Rethinking the mortgage payoff in retirement

[gregmerx_46]

So for years, I've been told that the conventional wisdom for FIRE has been to keep a low-interest mortgage and invest the cash for higher returns. It's what I've always subscribed to and what I've been doing, paying an extra 30% per year just to speed things along. But I've been playing with the numbers for actual retirement, and I'm starting to wonder if the math is different once you're already FI.

I'm looking at my own situation with about $70k left and a $750 monthly payment. Under a conservative 4% SWR, I need a portfolio of $225k just to cover that payment. But if I use $70k to pay off the mortgage, I only need to support my other expenses with the remaining $155k. The difference is that the 4% withdrawal from the remaining portfolio now becomes free spending money, rather than a fixed expense I'm forced to cover. It feels like a significant shift in cash flow and risk.

My spreadsheet shows the math might favor paying off the mortgage in retirement. The logic seems to shift once you're in the decumulation phase and living off your portfolio. It's no longer just about maximizing return but about optimizing cash flow and managing risk. Anyone care to check if I'm computing things right and not missing anything?

I'm curious if anyone else here has run the numbers on this? Does the math truly change once you've reached your FIRE number and are living off your portfolio? I'm looking for a deeper discussion beyond the simple "invest for higher returns" mantra of the accumulation years. Thanks!

 

[Kozak.mr]

You're thinking about it the right way and the math does shift once you're FI. During accumulation, investing often beats paying down low interest debt. Once retired, the priority flips to cash flow and risk management. Paying off a $750 per mo mortgage with $70k effectively reduces your required portfolio from $225k to $155k, lowering withdrawal pressure and sequence of returns risk

I hope this helps out

 

[Pawp4w]

@gregmerx_46 yes, purely mathematically, the "invest the difference" is better long term. BUT, the emotional and cash flow benefit of that paid off mortgage is a massive de risker. Having a zero dollar fixed housing cost dramatically lowers your personal "Failure Risk" in a market downturn. Plus, the peace of mind is priceless.

consider it an investment in your mental well being, that guaranteed 4% return (by not paying the interest) with zero market risk is a beautiful thing.

 

[Donbun]

Paying off the mortgage reduces fixed expenses, meaning your withdrawals can go toward discretionary spending instead of a required payment, it’s less about maximizing returns and more about optimizing cash flow and lowering risk, so your spreadsheet logic makes sense