OT: Not Paying Off Your Mortgage

[Ralph]

Originally Posted by Gummee

If you have a family history of disease X, you really do need to do the figuring out of stuff WELL before it could potentially become a problem

IIRC the IRS looks back ?5? ?7? years for Medicaid

M

The claw back period in Florida is 5 years. Probably same elsewhere.

[Marc40a]

Granted, a lot more info is needed to accurately judge whether this is a prudent decision and a bike forum would be the last place I'd look for financial advice...

But

No one has mentioned the gross vs net income tax implications.
Using the hypothetical numbers discussed earlier. Let's say the current mortgage is 1k higher than a refi, that's 12k per year.

How much gross pay does that take from his check? Probably about 18k? after state and fed taxes?

Let's say he puts that 12k into retirement savings via a 401k. How much gross pay is that? That's right, 12k. So, he could either sock away the full 18k and really goose his retirement egg or just the 12k and pocket that 6k less taxes (4k ish?).

The whole refi strategy sounds a bit like a reverse mortgage, just a bit early and under his own terms. Not commenting on whether that's bad or not. Heck, who knows this guy's cash flow or future cash flow situation. Sounds grim, though.

I'm not an advisor, but I work in the industry.

[echappist]

Originally Posted by Marc40a

Granted, a lot more info is needed to accurately judge whether this is a prudent decision and a bike forum would be the last place I'd look for financial advice...

But

No one has mentioned the gross vs net income tax implications.
Using the hypothetical numbers discussed earlier. Let's say the current mortgage is 1k higher than a refi, that's 12k per year.

How much gross pay does that take from his check? Probably about 18k? after state and fed taxes?

Let's say he puts that 12k into retirement savings via a 401k. How much gross pay is that? That's right, 12k. So, he could either sock away the full 18k and really goose his retirement egg or just the 12k and pocket that 6k less taxes (4k ish?).

The whole refi strategy sounds a bit like a reverse mortgage, just a bit early and under his own terms. Not commenting on whether that's bad or not. Heck, who knows this guy's cash flow or future cash flow situation. Sounds grim, though.

I'm not an advisor, but I work in the industry.

your entire argument is based on the emphasized sections above re: tax savings

if that were indeed the case, that would mean that he's contributing only at most 12k/year toward retirement (cf. maxing it out to the tune of ~24.5k/year)

and if he were, as you say, able to sock away 18k/year into 401(k) (remember, individual contributions to a 401(k) and equivalents thereof are capped, though company could match quite a bit more), that would mean he was putting away only 6k/year.

Neither is a particular rosy situation, as it would indicate a seriously undersized nest egg compared to his house. In which case, it'd be all moot, and he'd be much better off down sizing than hoping for significant returns within ten years. Remember, if you are arguing for tax benefits, then you have to also keep in mind the RMD requirements

[Marc40a]

Originally Posted by echappist

your entire argument is based on the emphasized sections above re: tax savings

if that were indeed the case, that would mean that he's contributing only at most 12k/year toward retirement (cf. maxing it out to the tune of ~24.5k/year)

and if he were, as you say, able to sock away 18k/year into 401(k) (remember, individual contributions to a 401(k) and equivalents thereof are capped, though company could match quite a bit more), that would mean he was putting away only 6k/year.

Neither is a particular rosy situation, as it would indicate a seriously undersized nest egg compared to his house. In which case, it'd be all moot, and he'd be much better off down sizing than hoping for significant returns within ten years. Remember, if you are arguing for tax benefits, then you have to also keep in mind the RMD requirements

Agreed. I went with the assumption that his retirement contributions where nowhere near the max. Which I would assume is how he got into this pickle.

Also, agree that at 70.5, he's required to withdraw a small portion (4-5% to start) from his tax deferred accounts.

Good point about the potential for a company match for 401k contributions. That could change this math of this strategy in his favor, as well.

[tomato coupe]

Originally Posted by Marc40a

I went with the assumption that his retirement contributions where nowhere near the max. Which I would assume is how he got into this pickle.

Why would you assume he's in some kind of financial pickle? There's nothing in the original post to indicate that.

[Marc40a]

Originally Posted by tomato coupe

Why would you assume he's in some kind of financial pickle? There's nothing in the original post to indicate that.

Sure there is.

A.) The advice was from a registered advisor. While that doesn't exactly guarantee that he's not getting fleeced. It certainly holds a lot more weight than speculation on a internet forum from non professionals.

B.) The recommendation was extreme so that's an indication that situation is likely dire.

C.) The original post indicates that he could sink the funds into his retirement plan. That tells me that he's nowhere near the max contribution. Which, if you're in a strong financial situation, you should be.

[Marc40a]

Continued...

Like I said, there's no way to know for sure without a more complete financial picture. How much he owes on his house, what it's worth, how much he makes, his retirement savings, etc...

If I had to guess from the original post... I'm guessing he's 'house poor' (Though I dislike using that term) - Probably under-funded his retirement over the years and likely had too high of a mortgage payment.

An ideal financial situation is the other way around, maxed retirement contributions each year and then a housing/mortgage budgeted after that.

These are generalizations, of course, based on the average situations.

[tomato coupe]

Originally Posted by Marc40a

Sure there is.

A.) The advice was from a registered advisor. While that doesn't exactly guarantee that he's not getting fleeced. It certainly holds a lot more weight than speculation on a internet forum from non professionals.

You're speculating about his financial situation. His financial advisor is not.

B.) The recommendation was extreme so that's an indication that situation is likely dire.

The recommendation is not extreme, nor does it indicate the situation is dire.

C.) The original post indicates that he could sink the funds into his retirement plan. That tells me that he's nowhere near the max contribution. Which, if you're in a strong financial situation, you should be.

Not making the maximum contribution does not imply his situation is dire. The vast majority of people do not make the maximum allowable contribution, yet most of them are not in dire financial straits.

[tomato coupe]

Originally Posted by Marc40a

Like I said, there's no way to know for sure without a more complete financial picture. How much he owes on his house, what it's worth, how much he makes, his retirement savings, etc...

And yet, you continue to speculate ...

If I had to guess from the original post... I'm guessing he's 'house poor' (Though I dislike using that term) - Probably under-funded his retirement over the years and likely had too high of a mortgage payment.

[Marc40a]

Originally Posted by tomato coupe

you're speculating about his financial situation. His financial advisor is not.

You just proved my point.

Originally Posted by tomato coupe

The recommendation is not extreme, nor does it indicate the situation is dire.

Sure it does. Why recommend it if the savings or advantages are minimal? It points to a cash flow issue.

Originally Posted by tomato coupe

Not making the maximum contribution does not imply his situation is dire. The vast majority of people do not make the maximum allowable contribution, yet most of them are not in dire financial straits.

It's not that he's not maxxed out as much as the implication that all that money can be sunk into retirement. A ~12-18k annual gap is nothing to sneeze at, but like I said, who knows how much we're talking.

As for most people's situation, i covered that in the 'generalizing' statement. Most people are under-funded and under-prepared for retirement. All the stats support it.

[Marc40a]

fixed

[seanile]

Originally Posted by tomato coupe

And yet, you continue to speculate ...

this is a thread based on a secondhand conversation. everything here is speculation

[Marc40a]

Shout out to Somerville.

I lived there for many years.

[Gummee]

Originally Posted by seanile

this is a thread based on a secondhand conversation. everything here is speculation

Navel gazing at it's finest. We usually have to wait for winter to get these kinds of threads

M

[Marc40a]

Originally Posted by tomato coupe

I think that's the primary motivation for people who pay off their mortgage early. There's absolutely nothing wrong with that approach but, in many cases, it isn't the best thing to do from a financial point of view.

Yes and no. The game has changed a little bit.

See my post #40 on this page here:

https://forums.thepaceline.net/showt...dard+deduction