Thursday, September 07, 2006

Debt Ratio Implications

Since I calculated my debt ratio of 1.71 a couple weeks ago, I have been thinking about its implications. My debt ratio being an outage was a surprise to me. And it has caused to rethink our strategy on our home mortgage.

Our only debt is our home mortgage. We do not have any car loans, credit card balances or other debt. So I expected to do very well versus the goal. However, since the debt ratio goal is 0 at retirement, any level of debt is an outage. Click here for more information on debt ratios.

In the past, I did not consider my home mortgage to be a possible barrier to retirement. I have a 5.375% 30 year loan. That’s great by any standard. And we have been making a 6X monthly payment against principal every year. This would be enable us to pay the mortgage is much fewer years than 30. (I haven’t done the exact calculation, but I believe it would get us close to a 15 year payoff.)

However, with a debt ratio target of 0 at retirement, my home mortgage is the only major financial barrier to retiring this very moment. So I am going to reconsider how fast I pay it off. To note, my financial advisor has recommended that I keep the mortgage, even in retirement. since he believes I can have sufficient investment income to cover it. However, being the conservative type, I would rather have no mortgage after I retire.

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

2 comments:

matt mcmahon said...

I wonder what your investment advisor says now?

Super Saver said...

Matt,

I haven't asked what their current perspective is on paying off the mortgage. I'm guessing it would still be the same for my situation.

For reference, we decided to keep my mortgage for at least a couple years into retirement since it can offset some income generated by conversion to Roth IRAs.