“We paid off our mortgage early. What now?”


My husband and I are not high-income earners. In our mid-40s with an 11-year-old only child, we make less than $101,900—the amount StatsCan says is the median household income for a family with kids.

But we’ve been smart with our money—choosing to live near public transportation, and walking and using the subway as much as possible, saving $350 a month in parking fees at my husband’s workplace, not to mention gas, and also forgoing a second car altogether. 

Top-priced peak-season resort vacations were off the table for us. To travel on a budget, we limit ourselves to road trips in the summer, and opt to get away during shoulder season anytime airfare is involved. For instance, we would visit my husband’s family in Ireland in April instead of August, and typically we’d also go for winter vacations either in February or April to miss the high prices at March Break or Christmas.

The payoff? Over the past 14 years, we’ve covered mortgage payments on our modest Toronto house with biweekly accelerated mortgage payments, dropping lump-sum prepayments once or twice per year to reduce the principal faster. And so we managed to pay off our mortgage in December of 2019. 

And yet, we’ve come to a strange juncture. Right after basking in the pride and relief at paying off the largest debt most individuals ever incur, we were left wondering how best to use our new mortgage-payment-sized chunk of disposable income, with retirement still 20 years away. 

Then the COVID-19 pandemic hit. 

With both of us worried for our job security (we work in the increasingly precarious publishing industry—my husband as a salaried newspaper reporter, and me as a freelancer), the “before times” financial advice doesn’t seem applicable. We’re concerned about wage contractions, layoffs and, of course, a recession.

We’ve always wanted an income property that could also be a vacation home, preferably somewhere with a sunny, warm climate to escape the Canadian winter. Given the current economic outlook, however, we’re scared to take on a significant new purchase using the money we would have directed towards our mortgage. So, what should we do now?

Redirect your money towards retirement savings

Paying off a mortgage with 20 years until retirement is not that common, says Akilah Allen-Silverstein, CFP, RRC, of the Mandeville wealth advisory firm. “But as a financial planner I am very excited for clients when this is their reality; this provides the extra cash flow to fund retirement savings. (My husband and I are giving each other a retroactive pat on the back.)

The conventional wisdom for the post-mortgage period of life is to pay off any high-interest debt, pay for car repairs or other large purchase items, then focus on your retirement goal; set that goal, and allocate funds accordingly, says Allen-Silverstein.

With 20 years left, she says, my husband and I have put ourselves in an ideal spot for retirement planning. The cost of living is high, and not likely to go down anytime soon. Those who plan to stay in a big city or any developed country are going to need a sizeable nest egg to support their lifestyle. But the good news is, the longer you have to invest, the better chance your investments have to grow. “CPP and OAS on average pay out $672 and $613 per month which isn’t nearly enough,” she notes.

If you have 20 years to invest and commit $1,500 a month invested aggressively and with an estimated 6% rate of return, you could potentially have $693,061 in 20 years. 

But what if we waited another 10 years to invest?” Allen-Silverstein posits. “We would have to invest $4,500 a month invested at a 6% rate of return to potentially have $696,487,” she says. Obviously the former is a better strategy. 

Set aside money for emergencies

What about COVID-19? Experts say even though there is a pandemic happening, it’s important to continue setting financial goals and invest for retirement. Even though markets are more uncertain than usual due to COVID, the very nature of investing is that it comes with uncertainty and risk, says Saijal Patel, CFA, founder and CEO of Saij Wealth Consulting.

“No one, not even the most seasoned investor, can successfully predict the markets. There are far too many variables and outside factors that can change the course. The timing and intensity of COVID is just one example,” she says. “The key to managing volatility is to create a diversified investment portfolio aligned to your goals and risk tolerance that varies across different asset types.”

That being said, the financial reality of COVID-19 for many will require an adjustment of expectations for retirement, and the actions we take to plan for that potential new reality. 

At the same time, both Patel and Allen-Silverstein underscore the importance of building and maintaining an emergency fund that covers three to six months worth of living expenses.

“It’s likely to be quite a while before things return to normal,” says Allen-Silverstein. A vaccine or effective COVID-19 treatment would drive stock markets higher, and could lift consumer sentiment and boost economic activity if people feel safer resuming activities that they have put on hold, such as travel. However, at the time of this writing, this timeframe is unknown. 

Should we hold off on investing in real estate?

Because our home is paid off, we could consider tapping that to finance an investment property—for example, by obtaining a home equity line of credit (HELOC). Allen-Silverstein says this is a pretty common move, and could be a great investment option, if the HELOC is paid off by retirement and we’re able to find suitable tenants who cover the costs completely. Having rental income now and in the future is a laudable goal, but being a landlord comes with its own series of risks and headaches, she warns, and international real estate associated with tourism is not a good idea at present.

My husband and I have decided that buying an investment property is too risky at the moment (we had been looking at purchasing a small Miami condo). But it remains our firm goal. We’ll revisit this in 18 months after (hopefully) a vaccine stabilizes the tourism sector. 

Meanwhile, over the next year and a half, we’ll be taking Patel’s and Allen-Silverstein’s advice: I’ll bump up my emergency fund to cover six months of expenses, we’ll earmark more money for investments and RRSPs so that it doesn’t slip through our fingers or languish as cash. 

Post-mortgage money dos and don’ts

  • Do pay off any high interest debt, such as credit cards or repairs for your car or home you’ve been putting off, says Allen-Silverstein.
  • Do bump up your emergency funds to 6 months if you’re worried about your job. “That probably means you will cut out discretionary spending (entertainment and non-essentials) and watch your variable spending,” says Patel.
  • Do establish new, post-mortgage goals. Decide what’s “mandatory” and what are “nice-to-haves.” Then create a plan (decide when you need to reach that goal, how much money needs to be set aside).
  • Don’t get used to your “new” cash flow for too long before you decide to put it to work. However, you needn’t commit the entire amount to saving and investing. “You deserve to celebrate this achievement and the perks of being mortgage-free,” says Allen-Silverstein. Keeping $200 a month for guilt-free ordering of takeout meals or Zumba classes is key to not resenting the process, and ensuring we also thoroughly enjoy the present, she adds.
  • Don’t procrastinate on retirement savings. “Money will slip away if not earmarked.” says Patel. Don’t save what’s left after spending rather than paying yourself first. Automatically save a portion of your monthly income towards your goals and then you can spend the rest guilt-free, even in the COVID era.
  • Don’t avoid individual stocks. As long as they’re used to create a diversified portfolio, even now, they will aid in managing risk, says Patel. “Let’s not forget that stocks also vary in risk (large cap dividend stocks are typically less risky than small cap stocks, for example).” Consider using a robo-advisor, which can match you up with a ready-made investment portfolio that matches your risk tolerance, until you build knowledge, says Patel. “When you’re comfortable and as you build knowledge, you can consider picking your own individual assets,” she says. Her pecking order would be to use TFSA and RRSPs (take advantage of both if you can) before investing in non-registered accounts. 
  • Don’t get fixated on buying gold, which is at a high. “Gold can be volatile and risky, so it should be considered for someone who has a medium to higher risk tolerance. And as part of a diversified portfolio, I’d suggest it doesn’t make up more than five to 10% of one’s portfolio,” Patel says. If you do feel confident enough to go ahead, she says there are various ways to get exposure to the gold sector: gold bullion, individual gold stocks, gold ETF or mutual funds.

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