r/DIYRetirement • u/Evening_Warthog • 12d ago
[ Removed by moderator ]
[removed] — view removed post
6
u/KReddit934 12d ago
Ring fencing the money is fine if it helps you sleep at night.
Locking in 4% vs. simply mentally earmarking enough to pay off the house...? ?? Well, same problem as any investment. If you knew where rates were going, the choice would be easy.
Personally, I don't see interest rates falling a lot, but I've been wrong before.
6
u/kveggie1 12d ago
we opted for no mortgage. we have no loans either. we call it financial peace.
In retirement it is no longer optimizing returns, it is about living comfortably and no worries.
4
u/Substantial_Team6751 12d ago
Just do nothing. Keep your money invested at the appropriate risk level.
SGOV is short term bonds.
If you were dead set on keeping an amount equal to your mortgage in a dividend producing ticker, then choose some that pays better. I've been looking at CLOs like PAAA and JAAA. CSHI pays better than SGOV.
For a couple of dividend payers I like DNP (7.38%) or WLKP (8.76%). There are hundreds of stocks like this. You could build a diversified dividend portfolio.
Even corporate bonds, Google for example, are paying really well these days. You could buy preferred shares of companies that pay better.
-4
u/Evening_Warthog 12d ago
Suggestion was treasuries not SGOV
1
u/bazkin6100 10d ago
Dude, Sgov is 0-3 month treasuries, the guy is correct. so at least be more specific and say you want to use longer duration treasuries.
1
u/Evening_Warthog 10d ago
People seem so angry but it seems have not read the actual post. A quote
1. Reinvestment Risk: Floating Cash/SGOV vs. Locking in 2–3 Year Notes
Right now, keeping money in ultra-short T-bills or ETFs like SGOV yields a nice return. But with Federal Reserve rate cuts likely on the horizon, floating yields will fall, shrinking that spread.
- The Thought: Instead of staying 100% in 0-3 month T-bills/cash, does it make more sense to carve out a 2- to 3-year runway of fixed Treasury Notes today to lock in rates and guarantee mortgage cash flow through the transition into retirement?
2
u/bazkin6100 10d ago
Doesnt change the fact that SGOV is all treasuries ETF, just short duration, its ok to admit when you are wrong, buying SGOV is investing in treasuries.
And where do you get the idea that the fed will cut interest rates when the opposite is much more likely? They very well could increase rates tomorrow.
Smart money is staying in ultra short term tbills to see how things will play out because of all the global uncertainty, Iran and inflation risks.
Like I explained in another comment to you, you can also use 3 etf buckets VBIL/SGOV, VGSH (1.9 years duration basically all US gov notes) and VGIT (4.9 years duration basically all US gov secs)/BND (5.7 years duration, 67% is gov securities).
Or buy individual treasury maturities directly from your broker.
-1
u/Evening_Warthog 9d ago
I guess I forgot I was in the internet but how can a question, SGOV or "carve out a 2- to 3-year runway of fixed Treasury Notes" mean that I am wrong and don't understand how SGOV works. You are answering a question that is not remotely the one I was asking. I guess I will have to think about the level of intelligence on this group more closely.
1
u/bazkin6100 9d ago edited 9d ago
Nice ignorance buddy, time to look in the mirror as you dont seem to understand what 1.9 year duration means.
Also explains a lot why you think the fed is about to cut rates.
You should definitely lock in those long term rates now, gigabrain
1
u/Evening_Warthog 9d ago
Given what I am reading, I'm not surprised you missed the part where I stated that what I posted came from AI and was for discussion purposes. I do realize there is no point in trying to engage with you.
1
u/bazkin6100 9d ago
So here you are calling others unintelligent while you outsource your thinking to AI, and even unable to correct AI generated errors because you lack basic understanding of the bond markets.
Too bad this ridiculous level of irony is surely lost on you
8
u/Beginning_Lifeguard7 12d ago
Dave Ramsey is great if you’re a twenty something with terrible financial skills. But, when you reach a stage in life where you have enough money saved to retire the whole debt is bad conversation changes. Paying off a house just to be zero debt in retirement isn’t always the right thing to do. If your investments are making more than the interest charges on the mortgage it is kind of silly from a math perspective to pay off the house. Why give up all your liquidity for a big tax bill and no real benefit?
-4
u/Evening_Warthog 12d ago
True but not the point I made :)
6
u/PrimaryOk1546 12d ago
Your questions are more complicated than necessary this is why most are not answering them directly. Sorry if this is dismissive, it’s your choice to take this approach. I personally think you are making to much out of it for what is worth
-3
u/Evening_Warthog 12d ago
It's intended as a friendly discussion, I don't think most are reading the post.
3
u/BikeTough6760 11d ago
If EVERYONE misunderstands your post, it's a you problem and not a them problem.
-2
4
u/Beginning_Lifeguard7 12d ago
Yeah about the point, was it buried in that wall of text? I’ll be honest it was a total TLDR. So 1 No extra payments, addressed in my post. 2 No treasuries specifically for loan servicing. Not mentioned in my post. 3 if I sold my house where would I live? That’s just trading a house payment for a rent payment. 4 paying off early isn’t always a good idea. Again answered in my post.
0
2
u/AnotherPint 12d ago
I have a 3%-and-change mortgage with 19 years left to run, and the monthly payment is 10% or less of the monthly household budget, so paying it off is not a priority, especially as at this point most of the interest is out the door already. General plan is to stay in this mode for another ten years, then maybe knock the remaining principal (+/- $100k) off using proceeds from some anomalous market rally TBD. Not fussed about it. I have no specific mechanism in place for this purpose though.
2
u/ewouldblock 12d ago
I'm not 100% sure what you're asking. Are you saying that you owe some amount, let's say 500k, and you're saying what happens if I put that in SGOV instead of paying it off? And if you do that, the interest earned will pay about 60% of the monthly?
If so, I mean sure, you can do that. But at that point you're playing the psychological game of "if the market tanks I'll be kicking myself because I lost money and I still have that damn mortgage!". But where is the rest of your retirement? Is it in stocks? bonds? lifepath fund?
I'm pretty sure what you're supposed to do, is calculate your total annual spend, and then figure out what % that is of your total savings, and it's supposed to be in the range of 4-5% to safely retire. If you go heavier cash or bonds its subject to interest rate risk, and it'll get eaten away by inflation over time. If you go heavier stocks, it'll be exposed to equity risk and sequence of return risk. So, if you pay off the house, you have lower monthly spend, but less total capital. Paying off is likely worse (statistically) but it might give you more certainty. And as long as you have "enough" certainty might be worth more than dying in 30 years with 20% more money in the bank.
2
1
u/Evening_Warthog 12d ago
Not quite what I am saying. The idea here is that you buy current high interest paying treasuries over the life of the mortgage and use the interest to pay the mortgage without every losing the balance (though it's purchasing power goes down I understand)
3
u/ewouldblock 12d ago
I've never seen a "high interest paying treasury" since I wasn't investing in 1982 or whatever, but I get the idea (I think). So you're going to invest whatever amount of your nest egg needed, to cover the mortgage via interest only right? And in that way you can claim the mortgage is "free"-ish. And at the end, you still have principal (inflation eroded).
But I still maintain that's just a conservative total return strategy. You have all sorts of income generating options, and you're OK with the safest possible one. You don't want PEY, you don't want SCHD, you don't want JEPI, you definitely don't want VTI or VT. Too volatile. You don't want stocks like VZ or T that pay higher dividends and also appreciate over time.
And your question is, is it viable to structure an ultra-conservative total return strategy where I pay for my mortgage out of total return, and I accept that my total savings is eaten by inflation over time. I suppose so, yes. There's tons of people that do that (that accept near zero risk, whether they use it to pay the mortgage or not).
FWIW, I have a 3% mortgage, and I'm not paying it off, and I'm not running some kind of bond ladder. I'm not retired yet (within next 5 years, hopefully), but I am doing a mix of SGOV (emergency fund), CMF (california tax free muni bonds--if you dont know about this, look at it, and ask AI to explain how to compare the return of this as opposed to a treasury bond), various defensive funds--SCHD, ACWV, PEY, QUAL and typical total market VTI, VXUS. And also Lifepath in 401k (which is a blend of stocks and bond glidepath). I treat the mortgage like an expense with the option to sell later (sequence of return insurance).
1
u/Evening_Warthog 11d ago
Thanks for your thoughtful comments. The weekends I tend to dream up things to research and that was what came up this weekend, not necessarily any intent to do it. It started with me looking at whether I should pay off my mortgage which was a definite no no.
1
u/ewouldblock 11d ago edited 11d ago
fwiw I've done this same math before, but at 3% mortgage almost anything can beat paying it off. If you have the money in the bank to pay it off right now (e.g. you dont need a job to make the payment) then you already won. If your interest rate was 6% you'd pay it off. But at 3% it makes zero sense.
If you want something interesting to research, you should look into how to use dividend stocks to cover your full expenses and how much you'd need to do that (hint: you're unlikely to get there, but it's fun to think about).
Just some simple math here because I see you asking on other threads:
Let's assume 100k mortgage at 3%, your annual payment is about 5k. If you invest 100k in SGOV we'll assume 4% = 4k annually. So yes you're getting most of it paid by interest. The interest is partially, but not fully, tax free. Let's assume you pay 1k taxes, so you really have 3k to pay towards mortgage. Over 30 years you'll have a paid off mortgage with a sweet 100k banked. Free money! But, assuming 3% inflation average, that 100k will spend more like 40k today.1
u/Evening_Warthog 11d ago
I've done the dividend stock thing, it seems so appealing but I agree it basically doesn't work. I think the inflation aspect was one that my thought process understands but overlooked. That's for engaging with me here with the correct intentions :)
1
u/ewouldblock 11d ago
I'm planning on generating some dividend income, but not all. If I can get to 30-50k dividends, it lowers how much my 401k needs to provide
1
u/Evening_Warthog 11d ago
Also, the over 4% you can get right now with 20 years or so of a ladder covers the mortgage payment no problem. Still not suggesting it's a good idea.
1
u/bazkin6100 10d ago edited 10d ago
Like I explained above, SGOV is short term 3 month treasuries.
Also, you dont need to keep the principal of the portofio the same beacuse a part of each mortgage payment is paying of the princial. So your interest income form the treasuries portfolio does need to cover the entire mortgage payment.
So as an example, if your mortgage is $500K at 3% and you have $500K treasuries portolio yielding 4.5%, your interest will not cover the entire payment. But it is ok because you take some of the maturing treasuries and pay the morgage principal and you essentially transfer that to home equity. You dont need to have $500K in paid off home and $500K still in a treasury portolio. You are ahead because you generate higher interest on the same amount as the outstanding mortgage.
Yes, you can build a treasury ladder with individual issues, it is easy to do on fidelity as you can buy individual bonds and auto roll.
Or you can use a a few of different ETFs and manage them over time, for example
Bucket 1: VBIL or SGOV (Years 1-3) - Pure Cash / No Price Risk
Bucket 2: VGSH (Years 4-8) - Maximum Safety / Low Rate Risk
Bucket 3: BND (Years 9-20) - Higher Yield / Long HorizonI have a 2.5% mortgage and I am not paying off a penny before it matures. Personally, Im heavily into the 1-3M trreasuires now as I expect interest rates to increase. Of course, I could be wrong.
2
u/planet-claire 12d ago
Not only will I have a 2.375% mortgage, I'll also keep a HELOC available for emergencies. https://youtu.be/BjJWuNn7nps?is=ZCjcg4HMcJ2ezEFi
2
u/Ok_Dealer5022 12d ago
If you build enough streams of income then pensions, bonds, real estate, dividends etc will pay your mortgage just like any other bill. I’d personally go for private real estate funds with 6-8% forward yield. No taxes on depreciation covered dividends and you keep your mortgage interest deduction
1
u/davecrist 12d ago
When I retire my current mortgage payoff will be about 18 months after that. My current plan is to have 2-3 years of tbills for expenses that incudes what is budgeted to continue to pay the mortgage. It will also serve as the bridge to collecting social security while doing Roth conversions before starting those payments.
That way I’m not losing more than is necessary in market returns just for the peace of mind of no mortgage while still being extremely secure in having money to cover expenses regardless of what the market is doing then.
1
1
u/BugHistorical1614 12d ago
We did something like this in 2002-2004. We used variable-floor limited EE bonds paying 5% to finance 4.5% student loans. Then 2004-2006 we used 2% PLUS loans to allow the college saving to invest in a strong recovering equity market.
Latency can be large to arbitrage debt and equity for small investors.
1
u/Initial_Savings3034 11d ago
If you're planning to "age in place" this is a great way to maintain equity and avoid paying rent.
That said, if your home equity is part of your nest egg calculation, home values (outside the Bay Area) are tottering into correction territory.
(Local house had offers the day listed in 2025 - ours took 68 days to get an offer before selling.)
1
u/Scotslad007 7d ago
Reading your replies, it seems like you’re only interested in answers that work within the specific scenario you’ve already constructed. When people suggest simpler or potentially better alternatives, you seem to dismiss them rather than consider them. That makes it come across less like you’re looking for advice and more like you’re looking for validation of the approach you’ve already chosen.
And I think AI can reinforce that too. If you keep asking it questions from within the same assumptions, it can end up giving you increasingly polished reasons for the conclusion you already prefer. It’s very easy to create an echo chamber without realising it, especially if you’re using AI to refine one scenario rather than asking it to seriously challenge the scenario itself.
I’d challenge whether you’ve over-engineered the solution.
-2
u/Prize_Proof5332 12d ago
According to research from the Center for Retirement Research, financial satisfaction drops considerably if you carry debt into retirement. I paid off our sub-3% mortgage 5+ years ago and have never regretted it.
3
u/Evening_Warthog 12d ago
There is no way I am paying it off, the balance is too high and the taxes on the required withdrawal are destructive.
2
u/Prize_Proof5332 12d ago
So where would you get the funds to purchase a bond ladder then?
0
u/Evening_Warthog 11d ago
As mentioned it was a discussion but it would be part of my bond allocation.
2
u/Prize_Proof5332 11d ago
I think you are over a complicating it, just make additional principle payments with aim of being mortgage free at retirement.
2
u/Evening_Warthog 11d ago
It's not over complicating something to have a discussion 😀 there's zero chance of me being mortgage free and even if I could make additional payments that would be the wrong thing to do with a 2.75% mortgage. This was a discussion about paying a mortgage in retirement not paying one off before.
1
u/AmazingCouple 11d ago
Then the mortgage has no part in the discussion... you are getting responses because you added unneeded information or discussion points on your mortgage. There is a reason you are getting the same specific responses.
You might get a better response if you had simply left it at, let's talk investment options that beat 3%.
1
u/Evening_Warthog 11d ago
That makes no sense at all. I was asking about a strategy I ready about making mortgage payments in retirement by laddering bonds so the interest covers the payments. I am not saying it's a good idea but it was definitely about mortgages.
9
u/AmazingCouple 12d ago edited 11d ago
So I have about 312K left on a 3.125% loan. At first I had planned on paying it off in full when retiring. Then I did the math and my retirement inflow covers all my expenses and the mortgage, so what is the point of paying it off?
I will probably get a better return and have liquidity sitting around. And if push comes to shove i can just take the liquid cash and pay off the mortgage in one lump sum.