I am a Ramsey fan and love the idea of paying off the house before retirement. HOWEVER, I have a 2.7% interest rate on my house. I have stopped paying additional principal on it because it is such a low rate. I am now using the extra to top off my Roth 401k.
Same boat. Did a VA loan and refi'ed down to 2.125%. NO WAY I'm paying this off except with the life insurance policy payout.... which is by definition not my problem anymore.
@@robingow7276 because at that low of an interest rate...my investments are making over 10% each year. I can't even write off the interest on my taxes because it is so low. If the rate was double then I would probably reconsider.
i am retired for 3 yrs this month. i still have 39 months left on my 15 yr 2.75% mortgage. i didn't pay it off earlier, though i could have. my payment was only 16% of my monthly draw at the onset of my reirement and this was using a 3% withdrawal rate it is even a lower percentage now with adjustments in my draw rate. as part of my portfolio the left over principal is earning way more than 2.75%. if i paid it off i would just spend the money elsewhere so it's a form of forced scarcity even in retirement.
Re: student loans - Also, many (and all federal) student loans are insured against death and disability, most mortgages are not. There are a number of loan forgiveness programs for federal student loans as well as income sensitive repayment options, but not for mortgages. I would want to preserve access to those features on that balance rather than rolling student loan balances into a mortgage.
Same! I think this is a generally overlooked aspect. If a tragedy happened, your SO wouldn’t be burdened with your student loans. There are also options to reduce payments if you lose your job. The security with fed student loans is pretty much the best you’re going to get.
You can't eat equity. I'm not taking 200K from my investments that earn around 10%. Plus, half my house note is insurance and taxes, so even paying off that balance doesn't make the payment go away.
I'll absolutely be retiring with a mortgage. It's not even a question. Inflation has been paying my home off for the last 6 years and I'll continue to let it.
wrt student loan question, mortgage at 3.25% 280k is 9100 a year in interest. 7% 360k is 25,200 in interest student loan of 80k at 20% is 16k a year. that would be the break even for this to make any sense. and you also dont want to consolidate loans of different rates. you want to plow every penny you can into the highest interest one.
Derek, you have it backwards - if you have no kids you should save as much as you can because when you have kids you may not be able to save as much - kids are expensive. Pluuuus, time is your greatest asset.
My thing is, I’m a lifelong renter, simply because I don’t have the time, interest, or discipline to take care of a house. In retirement I’d like to buy a condo, just so I can have a little more privacy and power. And with no job, I could probably care for it.
Derek's question probably assumes they will both be healthy and able to work for 3 more decades. In hindsight, I should have saved more when age 20-40 when time is on your side for compounding interest. Unexpected things can happen in life that may impact work ability. The better prepared you are and the more options you have if something bad happens, the more likely you are to feel financially secure with no regrets. Save as much as possible early in life because you can never go back for another chance.
We are moving next year. We've had the conversation about renting out versus selling. (Low mortgage, high local rent = very positive cash flow). We decided to sell as, even if our next location doesn't work out for us, we wont be returning to our current house location. Simplify for us beats out the additional cash flow.
I asked my realtor if I should rent when I move since he rents a few properties. He agreed that if I was local, sure I could try it, but not if I went far away, especially if I planned on selling soon after. There are too many risks with tenants if you can't be nearby to fix things. Plus, even good tenants create the same wear and tear as owners, so that's more work to fix before selling. Better to sell and cut the losses than take on that burden.
52 and one of the lucky ones that had over $100k forgiven of student loans from the 90s. I'm buying my first house near the end of this year-Ive been a single mom for 23 years.
I'm a big fan of paying off your house. We did that with our first home, and are now renting that out. And our goal was to retire when our current house is paid off, in about three years. No debt heading into retirement. We are on track for that. Except!!!!! The last few years have changed our minds. I'm now going to retire in about 10 months. Ideally we'd love to have no debt, and we are still on track for that, except for that mortgage... But it's a 2.75% rate. So as much as I'd love to have that paid off, we're going into retirement with that mortgage for a couple of years... Yeah, we could pull from our retirement to pay it off early, but I'd rather have that money still gaining interest. We might end up pulling a bit from our retirement to pay for a couple of trips before the house is paid off (and we probably wouldn't have to do that if we didn't have the mortgage), but that will be much less than the final $75k or so on the house... We can afford it budget wise, and my wife (already retired and waiting for me) is already planning our GoGo time post retirement... :-)
Why do you feel so insecure over "aging?" I have been intently listening to this show for about 4-years and you always make a reference (usually negative) to being older or aging. You are 50 OR 51...SO WHAT?!!!!!!!!
Considerations for mortgages in retirement: • If you are planning for retirement, don't plan on having a mortgage. • Any additional income to pay for the mortgage will be taxed at your marginal tax rate. • Having to earn additional income can result in making you less eligible for healthcare subsidies or result in IRMA penalties. • If your planned retirement income is low enough, you can also be affected by the social security tax bump which puts you over a threshold that causes you to get charged taxes on otherwise untaxed social security income. If you are entering retirement with a mortgage, please devise a plan with calculations and maybe even contact a financial advisor as the decisions you make early on have the biggest chance of affecting your long-term retirement. Even if your mortgage is 3% APY and a HYSA return is 5% APY you can still come out behind or flat and you lose the safety net of having a paid off house. Other than property taxes, you can't lose your house if you have no debt tied to it.
All this fearmongering about losing your house... Seems obvious but you won't lose it if you make the payments... If you have sufficient income or a low enough mortgage payment, it's really nbd.
Brian check me on this but I don't think the two years out of the last five rule operates as a cliff. If you sell your house exactly 37 months after you move out, I believe you still get 23/24 of the pimary residence benefit.
The ONLY 2 "tax free" accounts are the HSA's and traditional IRA/401 accounts up to your standard deduction in withdrawals. Tax free going in, tax free growth, tax free withdrawals up to your standard deduction (and continued withdrawals in your lowest tax brackets first) Roth accounts are "taxes paid". You pay taxes on them at your marginal tax bracket. That's not saying Roth are bad. That's not saying you shouldn't do Roth. It's saying that they are not, and have never been "tax free" -end mini-rant about my pet peeve
But they are tax free. You don't have to pay capital gains tax. Now, for a real counter argument: If you make the argument that 401K and traditional IRA's are tax free, then by your definition, if you make less than standard deduction, Roth is also tax free, because you never paid any tax. If you use the "up to standard deduction" = tax free, then you have to apply it to both cases. If you are putting in up to 11K into a ROTH, then that's the standard deduction, and thus its tax free, as you always pay 0 tax up to the standard deduction. Edit: Only when you put in more, is it not tax free. Same for 401K, if you withdraw over 11K, its no longer tax free. The only actual tax free one is an HSA, and HSA only, that this has a severely limited use case.
Pensions are not that common anymore. Definitely if you have a pension you would take that into consideration when calculating how much you will need to invest.
My wife and I will be getting pensions (we work in education and healthcare). My pension is 10% of my gross and I’m investing 20% of my income on my own. However I don’t include my pension in my retirement planning, I’ll start including it 5 years before I plan to retire. I’m acting like it doesn’t exist.
@MrRuben536 I am doing the same thing, except I am ignoring my pre-retirement accounts. I don't want to rely on them for retirement, I plan on using them as my "fun" money. 🎉
I have three properties all with mortgages (primary, investment, and second home). I have 12 years left on my primary residence and will have the investment property paid off in 5-7 years. Once the investment is paid off, what is best to do with the extra money that would have typically gone to the mortgage (I.e do I put it towards my primary mortgage, incest it, etc…)?
I'm only 45, and I can't imagine having a mortgage. I paid it off 3 years ago, and the cost of living is so outrageous, having a mortgage would mean no money left to contribute to retirement accounts.
I’ll have about that much on my mortgage when I retire. Simple answer is I’d rather have that money making 10-12% in the market than pulling it out to pay off a 2.25% mortgage. Hundreds of thousands of dollars more in my accounts by keeping the mortgage.
10:00 Roth isn't tax free. You still pay taxes when you file for the year. It's just tax free after that. HSA is genuinely tax free when used on medical expenses.
that sounds like a challenge, ha ha but to each their own. i think saying that one would have flunked personal finance having kept a mortgage in retirement is a little too strong an opinion. if you're interested you could look up my post somewhere above why i chose to retire with a mortgage and it was well thought out for my circumstances and not a case of "well everyone says i should be done with my mortgage before i retire so that is what i should do. "
@@Random-ld6wg Agreed, especially if you ended up moving/buying a home close-ish to retirement years., and you never know if situations might change and you need to move again.
If you think that everyone that retires with a mortgage flunked personal finance, you can’t do basic math. Remember, personal finance is personal. Just because a retiree has a mortgage doesn’t mean he doesn’t have millions in the bank.
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I am a Ramsey fan and love the idea of paying off the house before retirement. HOWEVER, I have a 2.7% interest rate on my house. I have stopped paying additional principal on it because it is such a low rate. I am now using the extra to top off my Roth 401k.
Ramsey is alright if you excuse his immoralities and lack of basic math skills.
his hubris is a bit off-putting too.
Same boat. Did a VA loan and refi'ed down to 2.125%. NO WAY I'm paying this off except with the life insurance policy payout.... which is by definition not my problem anymore.
Why not just be debt free? Then use the house payment to invest without having a debt?
@@robingow7276 because at that low of an interest rate...my investments are making over 10% each year. I can't even write off the interest on my taxes because it is so low. If the rate was double then I would probably reconsider.
i am retired for 3 yrs this month. i still have 39 months left on my 15 yr 2.75% mortgage. i didn't pay it off earlier, though i could have. my payment was only 16% of my monthly draw at the onset of my reirement and this was using a 3% withdrawal rate it is even a lower percentage now with adjustments in my draw rate. as part of my portfolio the left over principal is earning way more than 2.75%. if i paid it off i would just spend the money elsewhere so it's a form of forced scarcity even in retirement.
Todays episode was so fun. I love the light hearted banter
You guys are all so awesome! Brian was too cute when he held up the phone for everyone 😂
Thanks again for another amazingly helpful video guys! ☺️👌
Re: student loans - Also, many (and all federal) student loans are insured against death and disability, most mortgages are not. There are a number of loan forgiveness programs for federal student loans as well as income sensitive repayment options, but not for mortgages. I would want to preserve access to those features on that balance rather than rolling student loan balances into a mortgage.
Same! I think this is a generally overlooked aspect. If a tragedy happened, your SO wouldn’t be burdened with your student loans. There are also options to reduce payments if you lose your job. The security with fed student loans is pretty much the best you’re going to get.
Phew.... Bo is SO excited again. Glad he got over only being excited 😂
28:50 Brian has a bigger army of dollar bills in his pockets than the average person has in liquid assets
You can't eat equity. I'm not taking 200K from my investments that earn around 10%. Plus, half my house note is insurance and taxes, so even paying off that balance doesn't make the payment go away.
Great point! Thanks for the food for thought
I agree, If someone would loan me money at 3.5% right now I would take any amount and throw it into investments. How is a mortgage any different.
I'll absolutely be retiring with a mortgage. It's not even a question. Inflation has been paying my home off for the last 6 years and I'll continue to let it.
wrt student loan question,
mortgage at 3.25% 280k is 9100 a year in interest. 7% 360k is 25,200 in interest
student loan of 80k at 20% is 16k a year. that would be the break even for this to make any sense.
and you also dont want to consolidate loans of different rates. you want to plow every penny you can into the highest interest one.
A 2.5% mortgage isnt a debt. Its a gift.
Derek, you have it backwards - if you have no kids you should save as much as you can because when you have kids you may not be able to save as much - kids are expensive. Pluuuus, time is your greatest asset.
We totally love Rebie but we also love you Brian but definitely more Rebie.
I'm 50 and currently budget 800 a month for medical. I couldn't imagine retiring and having higher medical costs and still paying debt
Do you have medical issues?
@@holdencawffle626 clearly. Otherwise why would I spend that much. My country even has universal healthcare but it doesn't cover a lot of things
My thing is, I’m a lifelong renter, simply because I don’t have the time, interest, or discipline to take care of a house. In retirement I’d like to buy a condo, just so I can have a little more privacy and power. And with no job, I could probably care for it.
Derek's question probably assumes they will both be healthy and able to work for 3 more decades. In hindsight, I should have saved more when age 20-40 when time is on your side for compounding interest. Unexpected things can happen in life that may impact work ability. The better prepared you are and the more options you have if something bad happens, the more likely you are to feel financially secure with no regrets. Save as much as possible early in life because you can never go back for another chance.
We are moving next year. We've had the conversation about renting out versus selling. (Low mortgage, high local rent = very positive cash flow).
We decided to sell as, even if our next location doesn't work out for us, we wont be returning to our current house location.
Simplify for us beats out the additional cash flow.
I asked my realtor if I should rent when I move since he rents a few properties. He agreed that if I was local, sure I could try it, but not if I went far away, especially if I planned on selling soon after. There are too many risks with tenants if you can't be nearby to fix things. Plus, even good tenants create the same wear and tear as owners, so that's more work to fix before selling. Better to sell and cut the losses than take on that burden.
Paid our house off and got a large 1st heloc as an opportunity fund. Don't rush to pay off a low rate mortgage without a specific purpose.
My rate is 2.25 percent. Think I'll just let it ride and let those any extra funds I have continue to earn more money.
I don’t blame you
There a lot of us Rebie fans, but we love you all.
52 and one of the lucky ones that had over $100k forgiven of student loans from the 90s. I'm buying my first house near the end of this year-Ive been a single mom for 23 years.
If you have enough passive income to cover all your living expenses and more, then yes, you're retired and financially free.
I'm a big fan of paying off your house. We did that with our first home, and are now renting that out.
And our goal was to retire when our current house is paid off, in about three years. No debt heading into retirement. We are on track for that. Except!!!!!
The last few years have changed our minds. I'm now going to retire in about 10 months.
Ideally we'd love to have no debt, and we are still on track for that, except for that mortgage...
But it's a 2.75% rate. So as much as I'd love to have that paid off, we're going into retirement with that mortgage for a couple of years...
Yeah, we could pull from our retirement to pay it off early, but I'd rather have that money still gaining interest.
We might end up pulling a bit from our retirement to pay for a couple of trips before the house is paid off (and we probably wouldn't have to do that if we didn't have the mortgage), but that will be much less than the final $75k or so on the house...
We can afford it budget wise, and my wife (already retired and waiting for me) is already planning our GoGo time post retirement... :-)
Why do you feel so insecure over "aging?" I have been intently listening to this show for about 4-years and you always make a reference (usually negative) to being older or aging. You are 50 OR 51...SO WHAT?!!!!!!!!
Considerations for mortgages in retirement:
• If you are planning for retirement, don't plan on having a mortgage.
• Any additional income to pay for the mortgage will be taxed at your marginal tax rate.
• Having to earn additional income can result in making you less eligible for healthcare subsidies or result in IRMA penalties.
• If your planned retirement income is low enough, you can also be affected by the social security tax bump which puts you over a threshold that causes you to get charged taxes on otherwise untaxed social security income.
If you are entering retirement with a mortgage, please devise a plan with calculations and maybe even contact a financial advisor as the decisions you make early on have the biggest chance of affecting your long-term retirement. Even if your mortgage is 3% APY and a HYSA return is 5% APY you can still come out behind or flat and you lose the safety net of having a paid off house. Other than property taxes, you can't lose your house if you have no debt tied to it.
All this fearmongering about losing your house... Seems obvious but you won't lose it if you make the payments... If you have sufficient income or a low enough mortgage payment, it's really nbd.
I think the goal for retirement would be a massive 1% mortgage with the same amount being an increase in your Roth!
Brian check me on this but I don't think the two years out of the last five rule operates as a cliff. If you sell your house exactly 37 months after you move out, I believe you still get 23/24 of the pimary residence benefit.
Everything I have ever read has said at least 2 of the last 5 years. No proration.
Actually Chevy Chase pronounces his name like the car .. with a SH sound.
The ONLY 2 "tax free" accounts are the HSA's and traditional IRA/401 accounts up to your standard deduction in withdrawals. Tax free going in, tax free growth, tax free withdrawals up to your standard deduction (and continued withdrawals in your lowest tax brackets first)
Roth accounts are "taxes paid". You pay taxes on them at your marginal tax bracket. That's not saying Roth are bad. That's not saying you shouldn't do Roth. It's saying that they are not, and have never been "tax free"
-end mini-rant about my pet peeve
How are traditional IRA/401k tax free withdrawal?
Because if you take out less than a certain amount you can use a “standard deduction” to pay no taxes on it, theoretically.
But they are tax free. You don't have to pay capital gains tax.
Now, for a real counter argument:
If you make the argument that 401K and traditional IRA's are tax free, then by your definition, if you make less than standard deduction, Roth is also tax free, because you never paid any tax.
If you use the "up to standard deduction" = tax free, then you have to apply it to both cases.
If you are putting in up to 11K into a ROTH, then that's the standard deduction, and thus its tax free, as you always pay 0 tax up to the standard deduction.
Edit:
Only when you put in more, is it not tax free.
Same for 401K, if you withdraw over 11K, its no longer tax free.
The only actual tax free one is an HSA, and HSA only, that this has a severely limited use case.
What if you have pension(s)...not including Social Security? I mean, why do you have to have "millions?"
Pensions are not that common anymore. Definitely if you have a pension you would take that into consideration when calculating how much you will need to invest.
My wife and I will be getting pensions (we work in education and healthcare). My pension is 10% of my gross and I’m investing 20% of my income on my own. However I don’t include my pension in my retirement planning, I’ll start including it 5 years before I plan to retire. I’m acting like it doesn’t exist.
@MrRuben536 I am doing the same thing, except I am ignoring my pre-retirement accounts. I don't want to rely on them for retirement, I plan on using them as my "fun" money. 🎉
“Make sure you put the ‘FOO sighting’ graphic up at x:xx”
-the editor probably
I have three properties all with mortgages (primary, investment, and second home). I have 12 years left on my primary residence and will have the investment property paid off in 5-7 years. Once the investment is paid off, what is best to do with the extra money that would have typically gone to the mortgage (I.e do I put it towards my primary mortgage, incest it, etc…)?
I would definitely incest!
There was something in the water this day that affected the pronounciations LOL
🤣
My husband always stops to get money for tipping
Bowlin’ point.😂
Man... I can't wait to get to my bowling point. 😅
I'm only 45, and I can't imagine having a mortgage. I paid it off 3 years ago, and the cost of living is so outrageous, having a mortgage would mean no money left to contribute to retirement accounts.
At 42, I prefer the peace of mind of having my retirement locked in.
@@Broprotatosame. Home ownership is way overrated
Took my Chevy to the levy.
0:13 FOUR LOKO TIME BABY
Regret just called.
You didn’t race to a Starbucks, in Europe again, did you, Brian?
That discussion on social security was very helpful
Bigger question would be why the heck does Troy’s Dad have $250k remaining on a mortgage while being ready to retire???
I’ll have about that much on my mortgage when I retire. Simple answer is I’d rather have that money making 10-12% in the market than pulling it out to pay off a 2.25% mortgage. Hundreds of thousands of dollars more in my accounts by keeping the mortgage.
Lol, Brian feeling like a baller when he's only tipping $1. Nobody should be tipped less than $3 these days. $5 and higher would be better.
Oh be quiet
I'll tip what I feel like
New York Times Bestselling author refuses to tip more than $1
Well I’m sure he’s tipping…multiple $1 bills. Like tipping $5-$10 in ones. Or leaving $2 -$5after a meal.
Also, tipping in Europe isn’t as big as in the US. A couple dollars is plenty for a lot of situations there.
On most cruise ships, the gratuity is added already. So tips are above and beyond that.
Uh oh, troll alert 🚨
10:00 Roth isn't tax free. You still pay taxes when you file for the year. It's just tax free after that.
HSA is genuinely tax free when used on medical expenses.
If you retire with a mortgage, you have flunked personal finance.
that sounds like a challenge, ha ha but to each their own. i think saying that one would have flunked personal finance having kept a mortgage in retirement is a little too strong an opinion.
if you're interested you could look up my post somewhere above why i chose to retire with a mortgage and it was well thought out for my circumstances and not a case of "well everyone says i should be done with my mortgage before i retire so that is what i should do. "
I’d agree, it’s not textbook at all, but most people suck with money meaning a lot of retirees have a mortgage.
@@Random-ld6wg Agreed, especially if you ended up moving/buying a home close-ish to retirement years., and you never know if situations might change and you need to move again.
If you think that everyone that retires with a mortgage flunked personal finance, you can’t do basic math.
Remember, personal finance is personal. Just because a retiree has a mortgage doesn’t mean he doesn’t have millions in the bank.
I think if you don't know the difference between 2.5% and 10% you flunked personal finance xD
Only if you have at least 10 X the remaining balance in your portfolio and could pay it off should you choose to.
With such a low rate, I would even go as far as to do a hack and recast the mortgage.
What is the hack? A recast requires a large lump sum payment and doesn’t change the length of the loan