@ethanadams8165 no, not nonsense. Check your amortization schedule to see how much interest you're paying over the life of your loan. If it's a 30 year note, you're probably spending your stock market gains on interest AND could lose it all. Paying interest is like throwing money away. The less, the better!! A mortgage free home will ALWAYS provide the security of a roof over my head. One other point to make--a mortgage free house = the security of a home AND more funds for other investments, such as your stocks!! PRICELESS!!
For many yes for me no. I like the returns that I am making in the stock market over paying off my home. I am 54 and semi retired. If I paid off my home I would be in a worse financial position as I would have to work more hours. The only reason that I am still working now is the cost of health insurance. I'm 11 years from having Medicare and in your late 50s and early 60s is when health insurance is at its most expensive. My job even with me working part time I get mostly free health insurance. So I am motivated to work as few hours as possible where I still get my mostly free health insurance.
I bought my home almost 30 years ago with retirement in mind. I was 39 at the time. Best decision I ever made. Not planning on leaving as long as I remain in good health. My mortgage was so small renting today would be quite a shock :-).
I'm 69 years old and not having a mortgage, car payment or any debt going into retirement was one of the smartest things I ever did. I never paid for financial advisors. I read books from the library and talked with many retired people. I'm not rich by any stretch of the imagination. I worked full-time for 45 years, sacrificed many things like not taking fancy vacations, and lived below my means for decades, but the peace of mind it has given me today is PRICELESS.
@@DrSchor not sure what you are trying to imply but your = sign equation is pure bs, too many people have been completely fleeced by their financial advisors, I used to give an older fellow a ride every now and then who had been completely wiped out by his financial advisor ran off with his entire portfolio, actually spend it I think, and the cheat man lived out his old age in poverty doing odd jobs often for people who could afford to pay him more, thinking of my neighbour across the street who owned about 50 houses and was tighter than wall paper and would always try to convince me that I should work for cheap for her because I was a student, that's how some people get rich by the way,underpaying people doing the work them and charging outrageous rents to their tenants!
Same here took all the money from my home sale that wasn’t paid off and paid cash in full for my new home when I retired and moved out of state. Best decision ever all the way around.
I own my childhood home. We renovated it and call it Connor Cottage. Its mortgage free, small, low maintenance and confortable. We were hit hard by hurricaine Helene but we are slowly getting things back in order. We will never sell and we are grateful to have this home. It is home..
I paid off my home a year before I retired. And, I made sure to upgrade or replace anything that I felt could die on us after I retired. Our homeowners insurance is stable, but, our town property taxes were reevaluated last year. As a result, there was a huge jump is tax payments. However, I will live in my house until I die as it’s a well kept 1973 house that we can afford to fix under almost any circumstance.
Very smart. I plan on having my house paid off before I retire but hadn't thought about making sure to upgrade or replace anything that could die on me after I retire.
It’s worth paying off your home at any time in your life. It reduces your financial risk. Even if you could “earn more” in the market than you are paying in interest, you are better off and safer with a fully paid-off home.
When you are dealing with a mostly fixed income in retirement then a paid off house will get you plenty of breathing room when inflation hits or a bad year in the market comes along. I will not retire until my house is paid for.
@@torpedo2030 Yes but the biggest cost in owning is a mortgage. Even if those go up you can probably downsize or move to a cheaper area and have a very nice place and know you'll always have a roof over your head.
A couple years before I retired we paid off the last $30K. Being debt free in retirement brings without mortgage or rent brings a lot of peace of mind.
We paid off our house 3 years ago & it's been great! No more mortgage payment & No rent! We also paid off both of our cars so now Zero debt going into retirement at the end of this year.
Same here, paid off our home at 50 and 3 paid off rentals years ago. Now at 52 and we are thinking retirement at 60 when my second child finish college. Can’t wait.
My mother bought her last home for cash, and her owning it outright meant it could be rented out when her health forced her to move into assisted living - that rent and her SS and pension income cover the ALH cost each month. Everyone's situation is different, but definitely food for thought.
Literally paid my house off just yesterday. I like knowing that if everything does go south in my last 5 years, I could move back to where I grew up with family, buy a very nice place much cheaper and still have a very hefty sum left over to get me over the finish line.
Thanks for the great video, all good points to consider. Two things I'll contribute for thought. One, with all the natural disasters we have now, I've heard of people being no-fault evicted so that the landlord can move back in to their rental property after their primary residence became uninhabitable. Two, post-Covid, the rental prices in my area have gone through the roof, and people have been forced out due to rapid, drastic increases in rental prices. I believe I will have more peace of mind if I can retire in my own, paid off home.
Insurance costs are huge and going to keep rising. Pay off your home and get enough into dividend stocks to perpetually pay your property taxes and insurance costs. Then you are just looking at home maintenance. That is the game plan I am working under now.
I’m retired and that’s what i did. Took the dividends paid in 2024. And paid all my insurance policies. House , car, umbrella. And property taxes for 2025. And my pension covers everything thing else
@nubicep65 You're my hero. The only path forward I believe so you're not selling the assets you need to keep paying those bills. It's a race at this point. Nice work
Yes, it's REALLY worth it. My goal for my entire life was to have as little as possible going out each month. A mortgage payment was the biggest of them all, and not having it was the ultimate goal. Unfortunately, we have evolved into a society of monthly subscriptions that didn't exist before. That requires much more discipline, but much of it isn't needed. Paying off the mortgage is a sense of security and frees up money for other spending that may have been avoided. Yes, well worth it!!
Why would I want to go back to paying rent and being subject to someone else's rules? I'll gladly pay extra to maintain autonomy over that part of my life.
If you do rent you are still paying property taxes, it is included in the rent with the maintenance costs, insurance cost and all other costs, vote accordingly you have skin in the game. Thinking longer term I see a home as an asset that adjusts with inflation.
You are absolutely correct about renters paying all those costs. Renting has really few advantages -- you don't have to fix things when they break and you can move much more easily if you want to. I see a home as a roof over my head; some costs will rise but with no mortgage they are all a small percentage of my living cost. The security of knowing your housing situation is secure is priceless.
Your video reminds me of a conversation I had with a colleague when we were both in our late 30's. One of his jobs was to do the cash flow analyses of all of the projects in the department. He and his wife had good jobs, so they were able to pay off their mortgage very early. I asked him why he did this, since the cash flow analysis plainly showed that he would make more money paying his mortgage at a low interest rate, and investing the wad of cash that he had. But, he said that he just couldn't bear writing that big mortgage check every month, so plainly an emotional decision. I paid off my mortgage in my mid 40's because by that time, the mortgage payment was so low compared with my earnings that it was just an annoyance. Again, an emotional decision.
This video was spot on for me. My husband and I live in a condo. Most people, except for a few are retired. The neighborhood is good. I would be afraid to dale it and rent some place. I don’t want to get a notice to leave a place I would be renting or the price of the rent rising. The condo we live in was paid for before I retired. The property value has risen, and it’s nice that all the necessities are all on one floor. Thank you, this video has made me feel more grateful for what I have. 🙏
Good food for thought. Maybe I missed it but I don't think I saw homeowner's insurance as an expense. That cost is increasing rapidly in many states. Also, the maintenance cost seems low. I spend between 8,000-10,000 each year (average) on the necessary maintenance such as tree work, plumbing, painting, appliance replacement, roof repair or replacement, etc. While it is true that I live in a very old house (think character), even newer houses require regular maintenance. I'm definitely attached to my house (can't deny it!) but at some point I might need to make a hard decision. I don't have a mortgage, but all the other costs of home ownership are becoming quite costly. Seems to me there are many retirees in this situation.
Sold our house in one beloved neighborhood when we became empty nesters. Paid cash for our current home (barely a downsize) in another area still close to family. Yes, we are emotionally attached to each CURRENT home we have. But now we have no mortgage.
So here’s what my hard costs with my paid off home in Northern Colorado: 3BR 2BA 1400sq ft value $400k Property taxes= $1875 Home insurance =. $2025 Utilities $200 x 12=$2,400.00 Maint (wild card)= $4000.00 HOA =. 0.00 Mortgage. = 0.00 Total. 🟰 $10300 /12 months. = $858.00 2026 home costs 4% =894.00month Rent in my City Rent. = $2400.00/ mo x12 =28800.00 Renters insurance. =$1200.00 Rental total. =30000.00 2026 rent is $2500.00 2026 home escalator = $36/ mo 20256 rental escalator =100.00/mo Paid off house wins in my area. ( I live in a desirable area of the U.S.)
In my early 20's I designed and built our small ranch style home 2Bed/1Bath and while it was supposed to be our starter home due to a few pretty rough life events we're still here. Fortunately it's been a comfortable place to live and we'll never have to downsize, lol. The cash flow aspect is huge as beyond the simple numbers you can do some pretty amazing things with your 1040 thanks to lower spending including making sizeable tax free Roth conversions. Then there's the absolute security of being able to live well under social security alone because you hardly have any bills...the cashflow is amazing.
I paid my coincidental last monthly payment 7 months after retiring. Things went so great since then that I bought a second home too and it's been great. Very fortunate thanks to living within my means, a pension, social security, and enough savings to spend down.
Besides the financial aspect, renting generally includes the risk of having to move from time to time as not all rental owners keep their rentals forever. Moving at our age is not something we want to deal with. Also, rent always increases, most often when the cost of everything else is increasing.
Since I bought my house at 55 in 2018, it won't be paid off. However I do have a 2.6% interest rate and I bought it for security and because I have lots of pets. I don't have any intention to use it as an investment. I am still working but will have a pension when I retire. Because of my interest rate and living in the high desert 30 miles outside of Los Angeles with Proposition 13, I do feel like I probably won't sell my house unless something changes.
My wife retired at the age of 51 and I retired at the age of 55. When I retired, we still had a mortgage. We had more than enough cash to pay it off but with our investments earning 12-14%, we were in no hurry to pay off a 6% mortgage. IMO, retirement is ALL about cash flow. Having some debt is OK, IF one has the cash flow to cover that debt. Once the stock market was in retreat and the earnings from it fell to that 6% mortgage, we paid off the final $36k that we owed. There is a sense of peace and freedom that comes with being debt-free that is worth more than the money involved.
All these issues stem from an economy grappling with uncertainties, including housing problems,foreclosures, global fluctuations, and the aftermath of the pandemic, leading to instability. Rising inflation, sluggish growth, and trade disruptions demand urgent attention from all sectors to restore stability and stimulate growth.
In retirement, safeguarding your wealth against inflation is essential. Consider options like TIPS (Treasury Inflation-Protected Securities), commodities, or foreign currencies to hedge against a weakening dollar. Diversifying your portfolio with global real estate, international bonds, or high-quality foreign stocks can provide additional protection and growth opportunities in an inflationary environment.
With my demanding job, I lack time for investment analysis. For seven years, a fiduciary has managed my portfolio, adapting to market conditions, enabling successful navigation and informed decisions. Consider a similar approach.
Certainly, there are a handful of experts in the field. I've experimented with a few over the past years, but I've stuck with Jennafer Beaver Turner for about five years now, and her performance has been consistently impressive. She's quite known in her field, look-her up.
I just copied and pasted Jennafer’s whole name into my browser, and her website appeared right away. You've saved me several hours of arduous research, therefore I appreciate it.
My wife and I built our home in 1982 and have long since have paid off the mortgage. That was an emotional moment but as you and others have posted expenses don't stop once the mortgage is paid off but it is one less expense helping with cash flow. When we built the house did not take into account getting old. For example it is a two story cape very common here in New Hampshire and until a few years ago did not have air conditioning and in winter we heated with cord wood. So far we are pretty heathy geezers but that can change at any time. Our plan it is stay in it as long as possible. Apartment rents are pretty high in our area and at least as of now my wife and I have hobbies that while not impossible in an apartment are not ideal.
Paying off my home naturally on March 1 at age 45. Couldn't be more excited. Will be completely debt free with dual income in MCOL city. This year, we'll be investing over twice as much as my first salary out of college was.
The trick is to own a smaller home from the get-go. We bought our 1450 sq ft home while in our 40s assuming it would be our retirement home someday. We raised our family comfortably and enjoy a fairly large yard. Now that we are old, the house still works and the mortgage has been paid off years ago. My mother lived in her small house until age 98. The house sold for a lot more than it cost and the money is now paying her assisted living costs.
Exactly our situation. I paid off my home right at 50YO 2 years ago, it is worth $2M, SF Bay Area bought it 20 years ago at $500K. My 2 teenagers grew up in the same house and they are off to college. I will sell it as soon as I retire at 60 and move to a cheaper cost of living area.
I owned a house for 20 years and it was nothing but a money pit. Taxes rose every year and there was always something major that needed repair or replacement. Finally sold it with no gain after paying broker fees. Now I'm retired and rent a nice apartment, they've never raised the rent in 7 years. I don't pay for or do maintenance, and I can leave whenever I want. Home ownership is not for everyone.
Money and emotions are a terrible combination. Very few of us get more emotional than over our home. In 2022 my father passed away and we settled his estate which consisted of his house that he built over 40 years ago. A four bedroom three bath, 3,600 sq ft estate on three acres. Full of goats, chickens, and fruit trees. A place where my children grew up. My mother, who is still active and with us at 85, made it clear to me she wanted to die in her home just like my father did. Fortunately I had the means to make that happen even if she didn’t. I paid my sister her half of the appraised value of the property and then made 150k of improvements to modernize the home. Essentially making it a reverse mortgage for my mother with myself the lender. My sister inheriting money while I inherited debt. In the end, was it fair? Not really. Was it a good financial decision? Probably not. Would I do it all over again? Absolutely……
Great video Geoff! I recently went through a decision about renting or owning in retirement. Often owning only pencils out if you stay in the same place. We retired when we were in rural Montana. We had our nice trailer house paid for...3 BR, on four lots on the edge of town. We sold it for 54K and moved to Cedar Falls,Iowa...close to grandchildren. Houses there cost $350K for a 3 BR. So we are renting for $1650/month. And it works for us. We are right across the street from children and grandchildren.
Rentals tend to make around 10% income on their property. The scenario uses 4% return on proceeds from the sale of the house. This situation causes a 6% loss unless their was a 60% downsizing in living accommodations. This is also excluding the loss from closing costs.
I purchased our “forever “ home two years ago. I’m never moving again. If I was renting I’d always be at risk of a landlord opting to not renew the lease.
House being payed off or not didn't effect my decision to retire at 62. But over the years of owning my house i worked on getting the payment down to around $275.00 a month with interest in the low 3 percent range. So having a morgage payment of $275.00 is fine with me when i retired. I do have plenty of equality in case i ever do decide to sell.
Love this. I’m 44 now but I paid off my 3 bedroom house 6 years ago. It allowed me to save more for a minute but actually left my job of 25 years in 2023. I have been living on cash since then. Im very intentional when it comes to spending and live modestly. It’s defiantly a question i ask myself a lot. I could sell for around 300k and it’s been my thought thats what I would continue to use for retirement. Single and so I often wonder if I could just retire. 1.5 years in I know my expenses and its a fun thought experiment.
its very interesting (no it really is) as someone who lives in Wales ( the bit of the UK that's next to England, look west and you can see us) to listen to all your videos, while lots of it is irrelevant to us here its still great to listen to the parts that are.keep up the great work.
@@marynotcontrary3 its not something over here in the UK we would normally do, we are more accustom to owning our homes over renting, example our house is worth £600k and the mortgage left is £5k which has to be paid of by 2028 so all fine here, i do know people who rent but they are all younger and saving up to buy, i dont know anyone who has sold at retirement (65) to move to a rented house, if anything people sell their big ( 1.5 million ) house and downsize buy a 400k house
Ive been debating this for a while now. I have 2 houses with interest rates of 3%. I could pay them both off today. its a LOT to pay off so I cant stand the idea of parting with that much money that I have financed at 3%. BUT I am planning to retire within 1 year and I would rather not have the mortgage payments. Unlike when I didnt have money, I dont feel stress. I just struggle with what to do? Maybe pay one off? decisions, decisions. I do agree that regardless of where you are in your life, having a paid off home feels wonderful and you cant put a price on peace of mind.
It was my first step in early retirement planning. Back when interest rates were higher than they are today. Havent had a mortgage in 20 years! Allowed us to hyper save during the 08 meltdown and eventually retire in our mid 50s.
After renting before buying my house from "the Landlord From Hell" (no water, no hot water, etc) I have a particular view on renting vs owning! In addition, when my father became incapacitated and we had to sell the house to pay for his care, it didn't sell right away. We, my brother and sister decided to rent the house with the idea of showing it again in spring. There was also an apartment over a detached garage also. I had the realtor find the tenants as there was no cost to us but he would get a commission.Being very busy with work, I thought that we'd get a better type of tenant and save me time. This was a huge mistake! We found the tenants from hell who were friends of the realtor and did everything possible to make buyers think there were many problems that didn't exist. The guy over the garage flooded the place multiple times! I don't EVER want to be a landlord or a tenant! Something most people don't consider as part of the question when considering to rent or own!
Glad I have my subterrain home I had built 35 years ago. Cost me more out of pocket because it wasn't a "conventional home" and hard to find a mortgage loan. With all the disasters going on now I don't get why these types of homes are not the way to go
For the wife and I, both (before we met) owned homes in our past lives. The freedom to move when we want without the concern of having to sell a home first - priceless. Also, moving into areas that you research well, you can almost always improve your lifestyle and quality of life for same or less money. Of course if you are already in a low cost of living area the lower cost could be a tough one to pull off, but a lateral move is almost always there. Traveling and leaving an empty home - not something we like as our previous home (one for each of us) were not in protected / gated communities so yeah. Stressful leaving a house just ready to be broken into. Adjusted for inflation, the rent we pay today is almost the same as what we paid 20 years ago, inflation adjusted while our investment income stream has risen well above that of inflation. No worries about insurance companies pulling out or having to risk adjust rates to extremes (Florida, California for example). We love the renting.
Too many memories to consider our house not a family member. Maybe later that will change, but for now always need a place for the kiddos to return to in case life deals them an issue. I never had a house to return to when I was growing up, I told myself if I ever had children I would not subject them to that feeling...ever.
I advised clients for 26 years have had written for financial advisors and their clients for the past 18 years. I paid off the mortgage on my current home several years ago and have never financed anything other than a home the past 35 years. (always paid cash for cars) I suggest that people own a home and pay off a mortgage before retiring. Yes, after paying off the home, you still have homeowners insurance and property taxes (along with maintenance, HOA fees and utilities), but it is still the best position to be in. For as many years as I have crunched numbers, I would argue that ownership of the home is psychological and something that has a value that can't be quantitative.
How about house appreciation? i paid off my mortgage before I retired and never regretted it a bit. I have a rental property that I used to hate until I paid off the mortgage. having a positive cash flow makes a big difference.
Yes, the house appreciation factor seems to be missing from this analysis -- could go up or down, of course, as we've learned from recent experience. But, still, you need to factor in your expectation for house asset value change over the evaluation period as well. Another factor that belongs in this analysis is the notion of "imputed rent." In effect, homeowners pay themselves "rent" with tax-free $'s, while renters must pay their rent with real green dollars, which they first had to earn and pay income taxes on. These 2 add'l factors can be significant enough to swing the evaluation either way, all other variables being equal to what the author describes, above. Just something else to incorporate into the analysis, if you really want to be thorough.
Mr Schmidt, thank you for this breakdown of the "details" of paying off a mortgage. Another thought I have recently had, is to use my home as an asset and to hire a rental management company to rent out my home then use the additional income to fund my more appropriately sized rental.
That's viable but I was a landlord for many years and rental management firms are terrible; they are mostly failed realtors who have to work the least by pleasing tenants not owners. I would advise in retirement that you only do it if you are going to rent or buy another place in the same area so you can do the management yourself.
@@280zone As a landlord myself I agree with phillipem1000. I only use a property mgr (who is also a realtor) to screen new tenants I make the final call but she does all the checks, etc. She's also really good and probably tougher than me. LOL! I've heard nothing but horror stories from people who use companies to collect rent, fix problems and maintain the property.
It's so important! I'm currently having to do a lot of home maintenance since I've been in my home so long. Every month sees a few thousand in projects. These aren't "make it pretty" projects, rather older home maintenance. This would not be possible without my home being paid off.
That's what you call "deferred" maintenance. That's awesome that you're getting it done, which will give you that invaluable peace of mind. Kudos to you!
@ I've noticed over the years that maintenance comes in waves. Certain things must be included on every wave, like house painting, but the first wave was roof, gutters, furnace, water heater, appliances, etc. now it's decks, driveway, plumbing. All pretty big and not easy if you still have a mortgage. When you look at houses for sale, it's pretty easy to see those that are going to take a boatload of money to bring up to speed.
We left a lovely and rent controlled apartment in Westchester County (due to growing family) and moved south 30 years ago and purchased a home. As empty nesters, we would love the easy lifestyle of renting that apartment again. Something breaks, call the landlord. Appliance no longer works, they replace. Leave for vacation, just lock the door and leave. THAT is easy living 😊
Until the landlord has a reason to sell or they realize they could raise the rent 25-50% in 60 days. My sons new in-laws have always rented. My total housev payment, taxes insurance, HOA is $2400 and I've been here 16 years. Their rent is $2300 and has been pretty steady for years. Last week the owner brought a realtor/property manager over and the agent said she could be getting $4500 mo rent. All she has to do is give them 60 days notice and can significantly raise their rent. My mortgage is set with a slight increase in taxes and insurance
We have no problem carrying a mortgage at 4% Balance of 197000. Payment is 1400 per month. Less then Rent 4 BDRM 3 Bath 2600 sq feet gardens in back We are more then comfortabe with this scenario. We have 300000 in equity and we are considering a 100000 2nd mortage for some upgrades. We are starting to increase ouir withdrawals per your advice and that of our Financial advisor. WE thank for your videos and I try to share them with my freinds who havent retired yet..
You forfeit housing security if you rent. Your landlord could choose to end your lease at any time at which point you would have to spend considerable money to move to a new place. Minimizing risk should be a cardinal rule in retirement.
Thanks , like fingerprints there are no two people with the same financial match, but this a good amount of info to consider for important decisions. Keep it coming … very helpful.
Paid off house in 2007 and moved all investments to cash. Then 2008 happened. I was pretty concerned about the real estate situation. They say don't try to time the market but when you see big trouble coming and act, it's not really timing, it's just risk avoidance. Starting to get that unsettled feeling again.
Most Americans find it hard to retire comfortably amid economy downtrend. Some have close to nothing going into retirement, my question is, will you pay off mortgage as a near-retiree, or spread money for cashflow, to afford lifestyle after retirement?
I can see a positive side to renting especially if you can get into someplace that is rent controlled, you gain some freedom in time not maintaining the owned place and someone else does that for you (unless you pay for those services for your home). You might want to go to an event for a weekend but you can't if you own because that's the only good weather day in the forecast to cut the lawn. But if you rented you would just close the door behind you and go. Houses aren't always a good investment, sometimes you're settled in and the neighbor next door moves and a nightmare moves in. It's easier to break a rental agreement than to sell your home if you can't stand the new neighbor.
@INTERNETVID agree. But with house equity there's the option to draw off of LOC. I bought because I didn't want to be that sad lady at the end of the hall who had rented for 29 years, so there's some psychology in the decision as well
My 30 year mortgage is 2.25%. I will never pay more than the minimum payment. If rates ever go back below 3%, then I would refi into a new 30 year mortgage.
FACTS! As a retired accountant with a 2.5% mortgage interest rate, I chose to carry my mortgage into retirement for the next 2.5 year. Last year I earned 17% on my investments. Cashflow is not an problem so insurance and property tax are a non-issue.
This is a good first approximation summary of the cost benefit analysis, but could be enhanced with some estimates of uncertainty about rent increases. These are erratic and in some areas can be large annual increases, especially where private equity now owns a proportion of the houses. Their profit seeking also pulls other rents up. A significant segment of landlords are poorly responsive to maintenance needs, so you do that yourself or live without. In the other column (ownership), insurance doesn't appear, but should. An increasing percentage of the US will be subject to dramatic increases in insurance costs in the near future. Then there is stability. In my area, rents are 35-50% higher than a mortgage on a house bought a while ago (lower principal so lower monthly cost). If the rental supply shrinks, those will go up a lot more, making it unsustainable and requiring moving to a whole new area. The methodology here is a useful first cut, but anyone thinking about it needs to do the arithmetic for their specific geographic area.
A 25 or 30 year mortgage won't change other than property taxes, while rent is only guaranteed for the term of a lease. My son ran into another pot hole in renting, he had been renting from the same landlord for over 5 years on a year to year lease, a couple of years ago the landlord decided to take advantage of the exploding real estate market and sell while the gettin' was good.
To us it’s a no-brainer. We’ll sell and downsize when we retire in ten years or so. No mortgage plus a nice (after capital gains) little chunk left over to invest. But possibly take a year to travel first and rent out the big house to help defray travel costs.
Paid off our home (we are debt free and scrimped for years) to ensure we didnt need higher Traditional IRA withdrawals/distributions when retired, and thus, less fed income taxes now. Plus, if we had to take a larger distribution to include covering mortgage/debt payments, would work against our medicare adjusted income calculation and trigger higher medicare premiums. Your IRA withdrawals are 100% counted as income. 14:09 Pay off your mortgage and even if a small interest rate, stop giving it to the bank. Its bad enough paying property taxes and high insurance premiums that actually are used for other people’s homes in most cases, you can play all day long with numbers gained/lost in the market/inflation- but it’s tough beating the overall wellness one gets from housing security and being debt-free.
Renting can never be cheaper than owning. It falls on its own absurdity that by renting the costs would magically become lower even when adding profits to the owner. However, it is cheaper to live in a small 2-bedroom apartment in a crime-ridden area compared to lìving in a 4-bedroom house with your own lawn in a friendly neighbourhood. That is what is being compared when using "average rent" with "average house mortgage".
There’s one more variable. You have $5.5 million of liquid net worth, invested in a number of high quality growth and dividend stocks. You are 62 and considering returning to the United States after 8 years abroad and a year of battling cancer (100% cancer free, thank you) and you just want a base in Florida where you lived before moving overseas. You want to own that home so you can furnish and fix it exactly to your taste (Key West coastal elegant) and you figure that investing $600k isn’t going to effect your ability to continue to grow your nest egg or dent your annual income from dividends, options trading and the occasional selling of a few of those 11,000 Apple shares you’ve been sitting on for 13 years. Sometimes the decision is easy.
Home or rental insurance should be added as a cost. I would add also that owning a home with no mortgage gives you a fairly stable cost as opposed to renting, where the landlord could raise prices beyond your ability or desire to pay.
I retired and moved from CA to TX in 2005. I bought my 5bd 3ba house for $265k with my equity from my small LA house and had $50k left over It has been great to have a paid off home and being debt free for 20 years. It's worth $640k now and I have done around $100k of upgrades. No regrets. I sell options and do well with my trades.
Finding a rental is never easy and certainly not now in many parts of the U.S. Finding a rental that works for one's lifestyle for latter years of life is next to impossible! New build neighborhoods are 2-3 level on tiny lots for young families. Builders will not make money on rentals or sales on properties geared for seniors. Hence the number of seniors staying in their houses -- mortgage free or not.
It depends on your neighborhood too. We paid our house and our neighborhood in 20 years is so bad now. The original owners sold the house moved out and the new people don’t care as much and you can hear gunshots at night is heartbreaking.💔 unless you don’t care your value of the house is not going to be good at all if you want to sell in the future. And my sister she bought her condo not even a house in a great neighborhood and her condo for 10 years is 3 times more worth then our house in 20 years. We can not sell for 2 times what we paid . Very sad how in America a lot of the neighborhoods are not good at all after 20 years. That’s it😊
Geoff, I've been hearing about 'equity stripping' i.e. taking out your equity to acquire income producing investments such as rental properties. Not for the faint of heart but many wealthy investors are said to engage quite successfully in this practice. If you haven't already done so, please consider the pros and cons of this as a topic for another video.
The big irony is that if you have a lot of assets built up over a life of disciplined investing and living within your means thenyou can probably afford and benefit further from continuing to hold a modest amount of leverage by holding a residential mortgage...whereas if you have no savings and your house is your only asset then you should probably not leverage as you have no history of sound financial behaviour and the risk for you is too great
Capitol gains on the sale of a paid off home that has been owned 30 years is very high in some areas. It's very easy to exceed the federal limit for tax free profit on the home sale. If your spouse dies and you have to sell the home as a single person, you could be paying capital gains tax on hundreds of thousands of dollars, half a million easy in California. That federal limit needs adjusted for inflation.
SF Bay Area here, bought my home at $500k 20 years ago, now worth $2M. If I sell it today I will have to pay 15% Federal cap gain and 10% California cap gain on $1M. That’s $250k. Oh well, it is paid off 5 years ago and the way I look at it, i still gain $1.1-2 after selling fees. It sucks but it is a good problem to have I guess.
It's prudent to keep an eye on your property value. The challenge is to work out whether it makes more sense to pay the capital gains tax or the realtor fees. Here's an example. Couple buys a house for $200k. Value goes up to $700k. They could sell and pay $42k in realtor fees and buy another house and reset their value, and face the same issue when their second home reaches $1.2M. Sell again and pay $72k in realtor fees. New home goes to $1.7M. Sell again with $102k in realtor fees. If they stayed at the first home, would have saved $124k in realtor fees, but paid the capital gains on $1.5M. So the question becomes, do you want to pay tax or make realtors wealthy?
in my case I am willing to pay the capital gain AND realtor fees, as long as my wife agrees to move to a cheaper location and retire. The sales net us more than $1.2M gain. Also we would have $1.75M in cash. $750k would buy us a nice retirement home in the Sacramento area.
Silly question...of course it is...ALL DEBT IS BAD...My home is MY CASTLE...I have only bought two homes in my entire life...RENTING is flushing money down the comode! I bought my second home with cash....as I refused to have a mortgage in retirement. My home is like a shell on a turtle...I do not spend any where near $3600 a year on home maintenance...
Well some say you never can own your home “free and clear”, and if you don’t believe that watch what happens when you don’t pay your property taxes 😮. It is hard to put a price on the “mental satisfaction” of not owing anything on your house, but there are so many variables and different circumstances for people that obviously for some it is better to be renter in retirement and others it is better to own, either with a mortgage or free and clear. Really depends on your overall financial status or total wealth/assets.
Tell Texas about an average property tax of 1.1%. Try 4%. But no income tax. But tax abatements for corporations abound. Paying 8% in NY starts to seem like a deal.
It's a leveraged investment, 10% that's 9x leverage of the real estate market (about 5%) - but as you pay it off your leverage reduces until your rate of return reduces from 45% to 5% - mortgage rate. So, if you have just bought your home 45% - 7& loan is 38% return and then at 20 years (2/3 to the end of the mortgage) 30% -7% or 22% roe - better to have the loan. If your mind is bothered by financing ... that's a different situation.
I've been retired for over five years and while I enjoy most of these videos I can with no reservations this one is a real waste of time. I don't care what anybody says a retiree must own their home OR be willing and able to spend more for housing. Why? Because there is no such thing as a free lunch. If renting is going to save you maintenance costs does anyone really believe the property owner will just eat those costs and not pass them on to you the renter? Really? Another bit of simply advice. If your not debt free, then you are not ready to retire. Period, end of story 😊
If structured correctly (by the issuing authority) in most stated the interest on municipal bonds is not subject to tax by the federal, state or local governments. If you move out of the state where the bonds were issued, you only avoid the federal tax.
So one thing I don’t understand when I see these rent v own comparisons. A landlord knows that there is maintenance required for a house, even more so with tenants. So wouldn’t they factor that into the rent? So as a tenant I’m still paying for maintenance. Same for property taxes. Isn’t it all wrapped into the rent ? Otherwise the landlord is losing money. What am I missing? Thanks, I watch all your videos.
IT IS EVERYTHING!!!
Paying off your home is peace of mind… PRICELESS!
nonsense. I have a 3% mortgage and am investing the difference (from paying off the home) in the stock market, averaging 10% return.
rt peace of mind worth wayy more then anything i could buy
@ethanadams8165 no, not nonsense. Check your amortization schedule to see how much interest you're paying over the life of your loan. If it's a 30 year note, you're probably spending your stock market gains on interest AND could lose it all. Paying interest is like throwing money away. The less, the better!! A mortgage free home will ALWAYS provide the security of a roof over my head. One other point to make--a mortgage free house = the security of a home AND more funds for other investments, such as your stocks!! PRICELESS!!
It's a nice feeling until property taxes come, and you realize that you are pretty much renting too.
For many yes for me no. I like the returns that I am making in the stock market over paying off my home.
I am 54 and semi retired. If I paid off my home I would be in a worse financial position as I would have to work more hours. The only reason that I am still working now is the cost of health insurance. I'm 11 years from having Medicare and in your late 50s and early 60s is when health insurance is at its most expensive. My job even with me working part time I get mostly free health insurance. So I am motivated to work as few hours as possible where I still get my mostly free health insurance.
I bought my home almost 30 years ago with retirement in mind. I was 39 at the time. Best decision I ever made. Not planning on leaving as long as I remain in good health. My mortgage was so small renting today would be quite a shock :-).
We built in 88, had to pay down the interest rate to get 10.75%. I knew people that were paying 18% mortgage rate and truly house poor.
I'm 69 years old and not having a mortgage, car payment or any debt going into retirement was one of the smartest things I ever did. I never paid for financial advisors. I read books from the library and talked with many retired people. I'm not rich by any stretch of the imagination. I worked full-time for 45 years, sacrificed many things like not taking fancy vacations, and lived below my means for decades, but the peace of mind it has given me today is PRICELESS.
never paid for financial advisors = not rich by any stretch
Congrats! 🎉
@@DrSchor not sure what you are trying to imply but your = sign equation is pure bs, too many people have been completely fleeced by their financial advisors, I used to give an older fellow a ride every now and then who had been completely wiped out by his financial advisor ran off with his entire portfolio, actually spend it I think, and the cheat man lived out his old age in poverty doing odd jobs often for people who could afford to pay him more, thinking of my neighbour across the street who owned about 50 houses and was tighter than wall paper and would always try to convince me that I should work for cheap for her because I was a student, that's how some people get rich by the way,underpaying people doing the work them and charging outrageous rents to their tenants!
Congrats!
Same here took all the money from my home sale that wasn’t paid off and paid cash in full for my new home when I retired and moved out of state. Best decision ever all the way around.
I own my childhood home. We renovated it and call it Connor Cottage. Its mortgage free, small, low maintenance and confortable. We were hit hard by hurricaine Helene but we are slowly getting things back in order. We will never sell and we are grateful to have this home. It is home..
I paid off my home a year before I retired. And, I made sure to upgrade or replace anything that I felt could die on us after I retired. Our homeowners insurance is stable, but, our town property taxes were reevaluated last year. As a result, there was a huge jump is tax payments. However, I will live in my house until I die as it’s a well kept 1973 house that we can afford to fix under almost any circumstance.
gpdoyon... 👍
Very smart. I plan on having my house paid off before I retire but hadn't thought about making sure to upgrade or replace anything that could die on me after I retire.
Check with your state/county. Some areas have discounts on taxes for people over a certain age.
It’s worth paying off your home at any time in your life. It reduces your financial risk. Even if you could “earn more” in the market than you are paying in interest, you are better off and safer with a fully paid-off home.
Then, you don't have to worry about your rent going up or having to deal with the "landlord", you can do as you dang well you please!!
Rising property taxes and homeowners insurance, and some people have annual HOA fees. These costs are going up every couple of years.
When you are dealing with a mostly fixed income in retirement then a paid off house will get you plenty of breathing room when inflation hits or a bad year in the market comes along. I will not retire until my house is paid for.
your comment is totally illogical. if you can "earn more" in the market, then you are not risking anything financially.
@@torpedo2030 Yes but the biggest cost in owning is a mortgage. Even if those go up you can probably downsize or move to a cheaper area and have a very nice place and know you'll always have a roof over your head.
If you are married to an Italian grandmother like I am, you wouldn't even ask that question.
Bravo! 👍
A couple years before I retired we paid off the last $30K. Being debt free in retirement brings without mortgage or rent brings a lot of peace of mind.
We paid off our house 3 years ago & it's been great! No more mortgage payment & No rent! We also paid off both of our cars so now Zero debt going into retirement at the end of this year.
Same here, paid off our home at 50 and 3 paid off rentals years ago. Now at 52 and we are thinking retirement at 60 when my second child finish college. Can’t wait.
My mother bought her last home for cash, and her owning it outright meant it could be rented out when her health forced her to move into assisted living - that rent and her SS and pension income cover the ALH cost each month. Everyone's situation is different, but definitely food for thought.
Literally paid my house off just yesterday. I like knowing that if everything does go south in my last 5 years, I could move back to where I grew up with family, buy a very nice place much cheaper and still have a very hefty sum left over to get me over the finish line.
Nicely said.
Thanks for the great video, all good points to consider. Two things I'll contribute for thought. One, with all the natural disasters we have now, I've heard of people being no-fault evicted so that the landlord can move back in to their rental property after their primary residence became uninhabitable. Two, post-Covid, the rental prices in my area have gone through the roof, and people have been forced out due to rapid, drastic increases in rental prices. I believe I will have more peace of mind if I can retire in my own, paid off home.
If you own your home, you are in effect, your own landlord.
Insurance costs are huge and going to keep rising. Pay off your home and get enough into dividend stocks to perpetually pay your property taxes and insurance costs. Then you are just looking at home maintenance. That is the game plan I am working under now.
I’m retired and that’s what i did. Took the dividends paid in 2024. And paid all my insurance policies. House , car, umbrella. And property taxes for 2025. And my pension covers everything thing else
@nubicep65 You're my hero. The only path forward I believe so you're not selling the assets you need to keep paying those bills. It's a race at this point. Nice work
Third of my investments are dividend payers monthly and weekly Lots of options to invest in these days.
Yes, it's REALLY worth it. My goal for my entire life was to have as little as possible going out each month. A mortgage payment was the biggest of them all, and not having it was the ultimate goal. Unfortunately, we have evolved into a society of monthly subscriptions that didn't exist before. That requires much more discipline, but much of it isn't needed. Paying off the mortgage is a sense of security and frees up money for other spending that may have been avoided. Yes, well worth it!!
Why would I want to go back to paying rent and being subject to someone else's rules? I'll gladly pay extra to maintain autonomy over that part of my life.
No kidding! Plus unknown neighbors! No me.
Some people are so strapped in retirement, they have no choice.
@@teekay_1 I understand that, but the premise here is that the house is paid off going into retirement.
If you do rent you are still paying property taxes, it is included in the rent with the maintenance costs, insurance cost and all other costs, vote accordingly you have skin in the game. Thinking longer term I see a home as an asset that adjusts with inflation.
You are absolutely correct about renters paying all those costs. Renting has really few advantages -- you don't have to fix things when they break and you can move much more easily if you want to. I see a home as a roof over my head; some costs will rise but with no mortgage they are all a small percentage of my living cost. The security of knowing your housing situation is secure is priceless.
Homeowner's insurance. Trust me, this can be a big number, and it never goes away.
I know ppl who own there home and chose no insurance... true
@@nccrchurchunusual didn't work out well in LA recently.
@@nccrchurchunusual never trust a commentor who can't spell their
Mortgages are a post tax cost. You need to make nearly $3000/mo to pay a $2000 monthly mortgage after income tax
Your video reminds me of a conversation I had with a colleague when we were both in our late 30's. One of his jobs was to do the cash flow analyses of all of the projects in the department. He and his wife had good jobs, so they were able to pay off their mortgage very early. I asked him why he did this, since the cash flow analysis plainly showed that he would make more money paying his mortgage at a low interest rate, and investing the wad of cash that he had. But, he said that he just couldn't bear writing that big mortgage check every month, so plainly an emotional decision.
I paid off my mortgage in my mid 40's because by that time, the mortgage payment was so low compared with my earnings that it was just an annoyance. Again, an emotional decision.
This video was spot on for me. My husband and I live in a condo. Most people, except for a few are retired. The neighborhood is good. I would be afraid to dale it and rent some place. I don’t want to get a notice to leave a place I would be renting or the price of the rent rising. The condo we live in was paid for before I retired. The property value has risen, and it’s nice that all the necessities are all on one floor. Thank you, this video has made me feel more grateful for what I have. 🙏
I am still learning the real estate lingo. what does it mean to dale it.
@ opps, I meant sale it.
I paid off my mortgage 27 years ago. I paid it off in 5 years because I hate debt.
i pity those who dont know how to use other people's money to become wealthy. sad.
Good food for thought. Maybe I missed it but I don't think I saw homeowner's insurance as an expense. That cost is increasing rapidly in many states. Also, the maintenance cost seems low. I spend between 8,000-10,000 each year (average) on the necessary maintenance such as tree work, plumbing, painting, appliance replacement, roof repair or replacement, etc. While it is true that I live in a very old house (think character), even newer houses require regular maintenance. I'm definitely attached to my house (can't deny it!) but at some point I might need to make a hard decision. I don't have a mortgage, but all the other costs of home ownership are becoming quite costly. Seems to me there are many retirees in this situation.
yep. I am one. I have a paid off 'old' house.. high taxes, high insurance, high maintenance. Selling and moving on.
Learn to do some of the maintenance yourself. It will save you thousands.
Sold our house in one beloved neighborhood when we became empty nesters. Paid cash for our current home (barely a downsize) in another area still close to family. Yes, we are emotionally attached to each CURRENT home we have. But now we have no mortgage.
I'm emotionally attached to having a secure place to live where I never have to worry about keeping the roof over my head. No mortgage!!
@@philipem1000exactly!
2.75% makes a big difference. Would rather have it paid off. YES. BUT here we are and living happily retired .❤️🌵
So here’s what my hard costs with my paid off home in Northern Colorado:
3BR 2BA 1400sq ft value $400k
Property taxes= $1875
Home insurance =. $2025
Utilities $200 x 12=$2,400.00
Maint (wild card)= $4000.00
HOA =. 0.00
Mortgage. = 0.00
Total. 🟰 $10300
/12 months. = $858.00
2026 home costs 4% =894.00month
Rent in my City
Rent. = $2400.00/ mo x12
=28800.00
Renters insurance. =$1200.00
Rental total. =30000.00
2026 rent is $2500.00
2026 home escalator = $36/ mo
20256 rental escalator =100.00/mo
Paid off house wins in my area. ( I live in a desirable area of the U.S.)
In my early 20's I designed and built our small ranch style home 2Bed/1Bath and while it was supposed to be our starter home due to a few pretty rough life events we're still here. Fortunately it's been a comfortable place to live and we'll never have to downsize, lol. The cash flow aspect is huge as beyond the simple numbers you can do some pretty amazing things with your 1040 thanks to lower spending including making sizeable tax free Roth conversions. Then there's the absolute security of being able to live well under social security alone because you hardly have any bills...the cashflow is amazing.
I paid my coincidental last monthly payment 7 months after retiring. Things went so great since then that I bought a second home too and it's been great. Very fortunate thanks to living within my means, a pension, social security, and enough savings to spend down.
Besides the financial aspect, renting generally includes the risk of having to move from time to time as not all rental owners keep their rentals forever. Moving at our age is not something we want to deal with. Also, rent always increases, most often when the cost of everything else is increasing.
Moving without closing costs and realtor commissions.
Since I bought my house at 55 in 2018, it won't be paid off. However I do have a 2.6% interest rate and I bought it for security and because I have lots of pets. I don't have any intention to use it as an investment. I am still working but will have a pension when I retire. Because of my interest rate and living in the high desert 30 miles outside of Los Angeles with Proposition 13, I do feel like I probably won't sell my house unless something changes.
Unfortunately I think it is only a question of time before prop 13 is overturned.
@@nightdipper5178People have been saying that for over 40 years. 😂
My wife retired at the age of 51 and I retired at the age of 55. When I retired, we still had a mortgage. We had more than enough cash to pay it off but with our investments earning 12-14%,
we were in no hurry to pay off a 6% mortgage. IMO, retirement is ALL about cash flow. Having some debt is OK, IF one has the cash flow to cover that debt. Once the stock market was in
retreat and the earnings from it fell to that 6% mortgage, we paid off the final $36k that we owed. There is a sense of peace and freedom that comes with being debt-free that is worth more
than the money involved.
All these issues stem from an economy grappling with uncertainties, including housing problems,foreclosures, global fluctuations, and the aftermath of the pandemic, leading to instability. Rising inflation, sluggish growth, and trade disruptions demand urgent attention from all sectors to restore stability and stimulate growth.
In retirement, safeguarding your wealth against inflation is essential. Consider options like TIPS (Treasury Inflation-Protected Securities), commodities, or foreign currencies to hedge against a weakening dollar. Diversifying your portfolio with global real estate, international bonds, or high-quality foreign stocks can provide additional protection and growth opportunities in an inflationary environment.
With my demanding job, I lack time for investment analysis. For seven years, a fiduciary has managed my portfolio, adapting to market conditions, enabling successful navigation and informed decisions.
Consider a similar approach.
This sounds promising! Do you have any professionals or advisors you could recommend? I really need help with proper portfolio allocation.
Certainly, there are a handful of experts in the field.
I've experimented with a few over the past years, but I've stuck with Jennafer Beaver Turner for about five years now, and her performance has been consistently impressive. She's quite known in her field, look-her up.
I just copied and pasted Jennafer’s whole name into my browser, and her website appeared right away. You've saved me several hours of arduous research, therefore I appreciate it.
My wife and I built our home in 1982 and have long since have paid off the mortgage. That was an emotional moment but as you and others have posted expenses don't stop once the mortgage is paid off but it is one less expense helping with cash flow. When we built the house did not take into account getting old. For example it is a two story cape very common here in New Hampshire and until a few years ago did not have air conditioning and in winter we heated with cord wood. So far we are pretty heathy geezers but that can change at any time.
Our plan it is stay in it as long as possible. Apartment rents are pretty high in our area and at least as of now my wife and I have hobbies that while not impossible in an apartment are not ideal.
Dr Pangloss said that in Candide, not Candide
“All is for the best in this, the best of all possible worlds”
Paying off my home naturally on March 1 at age 45. Couldn't be more excited. Will be completely debt free with dual income in MCOL city. This year, we'll be investing over twice as much as my first salary out of college was.
The trick is to own a smaller home from the get-go. We bought our 1450 sq ft home while
in our 40s assuming it would be our retirement home someday. We raised our family
comfortably and enjoy a fairly large yard. Now that we are old, the house still works
and the mortgage has been paid off years ago. My mother lived in her small house
until age 98. The house sold for a lot more than it cost and the money is now
paying her assisted living costs.
Exactly our situation. I paid off my home right at 50YO 2 years ago, it is worth $2M, SF Bay Area bought it 20 years ago at $500K. My 2 teenagers grew up in the same house and they are off to college. I will sell it as soon as I retire at 60 and move to a cheaper cost of living area.
I owned a house for 20 years and it was nothing but a money pit. Taxes rose every year and there was always something major that needed repair or replacement. Finally sold it with no gain after paying broker fees. Now I'm retired and rent a nice apartment, they've never raised the rent in 7 years. I don't pay for or do maintenance, and I can leave whenever I want. Home ownership is not for everyone.
where on earth can you rent an apartment where they don't raise the rent?
@@HereForToday42 rent controlled district
Where on earth did your home not increase in value over 20 yrs.
Not happening in most places. The renter always pays the taxes, insurance & maintanance. The renter just does not have to make the call to the plumber
Or you could of had a husband it was your choice.
Money and emotions are a terrible combination. Very few of us get more emotional than over our home. In 2022 my father passed away and we settled his estate which consisted of his house that he built over 40 years ago. A four bedroom three bath, 3,600 sq ft estate on three acres. Full of goats, chickens, and fruit trees. A place where my children grew up. My mother, who is still active and with us at 85, made it clear to me she wanted to die in her home just like my father did. Fortunately I had the means to make that happen even if she didn’t. I paid my sister her half of the appraised value of the property and then made 150k of improvements to modernize the home. Essentially making it a reverse mortgage for my mother with myself the lender. My sister inheriting money while I inherited debt. In the end, was it fair? Not really. Was it a good financial decision? Probably not. Would I do it all over again? Absolutely……
Great video Geoff! I recently went through a decision about renting or owning in retirement. Often owning only pencils out if you stay in the same place. We retired when we were in rural Montana. We had our nice trailer house paid for...3 BR, on four lots on the edge of town. We sold it for 54K and moved to Cedar Falls,Iowa...close to grandchildren. Houses there cost $350K for a 3 BR. So we are renting for $1650/month. And it works for us. We are right across the street from children and grandchildren.
Home appreciation and rent increases are going to favor home ownership in the medium to long run.
Rentals tend to make around 10% income on their property. The scenario uses 4% return on proceeds from the sale of the house. This situation causes a 6% loss unless their was a 60% downsizing in living accommodations. This is also excluding the loss from closing costs.
No control over rent escalators
I purchased our “forever “ home two years ago. I’m never moving again. If I was renting I’d always be at risk of a landlord opting to not renew the lease.
House being payed off or not didn't effect my decision to retire at 62. But over the years of owning my house i worked on getting the payment down to around $275.00 a month with interest in the low 3 percent range. So having a morgage payment of $275.00 is fine with me when i retired. I do have plenty of equality in case i ever do decide to sell.
Love this. I’m 44 now but I paid off my 3 bedroom house 6 years ago. It allowed me to save more for a minute but actually left my job of 25 years in 2023. I have been living on cash since then. Im very intentional when it comes to spending and live modestly. It’s defiantly a question i ask myself a lot. I could sell for around 300k and it’s been my thought thats what I would continue to use for retirement. Single and so I often wonder if I could just retire. 1.5 years in I know my expenses and its a fun thought experiment.
its very interesting (no it really is) as someone who lives in Wales ( the bit of the UK that's next to England, look west and you can see us) to listen to all your videos, while lots of it is irrelevant to us here its still great to listen to the parts that are.keep up the great work.
@mwscuba what do you think of this mortgage pay down question? Thanks
@@marynotcontrary3 its not something over here in the UK we would normally do, we are more accustom to owning our homes over renting, example our house is worth £600k and the mortgage left is £5k which has to be paid of by 2028 so all fine here, i do know people who rent but they are all younger and saving up to buy, i dont know anyone who has sold at retirement (65) to move to a rented house, if anything people sell their big ( 1.5 million ) house and downsize buy a 400k house
@@mwscuba thank you
Welsh heritage here. Greetings!
Ive been debating this for a while now. I have 2 houses with interest rates of 3%. I could pay them both off today. its a LOT to pay off so I cant stand the idea of parting with that much money that I have financed at 3%. BUT I am planning to retire within 1 year and I would rather not have the mortgage payments. Unlike when I didnt have money, I dont feel stress. I just struggle with what to do? Maybe pay one off? decisions, decisions.
I do agree that regardless of where you are in your life, having a paid off home feels wonderful and you cant put a price on peace of mind.
it's a mindset problem for sure, but you still owe a LOT of money to the bank(s). the concern is the obligation, not the interest rate.
Paid off mortgage 22 years early, was able to retire early and afford to give kids excellent college education. No regrets.
And owning your home is an appreciating asset that was not a part of these comparisons. Great information though, thank you.
The cash from selling your home, invested, is an appreciating asset. Historically, better than real estate in most regions.
It was my first step in early retirement planning. Back when interest rates were higher than they are today. Havent had a mortgage in 20 years! Allowed us to hyper save during the 08 meltdown and eventually retire in our mid 50s.
After renting before buying my house from "the Landlord From Hell" (no water, no hot water, etc) I have a particular view on renting vs owning! In addition, when my father became incapacitated and we had to sell the house to pay for his care, it didn't sell right away. We, my brother and sister decided to rent the house with the idea of showing it again in spring. There was also an apartment over a detached garage also. I had the realtor find the tenants as there was no cost to us but he would get a commission.Being very busy with work, I thought that we'd get a better type of tenant and save me time. This was a huge mistake! We found the tenants from hell who were friends of the realtor and did everything possible to make buyers think there were many problems that didn't exist. The guy over the garage flooded the place multiple times! I don't EVER want to be a landlord or a tenant! Something most people don't consider as part of the question when considering to rent or own!
Glad I have my subterrain home I had built 35 years ago. Cost me more out of pocket because it wasn't a "conventional home" and hard to find a mortgage loan. With all the disasters going on now I don't get why these types of homes are not the way to go
For the wife and I, both (before we met) owned homes in our past lives.
The freedom to move when we want without the concern of having to sell a home first - priceless.
Also, moving into areas that you research well, you can almost always improve your lifestyle and quality of life for same or less money. Of course if you are already in a low cost of living area the lower cost could be a tough one to pull off, but a lateral move is almost always there.
Traveling and leaving an empty home - not something we like as our previous home (one for each of us) were not in protected / gated communities so yeah. Stressful leaving a house just ready to be broken into.
Adjusted for inflation, the rent we pay today is almost the same as what we paid 20 years ago, inflation adjusted while our investment income stream has risen well above that of inflation.
No worries about insurance companies pulling out or having to risk adjust rates to extremes (Florida, California for example).
We love the renting.
Too many memories to consider our house not a family member. Maybe later that will change, but for now always need a place for the kiddos to return to in case life deals them an issue. I never had a house to return to when I was growing up, I told myself if I ever had children I would not subject them to that feeling...ever.
I advised clients for 26 years have had written for financial advisors and their clients for the past 18 years. I paid off the mortgage on my current home several years ago and have never financed anything other than a home the past 35 years. (always paid cash for cars) I suggest that people own a home and pay off a mortgage before retiring. Yes, after paying off the home, you still have homeowners insurance and property taxes (along with maintenance, HOA fees and utilities), but it is still the best position to be in. For as many years as I have crunched numbers, I would argue that ownership of the home is psychological and something that has a value that can't be quantitative.
How about house appreciation? i paid off my mortgage before I retired and never regretted it a bit. I have a rental property that I used to hate until I paid off the mortgage. having a positive cash flow makes a big difference.
Yes, the house appreciation factor seems to be missing from this analysis -- could go up or down, of course, as we've learned from recent experience. But, still, you need to factor in your expectation for house asset value change over the evaluation period as well.
Another factor that belongs in this analysis is the notion of "imputed rent." In effect, homeowners pay themselves "rent" with tax-free $'s, while renters must pay their rent with real green dollars, which they first had to earn and pay income taxes on.
These 2 add'l factors can be significant enough to swing the evaluation either way, all other variables being equal to what the author describes, above. Just something else to incorporate into the analysis, if you really want to be thorough.
Mr Schmidt, thank you for this breakdown of the "details" of paying off a mortgage. Another thought I have recently had, is to use my home as an asset and to hire a rental management company to rent out my home then use the additional income to fund my more appropriately sized rental.
That's viable but I was a landlord for many years and rental management firms are terrible; they are mostly failed realtors who have to work the least by pleasing tenants not owners. I would advise in retirement that you only do it if you are going to rent or buy another place in the same area so you can do the management yourself.
@@philipem1000 Thanks for the insight, I was thinking more for my long term care or assisted living costs when I won't managing much at all.
@@280zone As a landlord myself I agree with phillipem1000. I only use a property mgr (who is also a realtor) to screen new tenants I make the final call but she does all the checks, etc. She's also really good and probably tougher than me. LOL! I've heard nothing but horror stories from people who use companies to collect rent, fix problems and maintain the property.
It's so important! I'm currently having to do a lot of home maintenance since I've been in my home so long. Every month sees a few thousand in projects. These aren't "make it pretty" projects, rather older home maintenance. This would not be possible without my home being paid off.
That's what you call "deferred" maintenance. That's awesome that you're getting it done, which will give you that invaluable peace of mind. Kudos to you!
@ I've noticed over the years that maintenance comes in waves. Certain things must be included on every wave, like house painting, but the first wave was roof, gutters, furnace, water heater, appliances, etc. now it's decks, driveway, plumbing. All pretty big and not easy if you still have a mortgage. When you look at houses for sale, it's pretty easy to see those that are going to take a boatload of money to bring up to speed.
We left a lovely and rent controlled apartment in Westchester County (due to growing family) and moved south 30 years ago and purchased a home. As empty nesters, we would love the easy lifestyle of renting that apartment again. Something breaks, call the landlord. Appliance no longer works, they replace. Leave for vacation, just lock the door and leave. THAT is easy living 😊
Until the landlord has a reason to sell or they realize they could raise the rent 25-50% in 60 days. My sons new in-laws have always rented. My total housev payment, taxes insurance, HOA is $2400 and I've been here 16 years. Their rent is $2300 and has been pretty steady for years. Last week the owner brought a realtor/property manager over and the agent said she could be getting $4500 mo rent. All she has to do is give them 60 days notice and can significantly raise their rent. My mortgage is set with a slight increase in taxes and insurance
We have no problem carrying a mortgage at 4% Balance of 197000. Payment is 1400 per month. Less then Rent 4 BDRM 3 Bath 2600 sq feet gardens in back We are more then comfortabe with this scenario. We have 300000 in equity and we are considering a 100000 2nd mortage for some upgrades. We are starting to increase ouir withdrawals per your advice and that of our Financial advisor. WE thank for your videos and I try to share them with my freinds who havent retired yet..
You forfeit housing security if you rent. Your landlord could choose to end your lease at any time at which point you would have to spend considerable money to move to a new place. Minimizing risk should be a cardinal rule in retirement.
Thanks , like fingerprints there are no two people with the same financial match, but this a good amount of info to consider for important decisions. Keep it coming … very helpful.
If I own my home and can pay the taxes I have security. If you rent you can become homeless overnight at the whim of a landlord, no thanks.
Paid off house in 2007 and moved all investments to cash. Then 2008 happened. I was pretty concerned about the real estate situation. They say don't try to time the market but when you see big trouble coming and act, it's not really timing, it's just risk avoidance. Starting to get that unsettled feeling again.
Most Americans find it hard to retire comfortably amid economy downtrend. Some have close to nothing going into retirement, my question is, will you pay off mortgage as a near-retiree, or spread money for cashflow, to afford lifestyle after retirement?
I can see a positive side to renting especially if you can get into someplace that is rent controlled, you gain some freedom in time not maintaining the owned place and someone else does that for you (unless you pay for those services for your home). You might want to go to an event for a weekend but you can't if you own because that's the only good weather day in the forecast to cut the lawn. But if you rented you would just close the door behind you and go. Houses aren't always a good investment, sometimes you're settled in and the neighbor next door moves and a nightmare moves in. It's easier to break a rental agreement than to sell your home if you can't stand the new neighbor.
Owning a home even with a small mortgage is much more preferable. You can't be kicked out if the landlord desides you need to go.
Good point. Plus unpredictable rent increases. (Then again, taxes and insurance go up too, so it's largely a trade off).
@INTERNETVID agree. But with house equity there's the option to draw off of LOC. I bought because I didn't want to be that sad lady at the end of the hall who had rented for 29 years, so there's some psychology in the decision as well
My 30 year mortgage is 2.25%. I will never pay more than the minimum payment. If rates ever go back below 3%, then I would refi into a new 30 year mortgage.
Absolutely. If you have to do a reverse mortgage which is not a great idea in the future then you have a clear asset
Depends on the home loan interest rate vs. what the investments return.
FACTS! As a retired accountant with a 2.5% mortgage interest rate, I chose to carry my mortgage into retirement for the next 2.5 year. Last year I earned 17% on my investments. Cashflow is not an problem so insurance and property tax are a non-issue.
This is a good first approximation summary of the cost benefit analysis, but could be enhanced with some estimates of uncertainty about rent increases. These are erratic and in some areas can be large annual increases, especially where private equity now owns a proportion of the houses. Their profit seeking also pulls other rents up. A significant segment of landlords are poorly responsive to maintenance needs, so you do that yourself or live without. In the other column (ownership), insurance doesn't appear, but should. An increasing percentage of the US will be subject to dramatic increases in insurance costs in the near future. Then there is stability. In my area, rents are 35-50% higher than a mortgage on a house bought a while ago (lower principal so lower monthly cost). If the rental supply shrinks, those will go up a lot more, making it unsustainable and requiring moving to a whole new area. The methodology here is a useful first cut, but anyone thinking about it needs to do the arithmetic for their specific geographic area.
A 25 or 30 year mortgage won't change other than property taxes, while rent is only guaranteed for the term of a lease. My son ran into another pot hole in renting, he had been renting from the same landlord for over 5 years on a year to year lease, a couple of years ago the landlord decided to take advantage of the exploding real estate market and sell while the gettin' was good.
To us it’s a no-brainer. We’ll sell and downsize when we retire in ten years or so. No mortgage plus a nice (after capital gains) little chunk left over to invest. But possibly take a year to travel first and rent out the big house to help defray travel costs.
Paid off our home (we are debt free and scrimped for years) to ensure we didnt need higher Traditional IRA withdrawals/distributions when retired, and thus, less fed income taxes now. Plus, if we had to take a larger distribution to include covering mortgage/debt payments, would work against our medicare adjusted income calculation and trigger higher medicare premiums. Your IRA withdrawals are 100% counted as income. 14:09 Pay off your mortgage and even if a small interest rate, stop giving it to the bank. Its bad enough paying property taxes and high insurance premiums that actually are used for other people’s homes in most cases, you can play all day long with numbers gained/lost in the market/inflation- but it’s tough beating the overall wellness one gets from housing security and being debt-free.
Renting can never be cheaper than owning. It falls on its own absurdity that by renting the costs would magically become lower even when adding profits to the owner.
However, it is cheaper to live in a small 2-bedroom apartment in a crime-ridden area compared to lìving in a 4-bedroom house with your own lawn in a friendly neighbourhood.
That is what is being compared when using "average rent" with "average house mortgage".
There’s one more variable. You have $5.5 million of liquid net worth, invested in a number of high quality growth and dividend stocks. You are 62 and considering returning to the United States after 8 years abroad and a year of battling cancer (100% cancer free, thank you) and you just want a base in Florida where you lived before moving overseas. You want to own that home so you can furnish and fix it exactly to your taste (Key West coastal elegant) and you figure that investing $600k isn’t going to effect your ability to continue to grow your nest egg or dent your annual income from dividends, options trading and the occasional selling of a few of those 11,000 Apple shares you’ve been sitting on for 13 years.
Sometimes the decision is easy.
I love easy questions. Yes.
Home or rental insurance should be added as a cost. I would add also that owning a home with no mortgage gives you a fairly stable cost as opposed to renting, where the landlord could raise prices beyond your ability or desire to pay.
I retired and moved from CA to TX in 2005. I bought my 5bd 3ba house for $265k with my equity from my small LA house and had $50k left over It has been great to have a paid off home and being debt free for 20 years. It's worth $640k now and I have done around $100k of upgrades. No regrets. I sell options and do well with my trades.
I am paying down the mortgage, so if I do retire with a mortgage, more of the payment goes to paying down the principle, less going to interest.
The peace of mind is worth it! (Even though you still have property tax) pay off all your debt or keep working. 🎉
Finding a rental is never easy and certainly not now in many parts of the U.S. Finding a rental that works for one's lifestyle for latter years of life is next to impossible! New build neighborhoods are 2-3 level on tiny lots for young families. Builders will not make money on rentals or sales on properties geared for seniors. Hence the number of seniors staying in their houses -- mortgage free or not.
ALWAYS better off owning a home. ❤️🌵🎄
I couldn’t afford to be retired if I had to pay a mortgage or rent
It depends on your neighborhood too. We paid our house and our neighborhood in 20 years is so bad now. The original owners sold the house moved out and the new people don’t care as much and you can hear gunshots at night is heartbreaking.💔 unless you don’t care your value of the house is not going to be good at all if you want to sell in the future. And my sister she bought her condo not even a house in a great neighborhood and her condo for 10 years is 3 times more worth then our house in 20 years. We can not sell for 2 times what we paid . Very sad how in America a lot of the neighborhoods are not good at all after 20 years. That’s it😊
That would be Pangloss.
Geoff, I've been hearing about 'equity stripping' i.e. taking out your equity to acquire income producing investments such as rental properties. Not for the faint of heart but many wealthy investors are said to engage quite successfully in this practice. If you haven't already done so, please consider the pros and cons of this as a topic for another video.
Dumb idea. Way to loose your shirt
Absolutely positively, yes!
The big irony is that if you have a lot of assets built up over a life of disciplined investing and living within your means thenyou can probably afford and benefit further from continuing to hold a modest amount of leverage by holding a residential mortgage...whereas if you have no savings and your house is your only asset then you should probably not leverage as you have no history of sound financial behaviour and the risk for you is too great
Capitol gains on the sale of a paid off home that has been owned 30 years is very high in some areas. It's very easy to exceed the federal limit for tax free profit on the home sale. If your spouse dies and you have to sell the home as a single person, you could be paying capital gains tax on hundreds of thousands of dollars, half a million easy in California. That federal limit needs adjusted for inflation.
SF Bay Area here, bought my home at $500k 20 years ago, now worth $2M. If I sell it today I will have to pay 15% Federal cap gain and 10% California cap gain on $1M. That’s $250k. Oh well, it is paid off 5 years ago and the way I look at it, i still gain $1.1-2 after selling fees. It sucks but it is a good problem to have I guess.
It's prudent to keep an eye on your property value. The challenge is to work out whether it makes more sense to pay the capital gains tax or the realtor fees.
Here's an example. Couple buys a house for $200k. Value goes up to $700k. They could sell and pay $42k in realtor fees and buy another house and reset their value, and face the same issue when their second home reaches $1.2M. Sell again and pay $72k in realtor fees. New home goes to $1.7M. Sell again with $102k in realtor fees.
If they stayed at the first home, would have saved $124k in realtor fees, but paid the capital gains on $1.5M.
So the question becomes, do you want to pay tax or make realtors wealthy?
in my case I am willing to pay the capital gain AND realtor fees, as long as my wife agrees to move to a cheaper location and retire. The sales net us more than $1.2M gain. Also we would have $1.75M in cash. $750k would buy us a nice retirement home in the Sacramento area.
Silly question...of course it is...ALL DEBT IS BAD...My home is MY CASTLE...I have only bought two homes in my entire life...RENTING is flushing money down the comode! I bought my second home with cash....as I refused to have a mortgage in retirement. My home is like a shell on a turtle...I do not spend any where near $3600 a year on home maintenance...
Well some say you never can own your home “free and clear”, and if you don’t believe that watch what happens when you don’t pay your property taxes 😮. It is hard to put a price on the “mental satisfaction” of not owing anything on your house, but there are so many variables and different circumstances for people that obviously for some it is better to be renter in retirement and others it is better to own, either with a mortgage or free and clear. Really depends on your overall financial status or total wealth/assets.
Very true. But I would rather have a paid off home and deal with property tax, insurance, maintenance. It is far cheaper than rent in my area.
Tell Texas about an average property tax of 1.1%. Try 4%. But no income tax. But tax abatements for corporations abound. Paying 8% in NY starts to seem like a deal.
It's a leveraged investment, 10% that's 9x leverage of the real estate market (about 5%) - but as you pay it off your leverage reduces until your rate of return reduces from 45% to 5% - mortgage rate.
So, if you have just bought your home 45% - 7& loan is 38% return and then at 20 years (2/3 to the end of the mortgage) 30% -7% or 22% roe - better to have the loan.
If your mind is bothered by financing ... that's a different situation.
Lowest interest rate we can get?
No. Maybe pay off a rental.
The last thing I want is paid off properties lol.
I never known a person with a paid off home later getting a mortgage
Yes… I’m definitely emotionally attached to the house I’ve lived in for 25 years…
I've been retired for over five years and while I enjoy most of these videos I can with no reservations this one is a real waste of time.
I don't care what anybody says a retiree must own their home OR be willing and able to spend more for housing. Why? Because there is no such thing as a free lunch. If renting is going to save you maintenance costs does anyone really believe the property owner will just eat those costs and not pass them on to you the renter? Really?
Another bit of simply advice. If your not debt free, then you are not ready to retire. Period, end of story 😊
Sir, At 8:00 minute mark, I heard you say municipal bond income isn't subject to Federal Tax?????
Yes, please explain.
If structured correctly (by the issuing authority) in most stated the interest on municipal bonds is not subject to tax by the federal, state or local governments. If you move out of the state where the bonds were issued, you only avoid the federal tax.
Munis are seldom taxed
My taxes are much lower (in Texas) but what about homeowner's insurance? This is significant and doesn't seem to be addressed.
It is an issue whether renting or owning. Insurance goes up, rent goes up.
So one thing I don’t understand when I see these rent v own comparisons. A landlord knows that there is maintenance required for a house, even more so with tenants. So wouldn’t they factor that into the rent? So as a tenant I’m still paying for maintenance. Same for property taxes. Isn’t it all wrapped into the rent ? Otherwise the landlord is losing money. What am I missing? Thanks, I watch all your videos.
It is absolutely. Renter pays it all but it is hidden & doesn't have to call the electrician
My taxes went from $728 to $1649 just by placing a trailer on the property.
You also have to pay income taxes on what you withdraw from your 401k to pay the mortgage each month