“Now let’s say your house is paid off and it’s worth $300,000. How much money do you have? None, unless you can take it out. Maybe when you need it, the bank won’t let you have it because your injured or unemployed.”
I know what you are saying, nufsed, here and in your other excellent points. As I said, mine is a life goal. To sum it up, the idea is to have enough liquid assets to not have to borrow or rely on your home’s equity. Again, I might not ever reach my goal, but I am working on it.
In my experience as a financial planner here's what I run into. People outlive their retirement money. The average 401k is gone after 13 years.
We are living longer. Most people do tax deferred retirement and pay off their homes believing they will need less money when they retire. So what happens?
The cost of living keeps increasing. If you live 36 years in retirement, the cost of living will probably double twice.
If you pay off your house, you have lost your largest tax deduction, at a time when you are paying your roll out tax on your 401k.
The concepts I'm advocating here are to accelerate your retirement fund through equity management, get out of a tax deferred retirement (pay tax on the seed rather than the harvest), and become your own bank.
One last point on tax deferment. If you pay 500 a month into a 401k over 35 years at 7.5% growth you'll have a million dollar fund, after deferring 70,000 in taxes over 35 years.
However, if you live 35 years in retirement, you will pay nearly $800,000 in taxes during the roll out and the rest of the 35 year period.
Best wishes!