There are a few planners that think many of us are saving too much and that it is OK to have debt as you approach retirement. The reasoning is that it is OK to hold liabilities (debt) as long as the assets (your investments) are growing faster (as Ken Shapiro, a planner in NJ, was quoted in the April 2007 Financial Advisor magazine).
What is forgotten is risk-adjusting the return. If your mortgage is at 5.5% but your investments are growing on the average of 7%, then you should be fine. In retirement? Unlikely.
While working and accumulating? Maybe so.
The sequence of those 7% returns are important. If in the first few years of retirement, you experience losses, then those withdrawals to pay the mortgage quickly drain your portfolio and make it difficult to recover. The mortgage rate is guaranteed but the investment rate is not guaranteed so you have to adjust for that "risk".
Since 1925, large-cap and small-cap stocks have lost money 31% of the time over "one-year" (note: 1-year please) rolling periods. They have gone up 69% of the time. Those are not great odds in your favor that holding a mortgage in retirement is a good idea unless you have a "Buckets of Money" (see Ray Lucia's book and strategy) and have enough money to fund it properly (In other words, 7-15 years worth of the mortgage payments in safe money and also enough for your other income needs in retirement).
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.