Home Forums Hunting & Shooting Hunter's Campfire Closing in on retirement and setting a budget

And us 30 somethings also

If I was 30something again I would follow this investing strategy, once I was debt free except for my house and had 3-6 months cash emergency fund saved up.

3% Signal

Sun City, AZ? Yikes.
Sounds like you have a solid plan though! Fishing is never a bad way to spend a day. Whether your next or last.

I've always had one question for those that taut the Mortgage deduction. You say the deduction is preferred, but have you also figured in what the real advantage is compared to someone taking the standard deduction on their taxes. It definitely closes the gap, though I never figured out how much. Not sure, but it may make it a wash, or at least not near as much as your assuming.

Here's what Dave Ramsey says about it. Since I paid off my house early this year, I agree with him 100%

Why Should I Pay Off The Mortgage?

QUESTION: Laura on Twitter asks Dave to explain paying off the mortgage versus keeping it for the tax deduction.

ANSWER: If you have the opportunity to pay off your home and you don’t pay off your home in order to keep the tax deduction, that would be an indication that you are poor at mathematics. It’s a nice way of saying you’re stupid and you believe cultural lies that are out there. The cultural lie is never pay off your mortgage because you’ll lose the tax deduction.

Let me help you with the mathematics on this. Let’s use an example. Let’s say you have a $200,000 mortgage at 5% interest. If this is your personal residence and you do itemize—by the way, only 27% of Americans who file taxes itemize—you can write off the interest portion of your payment on your personal residence. If you have a $200,000 mortgage at 5%, that would be $10,000. We have a $10,000 tax write-off because we have a $200,000 mortgage at 5%. That’s a tax deduction, meaning if that couple makes $75,000 a year and they take a $10,000 tax deduction, they don’t pay taxes on $75,000. They instead pay taxes on $65,000. If you do this weird Dave Ramsey thing, though, and you pay off the house, you no longer pay taxes on $65,000 because you would not have a tax deduction. You’d have to pay taxes on $75,000. You’re in a 25% tax bracket if you make $75,000 a year. That $10,000 a year that we’re talking about is taxed at 25%. By paying off your home, 25% of that $10,000 that you’re going to have to pay extra taxes on is $2,500. In essence, you lost a $2,500 savings on your tax bill, but you gained $10,000 by not having to pay it to the bank.

A $10,000 tax deduction is the same thing as saying, “I would rather give Countrywide $10,000 than give the government $2,500.” I’m not fond of giving the government money, but I think that that’s a pretty stupid trade, by the way. If you’re so dumb that you think giving Countrywide or Wells Fargo or whoever your mortgage company is $10,000 to avoid a $2,500 tax bill, you flunked math in the third grade. That’s stupid. I used to be that stupid. I believed that same mythology that a lot of you believe.

Here’s another idea. What if, instead of a $200,000 mortgage creating a $10,000 tax deduction, you wanted to trade $10,000 and save $2,500, why don’t you just give an extra $10,000 to your church or to the Red Cross? You don’t have to be in debt $200,000 to trade $10,000 for $2,500. You could do that just by increasing your charitable giving. Where are all these financial sophisticates who are suggesting that a mortgage is somehow financially sophisticated? Where are these sophisticates when it comes to saying increase your charitable giving? It’s the exact same mathematics as having a tax deduction on your mortgage. We live in the land of doofuses. That’s where they are. It’s what’s known as the blind leading the blind. The stupid leading the stupid, and I’ve been one of them. I’m not saying I’m above it. I’ve made these exact same mistakes. It was an old farmer in bib overalls who taught me that, and I’ve got a finance degree. Apparently, I didn’t learn much at that college. And apparently some of you CPAs didn’t if you’re suggesting people keep debt solely because a tax deduction is somehow mathematically a good deal. It’s not a good deal. Do not keep a mortgage to call yourself sophisticated. Bad plan.

Now if you’ve got a mortgage, until you get it paid off, for goodness’ sake, take the tax deduction. But don’t stay in debt telling everybody how smart you are.

That's one view, a piss poor one form some folks.

In what way do you disagree with the points he makes?

Once again, we're not talking 5% interest. My mortgage is 2.75%. With the tax benefits, it actually ends up being less than 2%. Despite what the govt tells you (that inflation is almost non-existent), it is actually probably 3-5% a year. Don't believe me?? How much did a truck or gun cost 10 years ago compared to today?? Bread?? Milk???

The point is, at 2% (after tax benefit) interest, you're essentially borrowing money for free.

Once again, I'm not going to argue that you shouldn't pay off a home loan that's at 6% or an 18% credit card. OTOH, if you can use money at 2% interest to invest at 5%-12% interest, or to buy tractors/trucks and avoid paying 6%-8% interest, or to avoid having to take so much out of a 401k or IRA (and draw a HUGE tax hit) why wouldn't you??

If all you are taking is minimum distributions out of your 401k/IRA, my way won't help, and it won't help if you have to draw from them to pay that mortgage. However, if you are exhausting savings(outside of retirement accounts) to pay your house off (and save 2-4% on mortgage interest), only to have to turn around and draw HEAVILY from retirement to pay living expenses (and have to pay 18%-25% ncome tax on those withdrawals), that doesn't sound real bright.

Also consider that what is left in your retirement account at death can be left to children and they can stick it in THEIR retirement account without a tax hit....

Dave Ramsey gives good advice when it comes to NOT being poor and being financially stable. OTOH, I don't think you'll find a large percentage of millionaires who got rich waiting to pay cash for all their business acquisitions/land holdings/etc.

This is the argument Ric Edelman uses:

Dave Ramsey is a twit, why He is still working, do any of you live? I mean really live? Enjoy life?

No two people earn the same nor spend the same, medical bills can be a killer, children they ain't cheap, Yellowstone is fantastic, it beats the hell out of reading 401 statements, or paying for cancer treatments.

Live your life, and enjoy every day of it, spend money on your kids, because they are going to spend it when you are dead, work hard live well and let the cards fall as they may, because you don't really have any say in the day the big guy calls your number.

Now, plug in a mortgage at 2.75% and tell me what that chart looks like.....

hmmmm