I was playing around with Big ERN's Safe Withdrawal Toolbox and created two identical scenarios except one had a -1000 cashflow per month for a mortgage. The amount to withdraw WITHOUT the mortgage is about $500 higher than the target withdrawal amount per month WITH the mortgage. But with the mortgage you would be taking out an extra $1,000 to pay the mortgage so your total withdrawl WITH the mortgage is actually about $500 higher per month than without the mortgage.
I'm trying to wrap my head around how that makes sense. Unless there is more smoothing that happens over time where without the mortgage your withdrawals will be increasing higher than with the mortgage.
Same portfolio balances. Same asset allocation. Same everything, one scenario has a -$1,000 month cashflow for a mortgage
Scenario A: Mortgage payment of $1,000 per month – $5,000 per month withdrawal target = $6,000 per month withdrawal
Scenario B: No mortgage payment – $5,500 per month withdrawal target = $5,500 per month withdrawal target
I thought the withdrawal numbers made sense looking at the target withdrawal amount but I checked with ERN and he says you take the target withdrawal amount and then also withdraw the negative cashflow ($-1,000 mortgage).
Can someone explain how this makes sense?
Entering Retirement w/ a Mortgage and Impact on Safe Withdrawal
byu/HeretoLurk09 infinancialindependence
Posted by HeretoLurk09
2 Comments
I assume you put the mortgage payment in the non inflation adjusted portion of the cash flow section? The $500 in scenario 2 is inflation adjusted but the $1k is not and presumably it’s also not till end either since mortgages are 30 years or less and retirement is probably 40-55. That difference seems high to me but it’s not surprising that there is a difference due to these two factors.
Mortgage payment does not increase with inflation.