mortgage

Some readers were surprised by my piece published  in The Jerusalem Post and on Profile Perspectives called, “The Most Important Thing to Do Before You Retire.” In it, I argued that you should try to eliminate all debt, including mortgages, before quitting work.

One reader wrote: “Doug, there are two sides to this coin. Harry Dent and other economists believe that if you have a 30-year fixed mortgage at historically low interest rates, you should keep it since rates will rise but your mortgage won’t. This means if inflation increases, you’ll be paying in devalued dollars. So your monthly payments will be decreasing in real dollars. That sounds great, unless you don’t want to take the risk of inflation. Therefore, your recommendation is more conservative and prudent.”

Believe financial planners, not economists

I’m not suggesting that economists are wrong. Rather, they live in a different world from you and me. They study hypothetical situations and don’t necessarily discuss with regular people how to stretch their paycheck to cover short- and long-term expenses.

Though Harry Dent may be right, there’s more to handling your money than trying to guess the future and adjusting your portfolio in accordance with your expectations.

Instead, think about how you might feel on a month-to-month basis about your cash flow. People, for better or worse, tend to make decisions based on their emotions rather than on facts. Even if the numbers would suggest that you could pay your mortgage with depreciating dollars, will you feel comfortable knowing that you have a large monthly expense when you’re no longer receiving a salary?

There really are two sides to this question. One is an academic study of interest rates, currencies, and economic predictions. The other is an intimate discussion about your dreams and goals, and your emotional relationship with money. Both are important. But having practiced as a financial planner for about 25 years, I have yet to meet a client who could completely divorce himself from the emotional side of money and make truly rational decisions at every critical juncture. Can you?

To find out more about this subject, listen to this podcast here. 

Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.

Published April 20, 2015.

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