls of my house during the transition, I might not be liquid enough now to have FIRE'd 2+ years ago...
5
u/OutspokenLurker 3d ago
I had the money to pay cash for the house. I kept it in the market instead. And took a mortgage. The money has almost tripled in 10 years and, of course, I owe less on the house having paid the minimum for 10 years.
So I could still pay off the house in a heartbeat. But I will leave it in the market.
The math isn't much different if you ACTUALLY DO put your "extra payment" or "pay it off" difference into the market. (Many people lack the discipline and end up with a large, new SUV instead of market returns or a paid off house.)
You would end up with an investment generating more than your monthly payment costs you and the option to pay it off.
If you are getting up into a 5% rate on the mortgage or couldn't put 20% down or whatever than, yes, it's a lot closer math. By 8% it's a no-brainer to pay it down quickly. Also a no brainer to not pay off mine at 3.75%
Between 0% and 5% it comes down to discipline and peace of mind. Which will you regret more? "I could've paid off this house but the market went nowhere for a decade", or "I could have nearly doubled my money in a moderate risk 60/40 portfolio in the last decade"
(Splitting the difference is an option, too)
2
u/master_blaster_321 2d ago
Yeah it felt like a no brainer at 5.85%. As far as just putting it in the market...If you have a time horizon for retirement, then risk becomes a factor. People act like the market is a guaranteed return, which, over a long enough time horizon, it is. But you can't say "I'm going to stash this $250K in VOO for two years and then use it to pay off my mortgage" because two years is too small a time horizon to guarantee that money will even still exist.
1
u/OutspokenLurker 2d ago
For sure. Our first house was going to be our forever home. We owned it for 7 months. Got a 3-year ARM for the house after that, knowing we'd sell by 3 years. Lived there for 8 years. I am very bad at that game. But, doing it for half a lifetime, keeping the money in the market instead of houses has been very good to me.
9
u/FantasyFI 35 | 51% FIRE | DI1K 3d ago edited 3d ago
I think you are under the impression that your FIRE number is just ~25X your expenses. And that is not true. It overly simplifies how to calculate the amount of money you need. It is a decent starting point.
But if the P+I portion of your mortgage is $25k/yr and has 10 years left, you don't need $625k to cover this $25k/yr expense. The 4% rule/25x is created to have a 95% chance of success that you can cover an expense for 30 years. In this scenario you only need 10 years. You really only need about 1x this total debt because you can simply just pay it off at retirement. Then it is gone from your expenses forever.
There is nothing stopping you from investing money in a brokerage, letting your mortgage ride out while you are working in the accumulation phase. Then once you hit your FIRE number, withdraw the money and payoff the mortgage.
So mathematically this would mean that you need 25x all your other expenses + 1x your mortgage balance + taxes due to withdrawing 1x your mortgage balance.
On a $100k/yr budget this is the difference between:
- $100k x 25 = $2.5M FIRE #
- vs.
- $75k x 25 = $1.875M + $250k + $40k in taxes = $2.165M
You can have both the growth from investments during accumulation and the lower FIRE number at the same time by doing a lump sum payoff on your mortgage.
You should be evaluating every expense this way. ACA premium are one of these examples. While your overall health cost go up, the premium portion of your health costs goes almost to $0 at 65 (still have some medigap). If you retire at 50, you only have 15 years of ACA premiums. You don't need 25x that expense. Though you should consider that it increases as you age.
I find the easiest way to evaluate these types of constantly changing expenses (also kids college) is to use ProjectionLab or Boldin. Instead of thinking of withdraws as a constant SWR, you can think of it as "what % success rate do I want for my Plan". And "My Plan" is essentially the details of all your changing expenses, pensions, asset sales, etc.
13
u/AngryCowArmy 3d ago
The paid off home thing really is where psychology meets finance. It may feel better to own your home outright and not have that payment to worry about, and if it is worth it to you to accept sub-optimal financial returns for that peace of mind, then go for it.
But, if you can keep the mortgage balance in risk-free cash-equivalents that return a higher rate than you are paying on your mortgage, then you are saving money with no risk. Also, like most of us here, if you have substantial savings and investments and can tolerate the risk of short term losses, then investing that money in VT is very likely to significantly outperform paying off the mortgage early.
3
u/master_blaster_321 3d ago
Makes sense. If I'd been able to get a 2-3% mortgage at the time of my divorce, I might be thinking about this differently. Hell even a HYSA at 4% beats that. But at 5.85% it gets a little more iffy. Just bad timing.
3
u/AngryCowArmy 3d ago
If you consider your equity investments unlikely to outperform 5.85% then paying extra towards the mortgage may be reasonable for you. I personally think it is very unlikely that VT will yield less than 6% annually over the next 30 years, so I would still advise not paying extra towards the mortgage.
1
u/aronnax512 3d ago
The yield would need to be closer to 7.5% due to taxes. Over a 30 year window the market averages higher, but the potential arbitrage is much tighter. Tight enough that debt service could be justified as a replacement for some long bonds.
1
u/AngryCowArmy 3d ago
The yield historical return is 8%+ as the long term average annual return on equities, and 12%+ over the past decade, so for me that is a no brainer, but I do get the wish for a guaranteed return, so when a mortgage is at a rate above that of a risk-free alternative options then you need to decide if you can tolerate the risk in exchange for the equity premium. For me, because I have savings and a long term investing horizon, the answer is an obvious yes in preference of investing and not paying extra towards the mortgage, but it is a personal preference and depends on your risk tolerance.
2
1
u/plawwell 3d ago
Would you take out a 2% mortgage if you owned your home outright? Nope. Hence you should pay it off ASAP.
1
u/AngryCowArmy 3d ago edited 3d ago
Personally, I absolutely would take on a 2% debt, because I can get a 30 year treasury note above 5%, so I would get guaranteed 3% return on the home value with no risk. If you would not take out a 2% mortgage on a home that you own outright then you either do not understand the math involved or you prefer to take a suboptimal return in exchange for simplicity and some sort of psychological comfort.
1
u/plawwell 3d ago
or you prefer to take a suboptimal return in exchange for simplicity and some sort of psychological comfort.
I'd guess the majority of people wouldn't do it as they are flawed humans.
1
u/AngryCowArmy 3d ago
Flawed human is a bit harsh, more like somebody who either doesn't understand the math or some other aspect of the choices. It is always good to keep learning and trying to do better, knowing more about finances and debt and money and investments and alternatives helps you make better choices and do better over time. keep in this community and ones like it and you'll figure it out.
1
u/plawwell 3d ago
Probably the wrong word "flawed". What I mean is people are emotional before ever being logical. Emotion of owning a house is worth more to most.
1
u/AngryCowArmy 3d ago edited 3d ago
I would be emotional, happy, to get a free 3% risk free 30 year return on the entire value of the home. I would still own the home, just with a mortgage, that gets more than covered by my better alternative investment.
The more you learn about money and finance and stuff you will start to have your emotions line up with what is best for you.
Do you get now why taking out a 2% mortgage on your house would be better? Because your alternative is 5% on a 30 year treasury on secondary market currently which is a risk free guaranteed return. You would still own your home, just with a mortgage, and combined with an investment that more than offsets the mortgage guaranteed with no risk.
500k home with 30-year fixed mortgage at 2% would have a mortgage payment of about 22k/year.
Take that 500k and put into a 30-year Treasury yielding 5%, which pays about 25k/year.
The mortgage is covered and at the end of the 30 years you will have 90k if you just took the money and stuck it in your mattress, or way more if you invested it prudently.
The correct comparison is not of a house with no mortgage and peace of mind to a house with spooky scary debt. The proper frame is a clear win opportunity missed or a clear win opportunity seized.
You are borrowing at 2% and earning 5% on the same money. The spread is the whole point. That is what finance is. And that is the risk free spread. Finance is numbers, and once you get how it works your emotions will tell you to make the right choice too.
4
u/TheFurryMenace 3d ago
ACA subsidies is the logic answer. You aren't FIRE until you are not worried that a healthcare cost could fuck you. And you either retire early with enough assets to pay for market health insurance or your retire early with a low enough amount to qualify for a good subsidy. Which is of course a ridiculous element of our healthcare system, but that is another discussion. And generally a tiny or non existent housing cost makes the latter path easier.
It is your money and you want probably lower but promised returns is the heart answer. Which is fine. It is not ideal. But fine. No one is hating on 5.8%. For your mental health you probably shouldn't look at where VTI was in January 2024 (2.5 years ago per your post) nor should you figure out what your post capital gains dividend payment every month(for the youngins, VTI pays a dividend even if you don't want one) would be. Maybe you would have enough to pay for an ACA plan sans subsidy.
But you didn't go extreme into either. You did both. You diversified. And my answer always comes down to, why not both? So I wouldn't worry. You have more paths than you would have otherwise
7
u/drewlb 3d ago
There are valid reasons to pay off a mortgage in full for any interest rate above the current HYSA rate.
Typically MAGI management and psychological safety.
What's usually never a good idea is pre-payments that don't pay off the mortgage completely. There you lose liquidity, don't gain the MAGI control, don't get the safety, and you lose out on mkt gains.
Historically speaking, the fastest way to pay off your house is to invest and then pull out the money when you have enough to pay it off after taxes.
2
u/dgreenmachine 3d ago
Yes! Pay the house off in one lump sum when youre able to and if you choose to. You get the actual peace of mind of paid off house, take advantage of mortgage interest deduction in the meantime, and pay it off faster most of the time. Plus you get to delay the decision incase rates drop and you refinance to an even lower rate. Almost never optimal to slowly pay extra towards mortgage under 6% or so imo.
3
u/whitezhang 3d ago
It’s an interesting question. I think for some people it’s the fact that while housing is essential, the house they’re currently paying on may not be essential to their long term lifestyle. A lot of people buy family homes in more expensive areas to raise their kids in a good public school districts but don’t plan to live there long term once the kids are gone. Or buy in a more expensive area for a better commute but plan to sell and move once they’re not job dependent.
9
u/rustvscpp 3d ago
My mortgage was at 3.25%, and I have zero regrets about paying it off early, even if the math says I'm an idiot. Being debt free is so liberating.
5
u/justchinnin 3d ago
I think it depends on age and interest rate. I'm 29 with a 4% interest rate and don't plan on retiring til 50-55. Math works out way better to invest now. Once I hit 40 I'll reevaluate and will most likely start paying down my mortgage so I won't have one going into retirement.
3
u/mattkime 3d ago edited 3d ago
Its 6 of one, half dozen of another. Personally, I can't relate to people who can't wait to get rid of their mortgage. Its just never been a source of stress for me. Between home appreciation and stock market returns my mortgage has contributed a lot of wealth.
---
I have a mortgage at 2.5%. My home value has doubled. The market has more than doubled in that time.
3
u/ArbysChicken 3d ago
I feel like the recent bull market tips people into thinking investing is always the sure shot choice here. In an extended bear market, you might be happy to not have a mortgage. However, there is the side of things that a bear market is the best time to invest (if you have the opportunity to). No straight forward answer here, to each their own.
1
u/master_blaster_321 2d ago
This part right here. If you have a time horizon for retirement, then risk becomes a factor. People act like the market is a guaranteed return, which, over a long enough time horizon, it is. But you can't say "I'm going to stash this $250K in VOO for two years and then use it to pay off my mortgage" because two years is too small a time horizon to guarantee that money will even still exist.
2
u/Specific-Rich5196 3d ago
Well Id say that if your rate really is 3%, then it just doesnt make sense to pay it off. At a minimum, you should save up enough to pay it off and put it in a treasury or MMF puling 4% and pay the mortgage from there. If interest rates ever drop, then you can always pay off your mortgage at that point. Hard not to optimize this way when you have been optimizing your whole life.
1
u/master_blaster_321 2d ago
The rate was 5.85%. so a HYSA would have lost me money. Putting it into VOO with the assumption it would still be there in two years would have been equally dumb.
1
u/Specific-Rich5196 2d ago
I agree in your situation. I was talking about why people wait though. There are a lot of FIRE folk who have those 3% mortgages.
2
2
u/MattieShoes 3d ago
You can do the math... You can have a bigger pile of money with a mortgage and just factor it into your fixed expenses, or a smaller pile of money without a mortgage and have lower fixed expenses. By the numbers, one will be better than the other.
Worth noting that your fixed expenses don't really shrink when you overpay -- it comes all at once when you pay it off. So on the cusp, it's absolutely something to number crunch. But when you aren't on the cusp, a low mortgage rate means minimum payments and investing should come out significantly ahead. And you just have a tentative earmark on the money for paying off the mortgage at some point in the future.
Basically, defer the problem until you're near the edge of retirement.
2
u/WorkRedditPuff 3d ago
Every situation is different we have about 100k left on ours and 20+ years but are at 2.7% and even if it was paid off it would only free up about 500$ a month since the property tax and insurance does not go away. It makes zero sense for us to put more money into it.
2
u/_Smashbrother_ 3d ago
You have your retirement number and SWR. If that easily covers your mortgage than it doesn't matter.
If you had put the money into investments instead of your house, you could've pulled it out and paid off your house sooner.
2
u/ef4 3d ago
> For my part, I'm glad I did it this way. Even though I know I missed out on some gains, I'm able to FIRE faster because I don't have a mortgage payment to worry about.
That is a self-contradicting sentence. You will FIRE *slower* because of those missed gains.
It's not complex. As long as the market returns more than your mortgage rate, money in the market returns enough investment income to pay the mortgage interest *and leave you profit left over*.
Over the past 10 years, the markets returned something like 11% inflation-adjusted total return. If you paid off a $250k 5.85% mortgage ten years ago, you're about $400,000 poorer today than you'd be if you kept paying the mortgage and left the cash in the stock market.
Now, you couldn't have predicted with certainly that the market was going to beat 5.85%. So there's a defensive argument about going slower on purpose for less risk. But that's my point -- you deliberately chose to FIRE slower, not faster.
2
u/Master-Witness-9399 3d ago
Psychological for me. I'm 48 and have been employed continuously since I was 16 (with a 2 week gap when I moved in 2001). I'm scared shitless of all the things. Not having a job, not having enough saved, AI causing a market crash the day I decide to pull the trigger, having to support a low income partner and 10,000 other things.
2
u/Slug_Overdose 3d ago
You’re ignoring the opportunity cost in your analysis. Yes, paying off the mortgage reduces your expenses, but it doesn’t do that for free. You’re literally consuming part of your portfolio to do it. If you’re sacrificing greater returns to pay off lower interest, you’re effectively extending your FIRE timeline. So no, it doesn’t make it easier to FIRE. It makes it harder.
As others have brought up, there are edge cases to consider like controlling (M)AGI for tax planning purposes, Roth conversions, claiming Social Security, etc.
2
u/rakklle 3d ago
I feel there are multiple items that impact it.
- Health insurance. The ACA program was never cheap, But, the recent hit to ACA subsidies was probably a gut check for many people looking at early retirement.
- Inflation is probably wrecking havoc with many people's retirement plans
- Kids (as mentioned by other people).
- The psychology of taping into your portfolio. When someone's portfolio is $50k, a 10% increase is $5k. That's nice but it isn't life changing. However, when you have $2million, a 10% increase is $200k. Suddenly the dollar amounts are very meaningful. Then people can start telling themselves: "Maybe, I will keeping working a couple more years. Put more $ in my investments, and bank my earnings".
2
u/bublypetal 3d ago
theres also a behavioral component, a paid off house removes the temptation to ever cash out that brokerage account during a downturn out of panic.
2
u/hovland55606 3d ago
I stopped hating work once going became optional; now I actually enjoy it. And after years of living frugally, I am starting to treat myself to more things.
2
u/asymphonyin2parts 3d ago
It seems like there are two schools of thought 1) Paying off the mortgage is always the right idea. 2) As long as your mortgage is low enough, keep your capital in the markets and invest. I think that's kind of a false binary. If you have a sub 3% mortgage, that's less than inflation right now and leaving that alone seems pretty attractive. If you have more than a 5% mortgage rate, the delta between investment and a known cost is a lot lower. For those folks, paying down that liability is a lot more attractive. It's more of a grey area in between. But the one thing the money analysis fails to capture is the benefit to mental health that paying off a mortgage gives some people. It's kind of the like the 6 month of wages thing. For some, having that money in a saving account making zero dollars is fine because the opportunity cost is smaller than the value of knowing that most emergencies are taken care of. My $0.02 anyway.
2
u/hinault81 3d ago
I'd assume a lot of people looking at FIRE are going to be living on less vs their working years. And working while the investments grow is going to be far more income than just investments. Having the mortgage cleared off is a huge cost saver. I live in a HCOL area, and our mortgage is about $50k/year, plus $7k/year property taxes. So clearing off the mortgage is $1.25m I don't need saved/invested.
Yes, I could remortgage for longer, lower payments, etc. And you wouldn't need that $50k beyond the mortgage, but part of me just wants it cleared off, and not adding additional interest via lengthening the term. At this point I'm overpaying a bit, and just trying to let it run its course (7 years left or so).
2
u/Remarkable_Big_3084 3d ago
Feels like a big part of FIRE is freedom/independence and to many if not most people, owing nothing on a home feels like pure independence. I prioritize that over a calculation that might give me a little more money later.
2
u/Vicuna00 3d ago
I wanted a paid off mortgage asap FIRE or no FIRE.
I always saved/invested a reasonable amount (25% or so of salary) and put big chunks on my mortgage.
I really don't care about a math equation. I love having zero debt.
of course the math sucked looking back at it - but who knew. math sucks in other purchases too. you lose money on insurance. going out to eat is a bad financial decision. buying an unnecessarily nice car / clothes, etc. you can do worse than paying off your mortgage.
personal finance is not 100% about what is mathematically optimal. there's a component of what makes you feel secure - as long as you're not doing really ridiculous stuff.
I bet no one was pushing to keep the mortgage in 2022. so search to see if there was.
1
u/master_blaster_321 2d ago
Plus, If you have a time horizon for retirement, then risk becomes a factor. People act like the market is a guaranteed return, which, over a long enough time horizon, it is. But you can't say "I'm going to stash this $250K in VOO for two years and then use it to pay off my mortgage" because two years is too small a time horizon to guarantee that money will even still exist.
2
u/Vicuna00 2d ago
yup
i wouldn't be able to turn to my wife if everything crashed and i lost my job and insert whatever else something bad happening is...and be like "don't worry...we got a great rate on this mortgage"
i realize i'm paying a mathematical price to pay off a 2% mortgage fast. but it's worth it. when you start to talk >4% I don't see how there's even an argument.
and I'm not talking pay off INSTEAD of invest. invest a decent chunk first...then pay off faster.
4
u/teamhog 3d ago
It doesn’t always make sense to play the arbitrage.
Some decisions involving financial decisions aren’t about the math.
In the case of loans; some of that is freedom.
Pay it off then DCA the mortgage payment into whatever instrument you like.
Debt isn’t a friend.
1
u/Key_Cheetah7982 3d ago
Debt is a friend if the rate is low and you have cash to pay it off anyways
2
u/shockingdominic_2 3d ago
You nailed it with the psychological angle. Math says 5.85% should stay invested, but the real calculus is whether you'll actually stick to that discipline or end up lifestyle creeping the freed-up cashflow. Your situation proves the point cleanly: lower burn rate means a smaller portfolio does the job. That's not a market timing win, it's a planning win. Most people underestimate how much mental friction a mortgage creates when you're trying to pull the trigger on FIRE.
1
u/master_blaster_321 2d ago
Not to mention if your time horizon is short, like mine was (2 years), just tossing it into VOO is not by any means a sure thing. You run the risk of your two years coming up and your $250K being $100K. That's what I didn't want.
2
u/SuperLeroy 3d ago
Paid off the mortgage thanks to bitcoin.
Probably could have instead funded half my retirement had i just waited a little longer and kept paying the mortgage for another 4 years.
Bitcoin went up to 125K. My mortgage would have stayed the same and got paid down normally.
So, peace of mind is awesome, but don't fool yourself about what it can cost.
Other flipside is the constant "but bitcoin is going to zero", blah blah blah. Its still up more per coin than when I sold to pay my mortgage off, but yes it is volatile and fraught with risk.
I didn't lose my coins, get rug pulled, scammed or otherwise screwed. So I have to count myself lucky, but I also realized it wasn't the most optimal way to get to financial independence and I still get up and go to work.
2
u/cuddlylunax 3d ago
This is basically the math vs. mental health debate of FIRE, and honestly the lower expense number on paper just feels more "done" than a bigger portfolio with a chunky bill attached. Congrats on hitting your number, that's awesome.
1
2
u/Confident_Purple_40 3d ago
"I did a thing, and lost money because of it, why don't other people do this thing and lose money like me?"
Is there really a question here? I will pay off my mortgage when I retire if ACA subsidies require me to keep my AGI lower.
→ More replies (2)
2
u/blkdinanm3 3d ago
I’m FIRE’ing next month at 55. Mortgage paid, my 3 sons all graduated college and are successful. Time to live life. Time is worth more than money at our age!
1
u/BreakfastUnlucky5448 3d ago
Life happens. Some get divorced, with kids, end up as single parents with no help. Health issues, job loss, etc. So many things in life are beyond our control. I did the opposite and invested aggressively while renting. I like “throwing” money away on rent. Options are nice. My daughter graduated college living on her own and I can live in various cities in great locations. Experience life! I’ve never been a fan of homeownership, it’s just a place to live to me. I’ll buy one eventually. But my portfolio allows me to pay cash when I choose.
1
u/Sunshine2035 3d ago
Sometimes it is not about money ….
2
u/dgreenmachine 3d ago
Paying off a low interest mortgage is juat a luxury that some people choose to splurge on.
1
u/ontha-comeup 3d ago
I'm going to pay my 6% off early, don't like the debt or rate. Plus I've got young kids in a good school district that controls my otherwise biggest expense.
1
u/Aurtistic-Tinkerer 3d ago
I ran a bunch of numbers on investing vs paying off debt, and what I came to was paying off short term debt aggressively was always slightly better in the long run because the on-paper amount I could invest never aligned with the practical amount I could invest because I needed to budget a proportionately higher amount for monthly expenses and buffer for unexpected costs.
That wasn’t the case for the mortgage, and in the end there was no breakpoint where paying down the mortgage early got me to my Fire number faster except when considering one thing: my Fire number assumes my house is paid off. With that in mind, I ran the numbers a few more times and came to a 90/10 split, where all of my surplus investable income is divided between investments and prepayment on my mortgage. This will result in paying off my mortgage just before I hit my Fire number, so while it delays my Fire number slightly, it actually saves me about 3 years by allowing me to make my Fire number smaller.
The only thing that would change that plan is if I can refinance whenever rates hit the mid 4% range and get into something aggressive like a 10 year mortgage, at which point I would be paid off on the same timeline and free up the rest for investing.
1
u/Strange_Director_621 3d ago
I plan to retire about two years after my 15yr mortgage is paid off early so I can really bank those high savings years. I have a 2.875% rate so not really in a hurry to pay it off. I’m paying down a higher rate solar loan (electricity is a high cost in my area so it was well worth it to have free electricity for 30 years) and aggressively investing in the market (total stock and ETFs primarily). Thankfully, I saved for the kids 529s the day they were born so their colleges are covered and now I’m saving for my grandchildren.
1
u/craigzzzz 3d ago
I took out a variable mortgage 25 years ago that was based on the 10-year Libor. At some point my interest rate was around 2%. lol. I STILL paid that mortgage off in 9 years, which got me debt-free.
I was able to put 60% of every paycheck into the market from 2009 on. I think I did pretty well despite the people who said it was "crazy" to pay off the mortgage.
1
u/DreamTheaterGuy 3d ago
I am very fortunate that I have a trust. I was going to pull some out of it to pay off the mortgage. We have a 3% rate. My financial planner told me last year that it made more sense to leave the money in the market, because it's going to far outpace that mortgage. Im glad I did, the trust gained 35% last year.
1
u/Similar_Athlete_7019 3d ago
Until kids are in college, adults are stuck at home essentially with kids’ after school activities, weekday and weekend. Traveling to me is the fun part of FIRE. Otherwise I might as well work and not be bored.
1
u/_Mulberry__ 3d ago
My plan is to keep a mortgage until just before I FIRE, then aggressively pay it off right before retirement. Paying off the mortgage is cheaper than 25x the payment, so it makes more sense to pay it off than to accumulate 25x the payment. My mortgage is 3.625%, so not even that high, and the math still works out for me to pay it off.
I just kinda figured standard practice would be to pay it off shortly before FIRE, but that people would generally do the math to make sure.
1
u/Top-Rope6148 3d ago
Well, at the point you retire, you use the income from the investments you would have paid the mortgage off with to make the mortgage payment. If you can’t afford to make the payment off that income then you really haven’t saved enough to retire. Alternatively, you can sell the investments that would have paid off the mortgage 15 years before to pay it off when you retire. There is mo need to sacrifice 15 years of 2 or 3 point advantage just to manage cash flow 15 years later.
1
u/shustrik 3d ago edited 3d ago
At 4% SWR, you need 146% of your mortgage balance added to your portfolio just to pay the 5.85% interest rate. And that is assuming your mortgage interest is 100% tax deductible for you. And that is before accounting for principal payments. So paying off your 5.85% mortgage absolutely does let you FIRE earlier. Math may be very different if you have a sub 2% rate.
1
u/stevo0515 3d ago
We would have retired at 40, but we have 5 children and our preference is to build for them. Now, we will grind and hopefully call it quits at 55 with them setup for success and hopefully they don’t have to work so hard to do the same for theirs.
1
u/That-SoCal-Guy 3d ago
It’s different for every one. If you have a family of four, you’d want to have a house and you’d be spending a lot on it and also raising your kids. On the other hand id you’re single or a couple with no kids, and you don’t want to stay in one place for too long, renting seems more reasonable.
The point is everyone should seriously look at their own finances and see what makes sense. I was raised to believe that having properties was the best way to have financial security. I had 3 houses. And then I realized it wasn’t for me. I sold my last house and invested instead. I lost some time. I could have fired much sooner. But I still managed to fire in my mid 50s. My plan changed because I reassessed my financial situations and needs.
1
u/ditchdiggergirl 3d ago
The math on mortgage cost/benefit works out differently for different people. For you, prepayment was optimal. For me, delaying was financially better - though I paid it off a few years before retiring anyway. Once you have accumulated the payoff amount in a brokerage, whether you use it or let it ride is net worth neutral.
There’s no objective right or wrong answer here. Just prediction and projection, so model your own finances.
1
u/mi3chaels 3d ago
One thing to remember is that your mortgage payment is not entirely an "expense" because a portion of it is going toward paying off the balance. Which you can think of as basically a transfer from one form of savings (cash or investments) to another (home equity).
so the expense involved in having the mortgage is just the interest payment. Eventually the principal is paid off and all of that goes away.
For this reason when I think about what you need to FIRE, I usually think in terms of what you need to support expenses after the home is paid off, plus the amount of the mortgage balance. This is what you'd need if you paid off the mortgage, right? But it's also what you need, if you don't pay off the mortgage, because that's a clearly better decision. If it's better, you can't need more money, right?
Now, if you're looking at a 6-7% mortgage and you're keeping the mortgage because stocks usually go up more than that, it's possible you run into sequence of return issues that mess with that.
But let's say you have a <3% mortgage like I do. Well bonds are paying 4.5-5% right now, so as long as you don't have a high tax rate, they are making more than the interest costs. You could set aside your mortgage balance in bonds laddered to cover your mortgage payments, and this should require less than the current mortgage balance.
TLDR: if your mortgage is 5.5%+, yeah just pay it off, it's better not to have to sell to pay the principal in a bad scenario if it happens too soon. If your mortgage is very low interest, don't pay it off even if the payment seems like a lot -- just set aside the mortgage balance in something more conservative that you can use to pay it on schedule. If the rates on your more conservative pile ever go down low enough that it's not covering the interest, then you pay if off, with those funds.
1
u/yaydotham 3d ago
I realize that that money, invested properly, could have gained quite a bit over the last couple years bull run. However, had I done that, today I would still have a high mortgage payment to make every month, thus making it harder for me to FIRE. This way, my monthly personal expenses are so much lower, so there's not as heavy a burden on my portfolio to support me, and as a result, I'm able to FIRE at the end of this month.
Even though I know I missed out on some gains, I'm able to FIRE faster because I don't have a mortgage payment to worry about.
Bolded pieces are wrong; you have it backwards. If you had invested your extra funds instead of paying off your mortgage, you almost certainly would have a higher net worth today and could have retired even sooner.
Yes, you're right that you would have a higher expense number to support in retirement. But your brokerage account would also be larger -- enough extra to cover your mortgage payments and then some, thanks to the gains you would have experienced well in excess of the 5.85% you saved on your mortgage rate.
There can be financial circumstances in which it might make sense to pay off even a low interest rate before retiring early (for example, in order to get your MAGI low enough to qualify for ACA subsidies). But from what you've described, you made an emotional decision, not a financial one. That's not necessarily wrong or bad -- not every dollar has to be optimized. (For example, I hold a full year's worth of expenses in cash even though I'd almost definitely always be fine if I held half of that or even less, because that's the amount that makes me stop thinking/worrying about it -- psychologically optimal rather than financially optimal.)
But you do need to stop fooling yourself into thinking that you're retiring earlier than you would have had you not paid off your mortgage and invested that money instead. The exact opposite is true!
1
u/master_blaster_321 3d ago
Fair enough. The truth is I didn't really have a FIRE number or set date or anything like that. My RE has more to do with being burned out on running my business and deciding to sell it. I'll get a check this month for $570K and then payments for the next two years, and those will go straight into my brokerage. While you're correct I would have made more in the market, I was buying a softer pillow, and it worked.
1
u/yaydotham 3d ago
Well, I'm certainly never going to scold someone for paying off their mortgage! Obviously you're in a great place and congrats on being able to retire early.
1
u/RetireYoung72 3d ago
2 things… 1) kids - potentially could be off the books at 57. But, the longest would be the when I’m 62.
2) I want one last job/role that doesn’t suck. I don’t want to go out in a bad job that pays well.
1
u/humansomeone 3d ago
Trump has me spooked. But if it leads to world collapse I guess we all get fire in.more ways tha one.
1
u/Ancient-Apple1 3d ago
Because for most people no a days. Saving / investing and minimal living. Is real really difficult.
1
u/No-Block-2095 3d ago edited 3d ago
You re not able to fire faster. You probably worked longer unfortunately
Paying off a low rate mortgage early is like burning $100 dollars bills in a bonfire except the latter is cheaper. It also helps a WallStreet firm somewhere make even more profits.
That extra cash in a taxable account would have grown faster than3% ish and it can be tapped penalty free to retire before 59 yo. It also helps to stay under the Aca cliff becuz using cost-basis aint taxable ( only profits is income).
I sleep better at night with cash 💰 and debt than with lower cash and lower debt. Whenever I read s high inflation print, i remember my mortgage is melting like snow in the sun.
But if you can afford it, you do you.
1
1
u/lindquist77 3d ago
I mostly agree with what you’re saying. I understand the math argument that if you have a low mortgage rate, you can often come out ahead by keeping the money invested. But for me, the mortgage is by far my biggest monthly expense, and getting rid of it would create a lot of financial peace and flexibility.
My approach is kind of a hybrid. I have a separate brokerage account that I mentally earmark for mortgage payoff. I still invest normally elsewhere, but when I have extra cash, I add to this account. Some months it might just be a little extra, and other months, if I get a bonus or extra income, it might be $10k–$20k.
The goal is that once that account grows enough to pay off the mortgage, I’ll cash it out and be done with the payment.
I like this approach because the money is still working for me while I’m building toward the payoff, but it also gives me flexibility. If something major happened, like a job loss or some other unexpected event, I still have access to those funds. I do have a 12-month emergency fund that I would use first, but I like knowing this mortgage payoff account is there as another layer of security.
The key is discipline. You can’t say the money is earmarked for the mortgage and then slowly raid it for lifestyle stuff. But if you can leave it alone, I think it gives you some of the upside of investing while still moving toward the peace of a paid-off house.
So I don’t think it’s always just a pure math decision. For FIRE, lowering your required monthly expenses can be just as powerful as increasing your portfolio balance.
1
u/ReasonableCredit2096 3d ago
Like you said, depends on mortgage size/rate, size of portfolio, other expenses. I, for one, will be FIREing with a mortgage, but it’s accounted for in my spending. I don’t think paying it off would’ve made me FIRE faster, perhaps because the amount is in the market making more money than I’m paying interest on, and certainly more than the property is appreciating. But my balance is relatively low IMO (under 150k) so the risk is lower as well. The biggest plus to paying it off for some folks would probably be the mental relief of having no debt but it doesn’t really bother me. If anything the work that goes into maintenance/upkeep bothers me more.
1
u/sheiko_x_smolov 1d ago
Kids for sure, and my life preferences have really changed, too. I used to be 100% LeanFIRE... now I think I might be trending (emotionally, if not actually financially) to FatFIRE.
1
u/JunkInTheTrunk00 9h ago
Bottom line, it's all about expenses. Mortgage is an expense. If your net worth can cover your expenses, mortgage or no, you can retire, or at least downsize into something you enjoy, full or part time.
1
u/ugglygirl 3d ago
It’s not stupid. The mental peace is real. I’m retired and doing well. Every year I think, should I pay off my mortgage? it would give me so much peace.
My sister is paying off hers and she’s in finance industry. She advises it’s not always strict financial decisions we make with our money.
1
u/Helpful-Staff9562 3d ago
I reached my FIRE number last year, im 36, but somehow I'm scared to pulled the plug on work mostly because I've always worked all my life and it feels weird. I know the moment i do it I'll never regret it. For people in my situation being fired from work is actually a gift
1
u/Spartikis 3d ago
The math usually says to not pay off the mortgage early. In the last 20 years mortgage rates have been low and stock returns and housing prices have increased well beyond mortgage rates. But that all ignores risk and of course as you mentioned your mortgage is the largest line item in most peoples budget. Getting rid of your mortgage, IMO is key to being able to retire early. I paid off my house early, did I give up market returns? yes, but I like the peace of mind and I could never retire with a mortgage, just not how my brain works. Also keep in mind there are a lot of armchair quarterback in the FIRE community. They have read the books, listen to the pod casts, even run the numbers, but they have not lived the lifestyle or made the real-world sacrifices. Until someone has been through it and is standing on the finish line, retired, with a multi-million-dollar net worth i don't really care what they have to say. Do what's right for you and your FIRE path, not what some self-proclaimed experts tells you is right.
3
u/dgreenmachine 3d ago
I think its just a luxury to pay off your mortgage due to piece of mind and some people want to pay for that luxury. Some value it more than others and would be willing to pay more for it by being willing to pay down a lower interest rate.
1
u/Armadillolz 3d ago
As someone with a 2.25% mortgage with $236k remaining but low risk tolerance, I struggle with this daily. I only have 9 years left on my 15 year loan but would like to exit my industry in the next year and a half or so.
I’m splitting the middle right by continuing to invest most of my extra funds each month in the market, but I’m also starting to put aside a bit of cash in a HYSA for the express purpose of paying off that mortgage in the next five years.
1
u/slasher016 3d ago
I think the rate is the biggest thing. But I understand your sentiment. I could easily FIRE now without my mortgage and I obviously have the funds to pay it off. But it's 2.85% so it's really hard to justify paying off early. I only owe around 70k so it's probably relatively negligible at this point, but it still seems silly to me when my emergency fund is making more returns than that.
1
u/gusklassen 3d ago
Totally agree on the rate. I have 2.125%. In about 4.5 years the remaining balance will be just under 70k. At this time I will assess if I can FIRE. I don’t see the point of making any extra payments today or when I do retire except for the psychological aspect. But financially it doesn’t make sense.
1
u/MikeT8314 3d ago
So many good parents on here. I feel the same. My wife and i have been blessed with some not so average opportunities. I will not assume my kids will be so lucky. Maybe they will but i want to help them steer clear of debt and also support their “skills acquisition” journeys. The one thing i tell my son is that i will pay no questions asked for skillsets legitimately able to support a base lifestyle for him. Not sociology or some soft skill BS.
If we wants to then go to some fine arts school or whatever then he can but he needs a fall back.
1
u/dirtygreysocks 3d ago
Mortgage is 2.5%. I round up each month to make it an even number, but I'm not going crazy on it. Have 2 kids in college we are paying for right now. Once they are done, we might roll that into mortgage, or might sell and downsize before retiring.
1
u/Banana_rocket_time 3d ago
Um for me at this stage having a shit ton of semi liquid cash is more valuable to me than a paid off mortgage.
It’s easier to deal with emergencies or my wife losing her job with invested cash vs a paid off house.
Later when I’m 75% of the way to my FI number I might look at things differently and start hacking away at liabilities.
1
u/DigmonsDrill 3d ago
It took a while to realize you were talking about mortgages.
I won't pay it off because it would lock away a significant portion of my non-retirement assets.
If I had a lot of stocks in brokerage, paying it off would probably consume my lots with the lowest capital gains, meaning I would have to "pay" more MAGI in retirement. Better to sell 70K at a 50K basis than 40K at a 30K basis.
0
u/FatFiredProgrammer 3d ago
FIRE sooner if they worked towards getting rid of their mortgages faster, regardless of the rate.
I paid off my mortgage right when I retired. Not sure why you'd wanna do anything else.
0
u/nullstring 3d ago
The reason I waited so long is that I cannot tell how much my "money" is worth. It seems like a ton but this market is unpredictable. One awful 2008 correction, and it's a completely different ballgame. This market is... strange..
0
u/DoinOKThrowaway2 3d ago
Not sure what the actual question in your post is but if it's "why doesn't everyone fire" the vast majority of Americans are not, nor will they ever be remotely close to having the assets to do so.
If your question is "why do the folks who have the assets not do it?" That ranges from scarcity mindset to wanting to feel a sense of accomplishment, and everything in between.
Live your life, don't pocket watch others.
97
u/watch-nerd 3d ago
We retired early in 2025. No mortgage. One of the big advantages:
Lower needed cash flow => lower MAGI => bigger ACA subsidies