Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

The True Value Of A Debt-Free Retirement (Should I Pay Off My Mortgage?)

• Ari Taublieb, CFP®, MBA • Episode 231

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The episode explores the intersection of financial decisions and emotional well-being through personal stories. It addresses the dilemma between paying off a mortgage and investing extra capital while emphasizing the importance of confidence in navigating retirement planning.

• The dentist's journey inspires a discussion on the importance of financial planning 
• A couple contemplates balancing mortgage payoff versus investment strategies 
• The psychological impact of debt vs. investment returns is examined 
• Sequence of return risk and market volatility influence their decisions 
• Emotional security plays a crucial role in financial planning strategies 
• Personal anecdotes illustrate the significance of aligning financial choices with core values 
• Confidence in financial decisions leads to a more fulfilling retirement experience

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Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.

Speaker 1:

I am so excited for today's podcast episode. So welcome back to the show If you're a frequent listener, if you're a new listener. I love getting to do different topics, whether it be tax strategy, withdrawal, health insurance. Today is none of those. It is going to be a story. Now, it's going to be a few stories and I hope you actually enjoy it, more than some of my case studies where I will go through specifics on social security and withdrawal strategies and Roth conversions and, yes, I love that stuff.

Speaker 1:

But today is a story and the reason for this is because I just got back from the dentist and I will not be telling you about all of my teeth, even though I know you guys are dying to know. No, I know you're not bad joke, but the point here is my dentist is a new dentist and he is a dentist because he was a hockey player and he got all of his front teeth knocked out and just the thought of that made me be like, yeah, I am never playing hockey, not that I was ever debating it, but he was telling me because naturally, I'll get into. Okay, here's why I became a financial advisor. It's cool hearing why you're a dentist and we got went back and forth. We were not doing that when he was evaluating my teeth, because we've all been there where they're like so how's your day going? And you're like I don't know, your hands are in my mouth, I can't really talk. But the point here is this dentist is a really nice, awesome guy. I'm going to even link below his information in case you guys want to reach out to him. But he has a father who got dementia at 60. And he was asking me why I love doing financial planning and I was saying, to be honest, it's because of cases like that, and of course I had it to add. I needed to add some context real quick there, because or else it just sounds terrible Like I became an advisor because your dad got dementia at 60. And so I said, look, it's because did your dad save and invest and he goes? Well, he didn't really invest, but he did save and he worked really hard and then at 60, all of what he saved for is really just going to long-term care expenses and that's really sad. I want someone like his father to enjoy his life and so if that means you retire earlier and you prioritize your health and you save the right way and you get more family time. Well, that's why I love this stuff. So today is just a story about the power of not just good planning but almost doing the wrong financial thing, but leading to a better life. Let me explain what that means. So I'm going to go through that today.

Speaker 1:

If you are new to the show, welcome. I love getting to make content around all these different strategies. You can submit a question on my website, earlyretirementpodcastcom. If there's a topic you have not seen me talk about, that you go. I want you to do one on this Now.

Speaker 1:

If you're a new listener, you may have just not heard that episode. So one of you reached out recently who said hey, I haven't seen you do an episode on long-term care insurance, so I'll gladly have my team send you the link to that, and I often will just respond quickly because I know what it's like looking for. You know a piece of content that you cannot find, and so I totally get it. If you are a frequent listener, I rely on you guys to help grow the show. So if you're listening on the podcast app, please do go leave a review, whether you've liked it, not liked it.

Speaker 1:

I often like to highlight reviews. This is your show, so some of you guys are very transparent and I love the transparency. This was two reviews I'm gonna highlight. The first one comes from Shane Schna, who says there are some strong podcasts in the field, but none more concise, well-versed and straight to the point than this one Quick analysis on a variety of topics that all need to consider as we determine when it is the right time meaning to retire, review the historical content to gain great insights on specific topic that relate to your own specific situation. Thank you, ari and team.

Speaker 1:

Now, that's one of them. The other one comes from cool air one, two, three who says this is wordy but pointless. So I get that as well, and so naturally, when I make content, there's going to be a lot of you that resonate and all you that don't resonate. So if you don't resonate, number one like, of course, you do not have to tune into the show. But number two, I'm gonna try to be more clear up front when I go. This is an episode that's going to be more story based, so I could see if this person was reaching out looking for guidance on interest rates that he'd go. Well, this is wordy and not that helpful because it's not directly related to a specific topic.

Speaker 1:

Some of my videos will be very specific and I will will say hey. By the way, when I said very specific, it reminds me of the joke that I told a few weeks ago of my dad who says you can never have a very full flight. It's either full or not full. It cannot be very full, so it cannot be very specific. That would be me repeating myself. It is specific, so I will make a specific video on a topic. You should collect social security at 62. If you are, these five things, boom. That might be what that person's looking for. So I try my best, but here's my point and here's the story for today.

Speaker 1:

So this couple I was speaking to was all about having no debt. That was their whole thing growing up. That was, those were their values. Now I do not have it in me to not bring up financial examples when the evidence is clear, meaning whether you like me or don't like me, I need you to be aware of this, and I showed them the value of not paying off a mortgage early and instead investing the rest, and they went okay. So, like you're changing my mind financially, but I still don't want to have a mortgage and they have about $400,000 mortgage, but they also have 2 million in a 401k and about another one and a half in a brokerage account. So they're a year or so out from retirement and they're debating do we go pay off this mortgage because we have the money to do it? We have one and a half million in a brokerage account, which I call what, let me know in the comments Superhero account, because it is the most underutilized account when someone wants to retire early.

Speaker 1:

So what I did is I showed them hey guys, if you did not pay off the mortgage early, so you let this money keep growing in your superhero account and you average 8% growth. Your one and a half million would become boom, boom, boom, boom, boom. So two, 2.2, 2.5. And they said that makes sense. I said so do you see here how, like if you were to pay off the mortgage early, yeah, you'd sleep better, but there's 400,000 fewer dollars that are now going to be working for you because it went paid off the mortgage. And they said hey, that's a good point, but that mortgage, that's about $3,200 a month for us. The fact that we could no longer have that expense in retirement, wouldn't that be better for us? Because now, if you need to send me $10,000 a month, well, you now only need to send me $6,800 a month, because, because that's 3,200 less because I don't have a mortgage, I said great point, let's factor it in.

Speaker 1:

So we basically were going back and forth in the financial analysis and what I learned was that, no matter what I told this couple, they were going to sleep better at night by not having a mortgage. We went through examples of what if they got 8% growth and their current mortgage, by the way, I'll 3.5%. So the simple math says why don't I not pay down the mortgage in full? Instead, invest the money, because if I can get 8% growth, that's better than paying down at 3.5%. But they brought up a wise point. The point that they brought up was they said that makes sense over time, but markets don't do 8% every year. They average 8, 9, 10, 11, 12%, and so what we want to do is go what's the most efficient way to let us sleep at night and how do we optimize our investments to do that?

Speaker 1:

What if this couple got unlucky? And they brought this up? And they said there's something called sequence of return risk. They learned it from my podcast and then became a client, and what that means is what if you get unlucky? So what if they retire and they get unlucky and markets go down 10%? Well, they're gonna wish they paid off that mortgage, because now their brokerage account, with a one and a half million, has 150,000 fewer dollars and they would have slept better by paying off that mortgage, having less of an expense there.

Speaker 1:

So we are going through all these what-if scenarios and modeling out all these things with the software that I talk about all the time in my videos, which all of you can get access to, regardless. If you have $3.5 million, it's for 300 bucks. You could go and just get it right now in the description of this episode. But here's my point we went through all these different scenarios and it came down to confidence. Now, based off the scenarios we ran, there was a very good chance that they would come out on top financially if they did not pay the mortgage off entirely, paid the minimum and invested the rest, meaning you let your superhero keep growing. But there was, you know, a 20% to 25% chance that they would not come out on top, meaning if markets did not do well in the coming years because they have healthcare, they're going to travel, there's a lot of expenses.

Speaker 1:

And so they said, look, I understand, financially I might come out behind doing what's going to let me sleep at night. And I said you just did financial planning. They're like what do you mean? I'm like, well, you just realized that there's a financial answer to something and that doesn't mean you have to do it. So they realized that they're like we're going to sleep better at night knowing that there's no mortgage. That's an additional expense I don't have to worry about. And yeah, maybe we get unlucky and markets do really well and they're up 20%, but we don't need to be up 20% to be okay. And that was their big realization they realized they don't need to hit 15, 20% returns to be okay. They're going to be okay either way. Now there's going to be more money at the end if they were to not pay off the mortgage in full and instead invest over time. But they're like you know what the opportunity cost of that $400,000, yeah, we realized that could keep growing. But having that paid off, I think we're going to feel more confident spending in retirement. And I'm like wow, wow, wow, you guys are getting it. And so there's so many financial answers in life Max out your Roth IRA, do the mega backdoor, make sure you do the HSA, on and on and on, and those can be great.

Speaker 1:

But I see people that save and invest so well that they don't spend money on what matters most. So, going back to the dentist, I have no idea if my new dentist dad was sacrificing lifestyle, but he's 60 with dementia. Well, he was 60, now he's much older, but he retired at 60 and he had dementia. Now I have no idea if it was in the family or what, but I had an episode I put out I don't know I'm recording this in January, right now, maybe two months ago where this woman called me up and she was legitimately upset that she had over $3 million. And I'm like look lady, I don't hear that all the time Like why are you upset that you have $3 million plus? And she's like well, it's because I didn't need $3 million. I needed about $2 to $2.2 to live my retirement, and now I have sciatica in my leg because I've been sitting for so long. My retirement, and now I have sciatica in my leg because I've been sitting for so long and now I can't hike to the degree I want to in retirement. I'm like that's powerful stuff.

Speaker 1:

So for all of you out there saving and investing, don't always do the financial answer. Be aware of it and you might go I'm going to do it, which, yes, I'm all about that. But here's a couple that's like look, we're going to sleep better, not having a mortgage, we're going to worry less. It's one less thing that you know, when it comes to financial planning, I have to worry about. Yeah, there's mortgage interest and I know I could deduct that. Yeah, it turns out I could invest better, but what if I don't? And retirement is about building confidence. And if you just do all the right financial things on paper, what could happen is I'm not saying you're going to do this, but a lot of you will underspend, meaning you retire at 60. You're like I don't want to run out of money, you don't spend as much as you can. And now you're 80 with $20 million going.

Speaker 1:

Look, I'm in a fine spot anyways. Like why didn't I spend more when I had my energy and my health, when I could have actually, you know, enjoyed it to the fullest? So the story is really on saying are there things that will just let you sleep at night better. And I use myself as an example here I buy cars outright. It makes it sound like I buy a lot of cars. I don't. I drive a Mazda, mazda CX-5, no big deal, but I bought it outright. Should I have done that? Nope, I could have gotten interest rate that was better. I'm going to invest the next 50, 60, 80 years. I don't know why I skipped 70 there, but I am going to do that because I understand compound interest and the value of it. But look, I sleep better just buying the car, and it's one less monthly thing I have to deal with. So here I am telling a client that they should save and invest more, and I'm doing the same thing, just not with a home, but with a car.

Speaker 1:

So all of us have biases and heuristics, and so one of the things we pride ourselves on here is behavioral finance. Not just what is the financial math say, but what do we feel about that recommendation? Does it resonate with us like gut check wise? So that is it for this episode. If you guys enjoyed this, this type of story, let me know. I have so many more stories that I'm begging to share that I cannot wait, but I want to make sure it resonates with you.

Speaker 1:

So if you like this, please let me know in the comments of this video. Please leave a review on iTunes. Please like it if you listen on Spotify or wherever you listen. That helps more people listen to the show, and that's what I love doing. I love getting to help people like you guys. So thank you for allowing me to do this and I'll see you guys next time.

Speaker 1:

Thank you all, as always, for listening to the early retirement podcast. I love getting to host these shows and make different content for you guys every single week. I've not missed a single week in years and that is because I love getting to do this. Now, please be smart about this. Before you actually execute any strategy that you see me talk about or hear me talk about, should I say please talk to your financial advisor, your tax preparer, your estate attorney. Please be smart about this. None of this should be construed as financial advice. This is for fun, educational, informational purposes only. Once again, just quick disclaimer here. Guys, please be smart about this. Appreciate you listening, as always, and you can, of course, submit a question on my website, earlyretirementpodcastcom, if you, of course, want me to address a specific case study or topic. I will not promise I can get to it, but I respond to every single person and if I find it will be helpful for a lot of people, I will absolutely make an episode on it, at the very least give you some insight. That's it, thanks, guys.