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Author: JanFromEarth One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120820  
Subject: How to pay off the mortgage? Date: 4/4/2011 5:31 PM
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I plan to retire in two years at 62 (I probably won't, but I am planning that way). I am thinking to pay off my $200K mortgage at that point or shortly after. I have $500K in non-tax deferred money with long term gains to exploit. I am looking for opinions on whether to cash in the day I retire or spread it over time.

I am mostly just noodling this around right now. If I completely pull the plug, I won't have any income except SS plus the income from the account I mentioned and some IRA/401Ks.
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Author: fleg9bo Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112962 of 120820
Subject: Re: How to pay off the mortgage? Date: 4/4/2011 6:08 PM
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I plan to retire in two years at 62 (I probably won't, but I am planning that way). I am thinking to pay off my $200K mortgage at that point or shortly after. I have $500K in non-tax deferred money with long term gains to exploit. I am looking for opinions on whether to cash in the day I retire or spread it over time.

I am mostly just noodling this around right now. If I completely pull the plug, I won't have any income except SS plus the income from the account I mentioned and some IRA/401Ks.


In order to pay off the mortgage from your $500k account, you will have to sell some stock and pay capital gains tax if your total income is high enough. That would add to the cost of paying off the mortgage if you weren't otherwise planning to sell that much stock all at once when you turn 62.

Let's say just for fun you cash in $220k worth of stock and pay $20k in capital gains tax plus your mortgage. That leaves you with $280k. This article tells us how much we can safely withdraw from our investment portfolios without running out of money (to the extent that anyone can calculate this):

http://www.fpanet.org/journal/CurrentIssue/TableofContents/P...

The safe withdrawl rate is around 4% if you want your money to last 20 years or more, which is $11,200 per year from your $280k account. Add that to your Social Security and whatever you withdraw from your IRA/401ks at 4% and see if it's enough to live on, given the expenses you expect to have when you stop working. That's where I'd start.

--fleg

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112965 of 120820
Subject: Re: How to pay off the mortgage? Date: 4/4/2011 7:07 PM
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I plan to retire in two years at 62 (I probably won't, but I am planning that way). I am thinking to pay off my $200K mortgage at that point or shortly after. I have $500K in non-tax deferred money with long term gains to exploit. I am looking for opinions on whether to cash in the day I retire or spread it over time.


cashing in all of it, or just enough to pay off the mortgage?

either way

1) iirc, there was some "special deal" on long term cap gains last year (2010) and i this year also but not next .. so you might want to cash in now [ one of the experts will correct me ]

2) you want to spread it out At Least enough that your cap gains don't bump you into a higher bracket /make your SS taxed 'too much'

might consider looking at your tax situation late in the year and do 'what-ifs' or various amounts of cashing-in

3) if you think whatever you're selling will continue to go Up, you don't want to sell any more than you have to

[ 4) just me, but i like keeping the mortgage and having the cash in case of emergency ]


HTH

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Author: JanFromEarth One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112968 of 120820
Subject: Re: How to pay off the mortgage? Date: 4/4/2011 8:06 PM
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Well, the $500K is just the non-tax deferred part of my portfolia. A bit more than 1/3 of the total. I realized tonight that if I cash this in, my domestic partner and owner of 1/2 the mortgage will be stuck with 100% of the payments (but for 1/2 the time). I wonder if I should not just put the $200K someplace to earn 5% (no small feat these days) and then draw it down.

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Author: JanFromEarth One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113273 of 120820
Subject: Re: How to pay off the mortgage? Date: 4/22/2011 12:26 PM
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Thanks for the reply. I think I may have misled you. I have 550K in that account but another $1mm in IRA rollovers and a 401K account. I would not want to take the money from those as it would all be ordinary income to me. (less basis, of course).

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Author: JanFromEarth One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113274 of 120820
Subject: Re: How to pay off the mortgage? Date: 4/22/2011 12:30 PM
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I like the idea of keeping the mortgage and the cash as well but I am 100% in stocks right now and see no benefit to fixed income investments. I was thinking that if I had to diversify into fixed income (I am 60 now), I might consider paying down debt instead. THAT is a guaranteed return and no risk that the investment will be worth less if interest rates go up.

My goal was always to pick up a million dollars in investments and I went over that by a bit more than my mortgage is. So, I am trying to think out of the box.

Just thinking here.

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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113276 of 120820
Subject: Re: How to pay off the mortgage? Date: 4/22/2011 5:05 PM
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Thanks for the reply. I think I may have misled you. I have 550K in that account but another $1mm in IRA rollovers and a 401K account. I would not want to take the money from those as it would all be ordinary income to me. (less basis, of course).

The taxable ac will have basis.

The IRA rollover ac may or may not have basis
The 401k ac will most likely not have basis i.e. the entire account gets taxed as income
Why do you think "less basis, of course" factors in?

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