Everyone who “retires” (whatever that means) without any further earned income is, by definition, retiring with debt. Everyone. Why? Because tomorrow you’re going to have to eat. Unless you live self-sufficiently in a cabin and can live off the land and off the grid by growing or catching your own food, collecting your water, possibly generating your own power, and not needing to ever buy a single other thing, you automatically have debt.
Sure, this is a slightly semantic argument. On the other hand, responsible financial preparation for retirement means understanding how much money you’ve saved and how long it is likely to last given the amount you spend each year (aka your burn rate). Financial debt is just another line item expense that goes into your burn rate, along with groceries, utilities and car insurance.
Whether it’s paying off a mortgage at a low interest rate, or paying down credit card balances at a usurious interest rate, having debt is fine as far as it goes if you’ve factored that into your monthly burn rate and your overall retirement plan.
Now whether this is the best use of money as part of an overall investment portfolio, that’s an entirely separate question. And probably the real question being asked here.
I liked to have a 30 year fixed mortgage at 3.25% as an inflation hedge when I started retirement. When I refinanced our 5.25% mortgage into the lower rate our home had a rental value of $2500 per month. Our monthly payment was only $1100 so we were getting all that rental value for more than twice our payment. Right now I can buy CDs for over 5%. Why would I cash out 5% to pay off 3.25% debt? This is one of those rare times I disagree with Richard Quinn.
It depends. If you do not have a lot of income, it doesn’t make sense to pay off your mortgage and tie up all that cash. It is a personal decision. If you can afford to pay off all debt, mainly a mortgage, and it gives you piece of mind, then do it. But maybe you don’t want to have that money sitting there doing nothing for you, even if you can afford to pay it off. I put $775k into a house before retiring only because I did not want to pay for flood insurance, which a mortgage required. I could have gotten a very low interest rate and used that money for many other things,
The Humble Dollar crowd is obviously smart about money, with valid points raised to support the pro and anti-debt view. I think this is one of those topics that comes down to risk temperament. For me, I couldn’t imagine carrying debt in retirement — but the pro-debt crowd would surely cringe at the opportunity cost that they’d see in my cash holdings.
You ask a yes/no question Looks like most people are a “yes” and it’s great to see their why. I say no and here’s my why. The short of it is – lower debt is like having more insurance.
It feels like most of the comments are about how personal debt fits into people’s investing strategies. Debt will let them earn more in investing.
For me, I think it’s best to separate essential needs, like secure housing, from investing strategies. I take a very conservative position with feeling safe and secure. I take a very aggressive position with investing. I can’t put those two things together!
In reality most people use debt to live beyond our means. We may say, “It was too good an interest rate to pass up.” If, as in most cases, we don’t actually invest the cash, it’s just talk. But if we do take the loan so that we can invest our cash, we have $X invested at risk of loss and we have $X in debt that must be repaid no matter what life or world circumstances arise. If things go bad, you could lose twice with this strategy!
Low or no personal debt to me is in the same category as having insurance. You don’t make insurance decisions based on its investment value. Could you imagine saying, “If I don’t spend $Y on insurance, I could invest that money and it would be worth $Z in 20 years – how clever of me!” No. You carry insurance because it protects you from financial ruin in the case of a major peril.
For major debt – You can’t guarantee that just because you can manage the debt now that you could in the face of
Everyone who “retires” (whatever that means) without any further earned income is, by definition, retiring with debt. Everyone. Why? Because tomorrow you’re going to have to eat. Unless you live self-sufficiently in a cabin and can live off the land and off the grid by growing or catching your own food, collecting your water, possibly generating your own power, and not needing to ever buy a single other thing, you automatically have debt.
Sure, this is a slightly semantic argument. On the other hand, responsible financial preparation for retirement means understanding how much money you’ve saved and how long it is likely to last given the amount you spend each year (aka your burn rate). Financial debt is just another line item expense that goes into your burn rate, along with groceries, utilities and car insurance.
Whether it’s paying off a mortgage at a low interest rate, or paying down credit card balances at a usurious interest rate, having debt is fine as far as it goes if you’ve factored that into your monthly burn rate and your overall retirement plan.
Now whether this is the best use of money as part of an overall investment portfolio, that’s an entirely separate question. And probably the real question being asked here.
I liked to have a 30 year fixed mortgage at 3.25% as an inflation hedge when I started retirement. When I refinanced our 5.25% mortgage into the lower rate our home had a rental value of $2500 per month. Our monthly payment was only $1100 so we were getting all that rental value for more than twice our payment. Right now I can buy CDs for over 5%. Why would I cash out 5% to pay off 3.25% debt? This is one of those rare times I disagree with Richard Quinn.
It depends. If you do not have a lot of income, it doesn’t make sense to pay off your mortgage and tie up all that cash. It is a personal decision. If you can afford to pay off all debt, mainly a mortgage, and it gives you piece of mind, then do it. But maybe you don’t want to have that money sitting there doing nothing for you, even if you can afford to pay it off. I put $775k into a house before retiring only because I did not want to pay for flood insurance, which a mortgage required. I could have gotten a very low interest rate and used that money for many other things,
The Humble Dollar crowd is obviously smart about money, with valid points raised to support the pro and anti-debt view. I think this is one of those topics that comes down to risk temperament. For me, I couldn’t imagine carrying debt in retirement — but the pro-debt crowd would surely cringe at the opportunity cost that they’d see in my cash holdings.
You ask a yes/no question Looks like most people are a “yes” and it’s great to see their why. I say no and here’s my why. The short of it is – lower debt is like having more insurance.
It feels like most of the comments are about how personal debt fits into people’s investing strategies. Debt will let them earn more in investing.
For me, I think it’s best to separate essential needs, like secure housing, from investing strategies. I take a very conservative position with feeling safe and secure. I take a very aggressive position with investing. I can’t put those two things together!
In reality most people use debt to live beyond our means. We may say, “It was too good an interest rate to pass up.” If, as in most cases, we don’t actually invest the cash, it’s just talk. But if we do take the loan so that we can invest our cash, we have $X invested at risk of loss and we have $X in debt that must be repaid no matter what life or world circumstances arise. If things go bad, you could lose twice with this strategy!
Low or no personal debt to me is in the same category as having insurance. You don’t make insurance decisions based on its investment value. Could you imagine saying, “If I don’t spend $Y on insurance, I could invest that money and it would be worth $Z in 20 years – how clever of me!” No. You carry insurance because it protects you from financial ruin in the case of a major peril.
For major debt – You can’t guarantee that just because you can manage the debt now that you could in the face of