Reply to If paying off your mortgage is dumb, why do so many rich people do it?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous]We have $6.5 milllion liquid invested and a $1 million interest only at 2.8% on a $2.5M house (we bought 10 years for $1.5M) so we never pay down principal.  We worked out a retirement goal of $300k annual after tax passive income. To get there our wealth advisor uses rule of $300k x 30 = $9M liquid needed with 30/70 bond/stock. To get from $6.5 to $9 liquid faster we want compounding liquid returns which you don't get if you convert liquid capital to non-liquid capital in your house. $1,000 in the market will earn more compounding than if it was converted into your hardwood flooring. Plus you still live in your same house and its capital appreciation still is yours not the bank's. It makes sense to keep a low interest, interest only mortgage forever and never pay down principal. We basically have somebody else's $1M locked into our home at a 2.8% cost while we own the home apppreciation, mortgage interest tax benefit, compounding return on our mirror $1M liquid we keep compounding the market, maximize our monthly cash flow, and still wake up in the same house every day.[/quote]

I wish somebody would do this math for me. I need 150K to live on after taxes so if it's half, I'd need 5? I'm on target for that in 5 years. Did I get that right?[/quote]

Yes, each chunk of what you want, after tax free cash flow annually, is called a “unit”. To live perpetually without touching the capital and eating into it, you need 30 units. So in your target it’s $150k x 30 = $4.5 million. You want 10 units in a bond ladder in $150k chunks and 20 units in a stock blend ideally. Each year you use one of your bond ladder units as income and replace it with capital gains on your stock portfolio on the good years when it’s up. You always have 10 years of low risk steady cash flow in the future so you don’t need to stress over the ups and downs year to year of stocks. Overall, you’ll be able to replace units in your bond ladder and perpetually maintain your cash flow in retirement. You can make slight increases for inflation each year accordingly.[/quote]

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