Why We’re Taking On Debt To Move From Good To Great

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555 Days ago, we sold our “big house” in The City and moved to our retirement cabin in the mountains.  As soon as the proceeds from the sale of the “City House” landed in our bank account, we wrote the biggest check of our lives, paid off the cabin mortgage and became officially 100% DEBT FREE!!  (I was so excited that I wrote about it here).

Debt Free for the first times in our lives!  It wouldn’t last….

How then, are we now $171k in debt?

“What went wrong?” you ask.


It’s all part of the Plan.  It wasn’t part of our original plan, but Our Plan Was Wrong. We Planned Anyway.  One of the things we’ve learned during our Final Approach into retirement is that you have to remain flexible. Plans change, and that’s ok.  As long as you’re making improvements to move From Good To Great, it’s fine to change the plan as the situation changes.  It’s part of life, and it’s easier to swim with the current (just make sure you’re steering the boat).

We were Debt Free! Why, then, are we now in debt? What went wrong? Click To Tweet

This post is part of an ongoing series Moving From Good To Great, which is documenting our last “Working Year” and our final adjustments for a Great Retirement.  A summary of the series to date:

The Good To Great Series:



Why We’re Taking On Debt To Move From Good To Great

Is all debt bad?  Not in my mind, and not in the view of Investopedia.  It’s important to know the difference between “Good vs. Bad” debt, and think through the implications before you intentionally incur ANY debt.  Once you understand the power that Good debt can provide (and the cost required to obtain that power), it’s worthwhile to look at debt a bit more strategically.

When does it make sense to intentionally take on debt?

In our case, it made sense as part of our move from Good To Great.  Today, I’ll tell you why.


Reason 1:  Low-Cost Debt

When we thought about moving from the “Good” to the “Great” cabin, we had a variety of decisions to make:

  • Is the “Good” cabin “Good Enough”, or do we want to make a move for “Great”?
  • If we move for “Great”, do we buy the “Great” cabin before or after we sell the “Good” cabin?
  • If we buy before we sell, do we have the liquidity to pay cash?
  • What’s our best option to finance this “Move To Great”?

The answer to the first 2 questions was a resounding “Yes”.  We paused on the third question regarding liquidity and gave it deeper thought.  While it was possible for us to liquidate some investments to pay cash for the new “Great” cabin, was it necessarily the best course of action for us?  

That question led naturally into Question #4 – What’s our Best Option To FInance All Of This?

We locked in a $171k 15-year mortgage at 3.5%. The benefits were worth the cost. Click To Tweet

The primary driver behind the decision to take on the mortgage was today’s historically low interest rates.  As you’ll see shortly, there are additional reasons why we chose to take on the debt, less than a year from our planned retirement.  Those factors, however, would have been outweighed by a more “historical” (e.g., higher) interest rate.  We looked at it as a pure cost-benefit calculation, and I’ll be the first to admit that cheap money drove our final decision.  I’m not alone, as some CFP’s are now recommending folks shouldn’t pay off their mortgages due to current interest rates.

We’ve thought it through, and we’re comfortable with our decision.  Had it not been for the historically low interest rate we were able to secure, the decision would have likely been different.  I continue to ponder on it and may change my mind again in the future.  The Plans Always Change…..Plan Anyway


Reason 2:  Build Low-Cost Options

In my “Day Job” as a commodity trader, I’m always looking for low-cost options for the benefit of my employer.  In my view, it’s the primary value I bring for the salary I’m paid. I create value for the company, for a cost lower than the value of the option.  Easy, right?  Free options are even better than low-cost options, but most counterparties in my trade are on to that game and realize the value of the offerings they provide.  If you want optionality, you typically have to pay for it.  But, if you know where to look, you can sometimes find it for a price that makes sense.

Options have value in business and in life.  In our personal case, we were looking for Flexibility and wanted to build some low-cost options to provide the maximum flexibility at the lowest cost.  Having choices provides value.  The trick is to find options which cost less than the value they provide.

In Business or in Life, Options Have Value. Sometimes they're worth more than they cost. Click To Tweet

As we approach our final transition into retirement, the option of flexibility has value.  And today’s low-interest environment provides that value at very low cost.  In our situation, the cost was less than the benefit that the flexibility provides.  For us, it made sense to exercise our option.  We took on the debt.

Reason 3:  The “Easy” Button To Freedom

While it was, technically, possible to liquidate enough of our investments to pay cash for our “Great” cabin before the sale of our “Good” cabin, it wouldn’t necessarily have been easy.  There would have been tax consequences of “selling some winners”, and we would have had to re-invest the money after we completed the sale of the “Good” cabin.  Risks of price movements during the gap were real, and our asset allocation would have been “off-kilter” for the period of time required to sell the Good cabin.  It was possible, but it wasn’t Easy.

Another factor in our thinking was that we wanted the freedom to move at our own pace.  We had decided to take our time and move everything ourselves from the “Good To Great” cabin and knew it would take some time with our little utility trailer.  It was a crazy 7 Day Move, And We Learned A Lot about Moving From Good To Great.

We lost count of how many trailer loads it took to move from Good To Great.

Knowing that we had the luxury of time to complete the relocation was worth a lot to us.  We’ve moved 9 times in our lives, and every single move had been done under the rush of a home sale prior to a home purchase.  It’s stressful, and we don’t like it.

We wanted to do it differently this time, and having a mortgage made it easier for us to be more relaxed in our timeline. We built great memories as we worked for several days weeks months on getting ourselves relocated to Great, and we had a lot of fun. We wanted to do it this way, and we enjoyed it.   The mortgage made it less stressful. The peace of mind was worth the interest expense.


Reason 4:  Lifelong Cash Flow Thinking

If you listened to my recent podcast interview on ChooseFI, you know that we’re likely going to defer my pension for ~2 years after my retirement date.  My pension grows at 6% per year if I defer, and will remain at that higher level for the rest of my life.  Having the mortgage makes it easier to fund the two year “gap” period, and grow that pension at an attractive rate.

6% growth in pension.  3.5% interest rate on the mortgage.  Kinda makes sense in my mind.

I’m still doing some analysis on the pension deferral, and I won’t have to make a final declaration until ~March 2018.  Until we know exactly what we’re going to do, taking on the mortgage makes the potential deferral of my pension a more viable option.  We have $170k of additional short-term liquidity that we wouldn’t have if we’d paid cash for the Great cabin.  If we defer the pension, we’ll have to live 100% off of our savings during “The Gap” years.  Until I know definitively if we need the extra liquidity, it seemed wise to pay for the option.


Reason 5:  After-Tax Interest Rate Arbitrage

Given that our mortgage interest is tax-deductible, it’s important to look at the “true” net cost of the mortgage interest on an “apples-to-apples” After-Tax basis.  We also have to realize that the $$ received via a mortgage will be generating a return while it rests inside our investment portfolio.   Here’s our thinking on the math.

Those proceeds from the mortgage are being held primarily in conservative bond funds (Vanguard’s Municipal Bond Fund, VWITX, if I were guessing), and earning a ~2% TAX-FREE Yield.  Since the 3.5% mortgage tax is (for now) tax deductible, our net after-tax cost of the mortgage is closer to 2.5%, so in essence, it’s costing us < 0.5% to borrow the money.

2% tax-free yield.  ~2.5% after-tax mortgage interest.  Gee, that mortgage just got pretty cheap

On an apples-to-apples basis, we’re paying something like 0.5% net cost, after-tax.  Not a bad price to pay for the flexibility it’ll provide as we phase into retirement.  The low-cost option just got cheaper.

Reason 6:  We Can Always Pay It Off

This decision isn’t non-reversible.  We’ll have the liquidity set aside from the “Sell For Cash / Buy With Mortgage” transaction.  Once we finalize the sale of the “Good” cabin for cash, the entire net proceeds from the sale will be sitting in our investment accounts, awaiting my final analysis of the pension deferral.

We’ll most likely pay off the mortgage after my pension starts paying us after our 2-year deferral, though in reality we can pay it off any time we choose.  For now, we choose to keep the debt, as the flexibility it provides is worth the cost of the option.

The equation will change, & the Flexibility won't be worth it. Then, we'll pay off the debt. Click To Tweet

Disclaimer:  In the event interest rates have increased dramatically by ~2020, we’ll revisit the interest rate arbitrage and potentially decide to NOT pay it off.  For example, if we can earn 4% in a CD while paying 3.5% for the mortgage, we’ll pursue that plan rather than paying off the mortgage.   Ah, the Freedom that Financial Independence brings!


Reason 7:  Other Considerations

In addition to the reasons which make sense for our situation, there are other considerations where taking on debt may make sense for you.  In the case of my friend Jim at RouteToRetire, he may be able to look at debt as an alternative to dealing with Rule72(t). In the case of my friend Nords at The Military Guide, he made a public declaration last week at FinCon that he intentionally took on ~$600k of mortgage debt well into his retirement!!  Why??  In his case, it’s interest rate arbitrage, and he’s written a ton about it here and here.  Nord’s a really smart guy, and it felt good knowing he and I had made the same decision about assuming more debt in retirement.

Never rely strictly on “Rules Of Thumb” (e.g., “Pay Off All Debt Before Retirement”).  Evaluate your situation, and make your decision based on what makes sense for you.


Reason 8:  What If I’m Wrong?

But what if….I’m wrong?  Traditional logic says you should pay off a mortgage before you retire, and we most certainly could do that.  The brain-twisting mathematical models that my rocket-scientist friend “Big ERN” published argue that it’s best to pay off the mortgage.  (Love ya, ERN!)  So….what if Big ERN is right, and I’m wrong?

Our situation throws a variable into Big ERN’s mathematical equation.  That variable is the value which we place on Flexibility.  It’s worth a lot to us, and it won’t cost much.  It tilts our decision to “Take On The Debt”, for the 7 reasons outlined above.  Even if we’re “wrong” and our situation is sub-optimized from a purely financial sense, we won’t be off my much, and we’ll enjoy the benefit of flexibilty which our decision provides.

To us, it’s worth the risk.  If we’re wrong, it won’t cost us much.  If we’re right, it’ll turn out that it was worth the cost.


Conclusion

Not all debt is “Bad” debt.  Sometimes, the flexibility that debt provides is worth the costs involved.  In our case, our decision is that taking on Debt is OK in our move from Good To Great.

What about you?

Don’t be a blind buffalo following the herd over the cliff.  Think for yourself, and realize sometimes it’s OK to go against the herd (they’re all dead at the bottom of the cliff, remember?).  Look at each of the financial decisions you face as you approach your retirement through a clear lens.  Apply the filters that matter to you, and think through the cost/benefit equation in each decision you face.  Sometimes, the “Rule Of Thumb” doesn’t apply.

Make sure you understand the risk if you’re wrong, and minimize your downside.  Do it right in the majority of your decisions, and you’re well on your way to Achieving A Great Retirement.

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47 comments

  1. Your reasons for having debt are completely rational and sensible.

    I haven’t had any debt for over 10 years and there is a psychological component to having no debt for me. I just feel better about no debt. The feeling may come from the fact that my parents had no debt once I became a teenager and they taught me that debt is a burden.

    Your post made me realize that I’m a little irrational when it comes to debt.

    1. Mr FF, thanks for supporting our decision, I’m sure there will be others who don’t! There’s clearly a strong psychological benefit to being debt free, but in reality I feel the same now since we have the proceeds set aside and could pay it off any time we choose. (BTW, you’re not irrational, most folks likely feel the same as you about the topic!).

  2. Another great example of why they call it “personal” finance! What you’ve just described is very logical, and reason #6 seals the deal in my opinion. The fact you can pay off that debt at any time means you’re in control of your financial destiny. Nothing wrong with gaming the system if all the odds are in your favor!

  3. We’ve been thinking about refinancing our home before I retire next year for a few reasons. Our monthly payment is high because we put an addition on 8 years ago and rolled the construction costs into a new (and shorter) 15 year mortgage. Originally our plan was to sell and move to a lower cost area with no mortgage on the new place (pegging the cost to the net amount selling this house) but our plans are changing. Our daughter and son-in-law may need to take our downstairs mother in law apartment for 2-3 years as she completes her plumbing apprenticeship and gets her journeyman license. With property taxes so high here in NY, refinancing will allow us to lower our payments so we can leave more money in our investments to earn more than the interest on the mortgage. Of course, we are evaluating whether the costs to refinance make sense if move in 3-4 years since our interest today is 4.25% so not too bad. Refinancing before retirement will be easier since I still have my income and our credit score is tops. Thanks for confirming that debt in retirement isn’t always bad.

    1. Ironically, our initial downsizing plan was exactly what you described (we bought a cabin for the price that we knew we had in equity in our bigger home), and it’s certainly a viable plan. Your plan sounds reasonable given the family situation, tho I do wonder if you’ll get the payback in 3-4 years. Do the math, then make your decision! You’re smart to do it while you’re still working, definitely easier to get the refi while you can still show the income. Thanks for stopping by!

    2. Pat, if I could just add one thing about refinancing in NY: when you factor in costs, don’t overlook any money grabs by the county you live in. When we were looking to refi during our NY life–prior to bailing on the state completely–we were stunned to learn our county government wanted 1% of the total amount. In our case, it would have added several thousand dollars to the refi.

  4. We keep our cash under lock and key. We bought a new car several years ago. Had the cash to pay for it. The Finance Guy at the dealership said ” why do you want to use your cash? I am giving you .9% financing for 36 months. It will cost you less than $10/ month to buy the car. Keep your money in the bank.” We did. No regrets.
    We have kept our expenses low as our income has gone up. Travel constantly. Live beautifully. Here we are in retirement and still putting money away only for ” our future.” And we do NOT live cheaply.
    We have a 25 year mortgage on our retirement home.
    Our cash is ours. Let the bank take the house when the next depression hits.
    Interestingly, our “bank” is a lock box with our cash in it. And I do mean cash. Our children know where we keep it. Although each thinks we are “nuts”. But they are accepting of us.

    1. “Travel constantly. Live beautifully”. Well played, Jack. Your smart decision on the car financing proves that you know how to think about money, and your lifestyle is the perfect example of the result of those sound financial decisions over the course of your life. In today’s low interest environment, the cash in the lock box carries a low opportunity cost. Now, I just need to convince your kids to tell me where you hide it! (wink)

      1. When market is growing at 10-15% per year these days, its very tempting to put money in S&P500. Thats 75k income on half a million nest egg…but then there is always the risk 🙁

  5. Can’t argue with your analysis, my friend. Given our historically low interest rates (3.5% on a 15-year mortgage is insane), taking on $171K in debt is a great way to transition from the good to great cabin and into retirement. Moreover, as you pointed out, if circumstances change, and you need to pay off the mortgage, you have the ability to do so. Bottom line: you’re in a super strong financial situation and borrowing makes sense. Don’t tell Dave Ramsey about this, though.

    1. Since you mentioned Dave Ramsey, I think mention of the risk of debt bears a thought. Life can throw a lot more at you than the math aspects of “good” debt. You can’t anticipate all risks, and if you face one the debt will likely impact your flexibility. You can take some comfort perhaps in that risk is that more things can occur than actually will occur. Love your thoughtful work and hope this works as you anticipate!

      1. You’re right and that’s why having much more equity in the house than the debt you are taking on is so important. In fact I wouldn’t even consider taking on mortgage debt going into retirement for more than half the value of the house. Even in a market downturn, I should still be able to sell and retire the debt if I had no choice but to sell.

        1. Quentin & Pat, I agree that the risk is something to be carefully evaluated. In our case, the proceeds from the sale of our “paid off” cabin is sitting in very secure funds, and can be withdrawn (literally) any day we choose. Minimal risk, and hard to imagine a circumstance where anything life throws at us would negate our ability to pay off the mortgage. Regardless, we’ll pay it off by 2020 (once the pension starts), unless interest arbitrage dictates otherwise. Thanks for stopping by!

  6. If you are using debt to build wealth, there really is no issue I see, as long as you aren’t too leveraged.

    For example, I got a HELOC because it increases my liquidity. Is it good from a personal finance prospective? Probably not, but as long as I’m not spending it on consumer items, then it probably won’t get me into trouble.

  7. You’re thinking and analysis is just so wrong, I wouldn’t know where to begin.
    As the interest rates rise, your bond fund goes down and eventually turns worthless.
    That 4% you think you will earn on bank CD will have taxes due. Duh.
    Eventually the mortgage interest tax deduction will be eliminated. (just ask Trump etc.)
    To me, taking on debt during retirement is simply answered by asking oneself this question: will your monthly passive income cover the mortgage payment as well as your other monthly bills? If the answer is no, then no taking on debt!
    I found your post to be very sad.
    All your justifications are ludicrous.
    Obviously, you don’t know true financial freedom, which is to be living in retirement WITHOUT a mortgage!
    You are at the mercy of your bank. They can and will do whatever it is they want to do.
    Sorry, but IMHO you’re just not too bright.
    I would NEVER jeapordize my home, in retirement! Period.
    I’ve been in retirement, mortgage free since 2001. And we own two homes. One is the residential. The other is a vacation.
    The only time it would be smart to go into debt during retirement is when the debt is at zero percent. Been there. Done that. And its just for credit card debt because if you default there is NOTHING the companies can do to you because it is unsecured debt. The other way, you can lose your home, or have your car repossessed. Banks can and will do strange things when they are in trouble. Don’t believe me. Well, live and learn.
    Sorry dude, but you do NOT have true financial freedom. You are slave to the lender. You are NOT free.
    You have fallen for the biggest human fault. You wanted ‘great’ and you will pay that price for not being happy with ‘good enough’.
    Sad 🙁

    1. Cindi, that’s what I love about the blogosphere, we can disagree and still be friends. Did I forget to mention that my passive income WILL cover all of our expenses, including the mortgage? You may want to seek to understand before calling someone “not too bright”. But, I still consider you a friend! Thanks for reading my post, and congratulations on achieving financial freedom. Happy, not sad, here at The Retirement Manifesto! 🙂

      1. Fritz, carrying debt, especially debt connected to assets is not a wise thing to do in retirement. Dave Ramsey did not go broke because he couldn’t pay his bills. He went broke because of his age. New bank owners came onto his scene and they didn’t like the fact that a 20 something year old was carrying as much debt as Dave was. So, they called his note and it destroyed him. Sure he had enough money to pay his monthly debts BUT not the whole note. That is how borrowers are slaves to the debt owners. We think it can’t happen to us, but it does. I had a car loan once, even though I could have easily paid for the car. Yes, I had the money in the bank to cover it BUT as time progresses, one thing leads to another and some of the money got spent. Then 2008 happened. The bank sent a repo man to my home on December 10th and I will never forget this day! Even though I called my bank and yes, my loan was a few days late BUT it was paid, the bank called my car loan. Turns out the bank was in more trouble than I was and needed the collateral for their books by December 31. The only way the bank would let me keep my car was if I paid the repo man $900 in cash. My home property taxes were due and I just couldn’t do it. So, I let them reposses my car. I couldn’t believe it. The borrower really is slave to the lender. Wait! It gets worse, the bank couldn’t sell the car by 12/31 and the bank went under. The new bank didn’t sell my car for 3 more months so not only was the balance of the loan paid off BUT I now owed them 3 months storage fees. And they sent a nasty collection attorney after me to prove it.
        All for what?
        I didn’t do anything wrong. The bank was in trouble. Not me.
        I have never taken out a car loan ever again! I buy used and I pay cash. I will not have anything to do with banks.
        Also, when you are older and borrow money, despite the law, banks don’t like it. My 67 year old friend got an RV loan BUT the bank would only give him an 8 year loan, not a 12 like everyone else. Why? His age….PLUS…they put in a clause that the RV can be inherited AND named a beneficiary who would be responsible should the owner die. Nice, eh?
        Sorry for my wording, but I mean it in the nicest way, we’re all not too bright if we take out loans during our retirement. It is just not a wise thing to do. Ditto for reverse mortgages but that’s another post. If you have the cash to pay for your ‘great cabin’ use it. I can only imagine the fees and hidden charges those banks may be charging you for the mortgage? You have no idea how wonderful it is to live in a home or own a car that no one can take away from you for any reason (except non payment of taxes LOL!) God forbid you utilize your savings for something else that comes along your way and you need to pay off the mortgage quickly? I don’t need to go in to scenarios. You know Murphy makes house calls. Literally! In retirement, having a paid-for roof over your head is highly advised.
        Good luck! I really only do wish you the best. 🙂

        1. OMG calling someone else “not too bright” when “my loan was a few days late” and then saying “I didn’t do anything wrong. The bank was in trouble. Not me.”

        2. It is simple leverage and the debt he is taking on is arguable lower than inflation when you factor in deductions. I say it made sense in his situation and like he said in the post he can always pay it off. The Dave Ramsey approach is psychologically superior, but mathematically inferior.

  8. My 15 year refinance is at 2.5%, but i still have urge to pay it off…My fear is that if one of us (husband and wife) lose the job, we can lead a comfortable life if the debt is paid off. If we instead keep liquidity, my fear is I will end up using that money on some unnecessary thing…

  9. Dear Fritz,
    What I like about your site is your good nature! Most of my friends think I’m not too bright–and I’m not, about matters financial. But property is one of the best things about freedom. It isn’t like hedonism, which destroys freedom; thus the Founders went to great lengths to protect things that are really important–like being not too bright and still protected by the rule of law. Anyway, when I told a close friend that I was surprised that he wouldn’t take property debt into retirement when my financial guy kept telling me to do so, my friend said, “It makes me feel better.” Good enough reason, probably. And we’re still friends.
    Best, John

    1. John, it’s friends like you that really matter, and I respect you beyond words. And for the record, you’re one of the brightest people I know. Had you been around in the 1700’s, I’ve no doubt you’d have been involved alongside those brilliant Founding Fathers.

  10. You nailed it with this one.
    Totally the line of thinking I have, our current mortgage is 2.36% . Why would I ever consider paying that off when the cash that would have paid it off has allowed me to FIRE and continue to grow nicely. I also don’t plan on being in this home long term so why bank on the long haul.

  11. Thanks for the mention and the great compliment!!!
    I don’t think there are universally right and wrong answers when it comes to leverage in retirement. For me personally, the tax-deductibility will go away in retirement. If the Republican tax plan becomes reality and the exemption and itemized deduction are all lumped together into one single $24k/year standard deduction the mortgage deduction would even go away for most folks still working.
    So even at 3.5%, I would have a 1.5% carry cost with the mortgage. That’s too expensive for my taste. Well, there are some leveraged Muni bond ETFs with higher yield but they are also extremely volatile. Not a valid arbitrage opportunity.
    One reason why you might keep the mortgage is that you’ll eventually lock in a corporate pension, that might not be COLA. You have inflation risk in the pension and you can hedge some of that with nominal debt, i.e., a mortgage. Valid point!
    In any case, great blog post and food for thought!

    1. Good point about the impact of the standard deduction is increased. I’ve thought about this, and would likely pay off the mortgage were that to pass. Also, valid point about the inflation hedge that the mortgage could provide (unfortunately, my pension is not COLA adjusted). Glad to have made you think, it’s about time I pay you back for all of the times you’ve worked my brain with your incredible analysis! Thx for the comment.

  12. Fritz, your debt philosophy makes great sense to me. The most important factor using ‘good debt’ – and there absolutely is such a thing – is your psychological well-being (or lack thereof).
    I am a 62-yr-old retired DDS, my physician wife will work some 2 more years. My house has an interest-only mortgage at 3% fixed for 7 years – so NO principal is paid down – so all payments are 100% deductible; I will downsize and perhaps even rent before the end of the 7 years. My savings in this type of mortgage is invested. Further, I have a margin investment account as I negotiated a low interest rate (presently 2.1%) for leverage – which I can use to pay down my mortgage obviously, but I don’t want my margin/equity ratio too high so I haven’t.
    To me, the key is to have plenty of negatively-correlated and minimally-correlated assets. For example – commodities, hedged futures, US bonds, foreign bonds – as well as being well-invested in the ‘market’ so that in any significant market downturn, you always will have still some significant investments that are in the black to sell, and in the meantime you have these extra assets invested due to the interest-only mortgage and the low-cost (and deductible) margin. Just don’t get too aggressive w/ the level of margin, perhaps 25%, again w/ negatively correlated assets. As interest rates increase significantly, start selling down the margin.
    Great post Fritz!

    1. We think alot alike, IM. I’m a strong believer in diversification, and can argue that the mortgage arbitrage is a bit of a diversification play. I agree with you on the danger of margin, haven’t pursued that in my portfolio (tho I do have margin for the option trading I do in the “alternative” slice of my asset allocation).

  13. Thought provoking post, Fritz. I personally would be hesitant to take on debt close to or during retirement. But it sounds like you’ve analyzed your personal situation and made a decision that fits your financial picture.

    I think your point about flexibility is key. Taking on the mortgage does free up $170k of short term liquidity, but you have the option to pay off the mortgage should your financial picture or plan change. Also, that pension sounds awesome! Hopefully it doesn’t get taken away from you! 🙂

    1. Losing the pension would certainly hurt, big time. Ours is well funded and as secure as a pension can be, but I realize they’re not guaranteed. I think of those pilots who thought they were fine, retired, THEN lost the pension. No doubt, that would be a MAJOR blow, and I hope I never have to face that.

  14. Fritz, reason #6 eliminates any risk. Flexibility and having choices is valuable. There is one more reason — It’s much easier to get a mortgage BEFORE you retire, so now is the time to take advantage of current income!

  15. I understand where Cindi is coming from regarding banks. My husband and I soured on them completely, when his “0% closing costs for veterans” went from 0% to $1,600. Then, 2 weeks later it rose to $3,500. A week later the figure became $9,800…”which could increase at closing by 3% or more.” They actually had the nerve to close with “Thank you for your service.”

    We told them to take their so-called Good Faith Estimates (all 4) and stick ’em where the sun don’t shine. Swore off borrowing from banks at that point, and never looked back.

    We paid cash for our retirement home for all the reasons Cindi mentioned, but other folks have a different take on debt. Like her, our hatred of banks is based on having had less-than-wonderful experiences. As long as you’ve consider all the angles and have a solid Plan B, your approach seems reasonable for your circumstances.

    There’s only thing that worries me about your plan. Even though 2020 isn’t that far off, and you write that the proceeds from the sale of the “good” cabin are in very secure funds, are you absolutely certain there isn’t any “gotcha” clause that could restrict your access to them during a market meltdown? For example, if a big personal emergency were to come out of left field at the exact time Mr. Murphy decides to plunge the market into the basement, would you still be okay? If you can answer yes, then all your readers will sleep well tonight:)

    1. Ann, thanks for your active involvement with my blog, it’s noted and appreciated. Good point about making sure the funds aren’t restricted. Ironically, I just read this morning about a European plan to minimize bank runs that would extend the period of time that accounts could be frozen (USA regulators are resisting that concept, but it does show how things can change). We’ve got liquid money in various accounts, with various counterparties. I’m comfortable that we’ll have access, regardless of market develops. Good point, tho.

  16. My biggest take-away (really a, “well duh” moment) was that it’s okay to change your plans. Being flexible doesn’t mean your were necessarily wrong, it just means you have realized a change of course will do you well.

  17. I hate to say this but it sounds like consumerism and lifestyle inflation lead you back to having a mortgage and all the stresses and difficulties we are often trying to eliminate from our lives. Ive read your post for some time and followed the “good to great” posts as I am trying to find balance between frugality and a comfortable life for my family, that said I find it difficult not to see this post as justifying all that was set in motion when you decided your original cabin would not be acceptable.

    1. I respect that, Pat, and sincerely appreciate you leaving the comment. A few facts to help shape your opinion, perhaps. We are very much NOT lifestyle inflation folks (I wouldn’t be retiring at Age 55 if I were). Rather, this is leveraging an opportunity to improve our financial situation as one element of the move from Good To Great. We actually downsized (for the 2nd time in 13 months) during the move, and pocketed an additional $40k of savings thru the buy/sell process. Setting into motion the move to the Great cabin was driven by deep, deliberate thought. It will lower our living costs in retirement, and it will generate surplus liquidity than if we’d stayed in “Good”. Plus, the cabin meets every one of our needs we identified before we made the transition. Further, it does this while being smaller and costs less, both benefits not included in our initial checklist. My conscious is very clear, but only I can know my intentions. I give you my word, the motives were clear. This made sense for us in a whole lotta ways, none of which were focused on materialism. I love that the move is making people think. I hope this comments helps shine a light on our intentions. Thanks again for the comment.

  18. This is something I wrestled with a few weeks back when I was in the beginning stages of possibly buying a new property. I could buy it outright, but was it worth selling stocks to do? With interest rates so low and a firm grasp on your financial situation, this was absolutely the right choice! Plus, knowing that you could pay it off if you wanted to is the best position to be in. Sleep well, my friend, you got this one in the bag!

  19. Now that we are looking at buying a smaller home to live in while rebuilding our bigger home, I am debating the same thing. Do I pay cash outright or do I finance the new home…decision still to be made but I am thinking I finance it so as to have more liquid money… great post Fritz!

    1. Dad, glad my words could be of some help as you go through the challenges that Life is currently throwing at you. It’s a deeply personal decision, but there’s value in some circumstances in maintaining liquidity. Keep us posted on how you’re doing post-FIRE (unfortunately, not the type of FIRE most of us write about), think about you often as you rebuild your life!

  20. If you take the emotionally charged word “home” out of the debate, and exchange it for “housing”, I believe it more honestly deals with this. You have to have housing/shelter. You pay for housing, either by taking money from savings and paying cash (debt free), or making payments from cash flow (rent or mortgage payments). Personally, since we LBYM anyway, I prefer payments.

    There are three ways to pay for automobiles. Pay cash, make debt payments, or lease-all very similar to housing cost finances. Our last new vehicle came with a modest “cash back” rebate, plus 0 interest for 5 years. No one debated my choice of the 0 interest-most considered it a no brainer. Yet having a mortgage in retirement is vocally opposed on many financial blogs.

    In thinking through your housing costs, you have found the closest thing to 0 interest that is out there. I say, congratulations.

  21. Congrats on your move! I think it is important not to settle it sounds to me like you would not have been happy if you had just stayed put at your first cabin. I think what you did is very reasonable. I don’t think debt is bad if you are paying attention to what you are signing up for and have a clear path on how it will be paid off that fits into the rest of your plan as you clearly do. How is the new place treating you?

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