You have been…….
DENIED!
Johanna’s Take:
Rationale: There are many moving parts to this request. Let’s look at what’s going on:
The submitter desires to keep his current home, which gives them much happiness, but doesn’t want to make payments for 30 years and would like to retire early or at least not need to work in 10 years if he chooses not to.
The positives:
* Wife’s pension, lump sum available at retirement
* His side gig, which equals his W2 income
* Wife’s income of $180k/yr
* High current savings rate (NOTE: the estimate of 50% provided is on net not gross income, so I applied a savings rate of (50% * 70%) or 35%)
The negatives:
* Husband would like no earnings pressures in 10 years
* They should expect to be retired for at least 40 years, with many years between retirement and Medicare eligibility.
* His income will decrease from $235k to ~$140k in ~2 years
* They are expecting their first child – expenses will go up, savings will go down.
* Their house is almost 90% mortgaged; the mortgage will be ~ 2.5 x income in 2 years when husband takes a pay cut.
Assumptions (I will use conservative estimates wherever there is an uncertainty.)
* Wife takes a lump sum pension payout of $425k at retirement
* Husband retires in 10 yrs and wife retires in 15
* 6% average long-term returns on savings (Assuming no emotional mistakes in upcoming bear markets and corrections)
o By my calculations, you will have between $2M and $2.5M
* Savings of ~$112k/yr for 10 more years
* $250k in future dollars for college (said they might not totally fund college)
* No private schools
* No more children
* No financial assistance for other family members
* No disabilities or premature deaths; reasonably good health
* No divorce!
In this scenario, even with a high happiness factor, I just couldn’t find a way to recommend that the couple stays in this house. My fear is that the husband would end up working simply to feed the needs of the house rather than being able to comfortably ease back on work.
This has been a difficult decision. With some changes, I could be persuaded to reconsider:
* Both spouses plan to work at least 5 more years.
* They cut expenses and increase their savings rate.
* They have a windfall that can be used to pay down at least ¼ of their mortgage
Xrayvsn’s Take:
Probably not too helpful if I just say Ditto, but Johanna has pretty much laid out the biggest concerns I had when going through this submission.
The desire to not have W2 income be a factor at all within 10 years was one of the biggest obstacles that I just could not overcome with such a large mortgage left.
The uncertainty of how the financial situation will change once a child is introduced (with possibility of additional children) further complicates the matter at hand.
There are just too many variables and moving parts to feel confident that a home with this large a mortgage remaining could not end up being a huge financial anchor that will push them over the brink and make them house poor.
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Personal Capital
