Book review: “A Bittersweet Season”


 

 

 

Jane Gross’ mother died in 2003 after several years of declining health. Jane and her brother spent those years moving Mom from Florida back to New York, settling her in one assisted living facility and then moving her to another, working through a number of medical problems, and finally helping their mother decide when she was ready to die.

Five years later, Ms. Gross retraced her steps through that experience. She and her brother wrote about those days from their own perspectives and feelings, and then compared notes. She tracked down the people they’d worked with during those years and those who’d known her mother. She interviewed doctors, nurses, aides, geriatric care managers, Medicare specialists, state Medicaid staff, and lawyers.

She wrote over 300 pages: as a researcher, a loving adult child, a participant, an observer, and a teacher. She realizes that she’s growing older too, and she writes about how the elder-care bureaucracy evolved during just those few years. It’s a memoir about life with her mother through the difficult final years. But it’s also a manual about navigating the healthcare system while you’re trying to take care of your parents, your family, yourself, and your career.

Ms. Gross spends about a third of the book on the deeper issues that their family confronted during those years: their mother’s quirky parenting, four decades of sibling rivalry, her mother’s anger at her body’s breakdown and the loss of elder dignity, the caregiver roles that Jane and her brother fell into (almost from temperament rather than thought), and her own personal growth as she juggled career and care.

She uses another third of the book describing the situations that other families and her friends are dealing with. Some of her mother’s nurses and aides spent eight hours a day on their job and then another 8-10 hours caring for their own parent(s). Other families coped with Alzheimer’s, cardiac decline, severe strokes, or broken hips. Care managers and geriatric doctors confronted their own burnout. Researchers and administrators talked about demographics, legal pitfalls, the Medicaid bureaucracy, and the body’s physical aging processes.

Finally she explains what she’s learned about the system, both firsthand and later through research. She describes the status quo and what’s going to change as the Boomers finish their lives. She lays out the studies and their statistics. She tells us what we need to watch out for, what she wishes she’d done differently, and what other unpleasant surprises lurk around the corners. This is the most valuable part of the book: it’s packed with advice on walking through the minefields, and the back pages are filled with support associations and websites. I took notes and added bookmarks.

Parts of the book are difficult to endure because, frankly, Ms. Gross comes across as a drama queen who rushed into situations without educating herself. It took me most of the book to appreciate that she’s making a point: when it’s your parent then you may react that way too. You may be too overwhelmed with your own family and career challenges to lovingly respond to a parent’s 10 phone calls a day. You may be too crazed to step back and thoroughly research all the options and the unexpected consequences of every decision. Events may move too quickly for you to have time to handle your own emotional turmoil. You may be too tired and burned out to handle an uncaring bureaucrat or an inattentive care provider or to cope with your parent’s tantrum.

She helped me understand how some things happen. Mom didn’t just “have a fall”. Her bladder doesn’t send reliable signals, and her body’s proprioceptors no longer help her brain’s coordination place her feet just right. Her blood pressure drops rapidly if she stands up too quickly and she has medication interactions that cause vertigo. So when she suddenly realizes she has to use the bathroom, she’s too rushed to be able to take the time to slowly stand up and begin cautiously moving. There’s no time and she won’t make it, let alone show that she can still live independently! Then her body fails her and she falls. Her arthritis keeps her from twisting to roll over and sit up. The pain is unbelievable.  She’s embarrassed by her “clumsiness” and her incontinence, and then she’s worried that she’ll die and be found in this position by her children.

Other stories are eye-opening warnings about the way our society interacts. Elders in the care homes ostracized each other if they couldn’t walk or swallow, or if arthritis made it impossible to neatly eat their food. Residents fiercely competed for resources or status: whether it was finding an aide with the time to change an adult diaper during a busy part of the morning, or having a manual wheelchair needing to be pushed everywhere, or buying a cool mobility scooter with a joystick control. Depression had so many causes (changing brain chemistry and medication interactions, let alone the loss of bodily function) that took months to figure out and treat.

Read the book.  We need to understand what our grandparents and parents are going through, let alone how to help them.  We need to learn how to take better care of ourselves, not just each other.

“A Bittersweet Season” should be appearing in local libraries by now, especially through inter-library loans. Jane Gross has also written dozens of posts over the years for the NYT’s multi-author blog “New Old Age”.

On a personal note, the probate court has approved my father’s petitions for guardianship & conservatorship. After nine months, $10K in legal fees, and a bureaucracy designed by The Three Stooges, we can finally start handling Dad’s finances. It didn’t go smoothly but it’s over and we can refocus on Dad’s care. Dad’s finished three chemotherapy sessions for his multiple myeloma treatment and he’s handling everything well. On the other hand we’re starting to see some of the issues that Jane Gross warns us about, and I have to figure out how to discuss them with my brother without both of us getting upset.

Managing Dad’s finances will be the “easy” part, and even with a full-care facility I’m sure my brother’s feeling burnout.  I’ll write up a separate lessons-learned post.

Related articles:
Financial lessons learned from caring for an elderly parent
More on caring for an elder’s finances
Geriatric financial management
Geriatric financial management update
NYT editorial by Jane Gross:  “How Medicare Fails the Elderly”

Does this post help? Sign up for more free tips via e-mail, Facebook, or Twitter!

Posted in Reviews | 2 Comments

Parent’s letter to an 18-year-old


 

 

After those last two blog posts, it’s time to lighten things up a little. Let’s talk about figuring out the “new rules” when your fledgling leaves the nest. Our daughter has given me permission to blog about an e-mail that we sent her a few weeks after she started college.

Until she turned 18, her checking account and her credit card were still held jointly with me. We were both eager to end that part of our relationship!  But she had plenty of other things on her mind during her first semester of college.  At the time we wrote this e-mail she was struggling with homework, exams, NROTC workouts, and her personal spending habits.

When spouse and I went to college (back during the second millennium, before the World Wide Web & cell phones, when woolly mammoths roamed the earth), we spent years stumbling through the minefields of our own parents’ expectations.  So when our daughter started college we decided to seize the initiative and set out the ground rules. Not that we’re control freaks or anything– we’re just trying to do for the next generation what we wish had been done for us.

Here’s what we told her:

Happy birthday!

Your 18th birthday also marks your independence from the family payroll and the end of our $$$ gifts at birthdays & holidays. You’ll still be reimbursed for tuition expenses that NROTC doesn’t cover, and our college fund will pay your cell phone bill. Of course both of those subsidies will expire when you get your diploma & commission!

The last payment to your clothing/toiletries budget will happen next month. After that… well… you’re a college engineering student now, so nobody will be surprised if you’re ragged & stinky. You could always tell people that you’re considering joining the submarine force.

Mom and I aren’t sending a very consistent message yet, but you should attempt to live your life as if we’re not giving you any more money ever. As you build up your personal property (like your collection of Navy uniforms) then you should consider insuring it so that you won’t have to call “Mommy&Daddy” to subsidize a recovery from fire/theft/floods. You already know we’re not planning to contribute to your first home, either, because you’ll be saving for a down payment or using the special “first home purchase” feature of your Roth IRA.

When we get together we’ll still take you out for meals and pick up the check, but there’s a very good chance that in 50 or 60 years you’ll be reciprocating this generosity by helping to feed me MY food. Of course we’ll buy you the plane tickets to visit home anytime. As the parents of the prospective bride I think we’re paying a chunk of your wedding expenses, a subject to be revisited waaaaay later. We’ll also spoil your kids with a trip to a Disney theme park once or twice a year, and we’ll take them off your hands for an occasional sleepover or grandparents weekend… but we don’t want to provide childcare so that you can go to work or stand weekend duty. We want to be “Navy Reserve Grandparents”: one weekend a month and two weeks a year. We’d rather not care for the grandkids while you’re on deployment, either, but we understand if that becomes necessary.

During this Christmas break (assuming you still want to come home!) we’ll spend 20 minutes a day on these financial independence tasks:

  • – transferring your Roth IRA over to Fidelity,
  • – setting up your CDs at PenFed,
  • – splitting out your NFCU account from Dad’s account,
  • – getting your own credit card,
  • – getting personal-property insurance quotes, and
  • – your tax returns.

I have a separate lifetime offer for you, not as “Dad” but as “Coach”. Mom and I have learned a lot of financial skills over the years (many of them the hard way) and I can share the pros & cons of nearly every major financial decision (including marriage & kids). Please feel free to make your own independent decisions without consulting us. But before you sign any paperwork, feel free to tell whoever’s offering you a “good deal” that you need to discuss it with your financial adviser– and then give me a call. I’ll show you where to educate yourself, what issues to consider, and what options you might want to choose. I promise not to criticize your lifestyle or your standards, although I may tease you a little.

We don’t intend to hurt your feelings or make you go “Aw, man!” with any of the preceding paragraphs. If we evoked those reactions then call us and we’ll talk about it.

I’ve wondered… do the other midshipmen call you “Nords” yet? Love, Dad

 

A few weeks after that she finished her first semester. She was more than ready to come home for the holidays, so we sent her another “what to expect” e-mail:

Since you’re returning home in a few weeks, we should warn you about a family rules change: there won’t be any rules. We feel that you’re coming home as a special houseguest, not just as “our kid”, and frankly your mother and I are more interested in being “life coaches” and “valued mentors” than parents. (We’ll always be your Mom & Dad, but we think we’ll all benefit from a transition to adulthood!) So when you get home there won’t be any chores or nagging or questions about your homework or where you’re going or who you’re seeing or any of that other fun stuff from the good ol’ days. Sorry!

Just try to be a good houseguest and we’ll figure things out as we go.  For example you know that getting off the streets by midnight is still a good safety plan, but Mom and I won’t be checking up on you. (Of course you probably don’t want to be explaining to your NROTC lieutenant what you were doing in a Waikiki bar at 2 AM when the shooting started. Not that I ever did anything like that.)  I never really had an adult relationship with my own parents and I’m looking forward to doing things differently from this side of the generation gap.  Love, Dad

Noble parenting goals, still a work in progress. So far so good. Zero drama or angst.

We no longer exchange holiday gifts but I dump several books on her reading pile every year. (We bloggers get review copies of new financial books and I hand them right on down the line.) We pass along freebies that come our way, like a Hawaiiana wall calendar that will make her roommates drool with envy. We send regular reloads of li hing mui mango and Kona and other local cuisine not found in her college town.

We still do some things because we worry for safety. This year when our daughter wanted to visit her grandparents over fall break, she had a choice of (1) a thousand-mile hypercaffeinated Cannonball Run road trip in a car full of classmates, or (2) a round-trip plane ticket from Mom & Dad. I still have scars from the former so we were happy to contribute to the latter– especially since we would’ve heard about (1) from her grandparents. When she comes home from college, the Hawaii flight is at such an early hour that she’d be leaving the college campus at 4 AM. Instead of depending on the kindness of roommates or airport shuttles, we put her up in an airport hotel the night before.  It doesn’t make sense to risk missing a thousand-dollar flight just because of rush-hour traffic.

Of course if she chooses to spend spring break wallowing drunkenly among the fleshpots of Padre Island, then she’s on her own.

Her college is in the middle of one of America’s largest cities, so she knows she doesn’t need a car. She “makes do” with ZipCars and friends, and after a rocky start she has that under control. When she was eight years old we put together David Owen’s eight-year plan for a “Kid 401(k)” to build $5000 in a “My First Car” account.  Somewhat to my surprise (I know what I would have done with it at that age) she still has that $5000 laddered in PenFed CDs.

We have a “college profit-sharing plan”.  She put her skin in the game for the NROTC scholarship (and the Navy service obligation) so after graduation we’ll gift her some of the money that we otherwise would have had to spend on her tuition. Her side of the deal is that she has to use the windfall to max out her Thrift Savings Plan and her Roth IRA. Hopefully she appreciates the deferred gratification of a maxed TSP & Roth IRA contribution at age 22.

An unexpected bonus is that her NROTC unit requires her to apply for additional scholarships, and she’s already won one. $250 is a great self-motivational morale booster. She’s also been leading $12/hour campus tours for the Admissions Office. What Admissions doesn’t realize is that she’d pay them $12/hour for the privilege of bragging on her college to a bunch of high schoolers.  The fruits of her labors are even sweeter when that money’s piling up in her savings account.

My spouse and I transferred 19 times in the military, so we’re keenly aware of what the movers do to household goods. When our daughter graduates, she’s invited to pack anything she wants out of our house to her first ensign’s apartment. Of course she’s going to take all her bedroom furniture and her desk, and she’s welcome to take any of our other furniture. (If you saw our furniture then you’d understand why we’re happy to give it away…) Our promise has been a tremendous relief to her as she’s watched graduating classmates struggle to furnish their first places. She thinks we’re being extraordinarily generous but she hasn’t yet realized that (1) there’s a weight limit on military moves and (2) if she’s going overseas then she’ll barely have 400 sq ft to call her own.

This is all a”work in progress”. So far so good. What’s worked for you with your young adults?

Related articles:
Retiring early– with kids?
Raising an ER-smart kid
Raising a money-smart kid
Lifestyles in retirement: Empty nester

Does this post help? Sign up for more free military retirement tips via e-mail, Facebook, or Twitter!

Posted in Military Life & Family, Money Management & Personal Finance | Leave a comment

Military Drawdown Predictions


A reader posted some great questions the other day:

What do you think is going to happen with the “retired benefit” debate within the greater context of the DoD portion of the Federal Budget? Will it be another … slash and burn? What does your financial sense say?

The 1990s military drawdown was about the end of the Cold War. Remember the “peace dividend”?

Today it turns out that we don’t need to be military or political geniuses to figure out what’s going to happen next. We just have to remember what happened last time while we wait for DoD & Congressional staffs to dust off their archives. The Congressional Research Service, a nonpartisan arm of Congress, has already distributed a list of the cuts in veterans’ programs made from 1980-97.

I’m also pretty sure that platoons of Pentagon action officers are briefing their bosses on what worked last time– and what didn’t.

I think the drawdown will be another slash & burn. The 1990s drawdown reduced the military’s total strength by 27% (from 1.9 million to 1.4 million). This time there could be at least another 15% reduction in personnel along with a 15% cut in billets.  Re-enlistment applications will be scrutinized for good performance and any disciplinary or standards issues will be grounds for disapproval.  Re-enlistment bonuses will be cut to the bone.  Discharges will be accelerated and more senior personnel will face mandatory retirement screening boards. Personnel are always separated faster than billets can be eliminated, so most mid-rank enlisted and junior-officer non-combat billets will be gapped by 3-6 months. Some of the billet reductions will be controversial: the Navy may soon have more flag officers than ships,  and the military’s ratio of flag officers to enlisted has risen from 1:1742 to 1:1489.  The “good news” is that this time the service’s personnel departments have better computing tools and should be better able to execute the cuts without wasting as much money or overshooting the mark as much as previous drawdowns.

Although the deficit-reduction committee didn’t produce a plan, Congress will continue to propose other DoD cuts as part of the debate over the authorization & appropriations bills.

DoD doesn’t need Congress’ help to cut expenses– personnel costs will go first. Travel and personnel-transfer budgets will be slashed. Active-duty servicemembers will be encouraged to stay in one duty area for 2-3 tours instead of transferring all over the country (or being stationed all over the world). Reserve drills will be consolidated to quarterly or even semi-annual blocks instead of weekends. Reserve servicemembers won’t get paid to travel to active duty and might even lose pay for some drills. “Mature” weapons systems will be phased out prematurely. Current systems will have much less needed maintenance & spares. Operational readiness will drop. At least one new weapons system in each service will be canceled. Other designs will emphasize more automation, fewer operators, less survivability, and less maintenance.

The strategic drawdown challenge will be reducing “mission creep” and cutting back the current requirements. The debate will continue for years but as fuel becomes expensive, the mission priorities will quickly sort themselves out. Operations and exercises will be significantly cut. Ships will stay in port, flight hours will be cut, and troops will train in the classrooms instead of the field. Unfortunately proficiency will suffer as units cut back on operational training, but hopefully, video games combat simulators can take up the slack. The 1990s drawdown, coupled with the rise of the Web and computing power, spurred a dramatic improvement in training systems and networked battle simulators.

In a pleasant surprise from previous drawdowns, personal benefits seem to be surviving the scrutiny. The Marine Corps attempted to cut their 2012 Tuition Assistance budget but was quickly redirected by DoD as part of a larger program review.  The military’s largest spouse scholarship program, MyCAA, is not being cut as feared.  The GI Bill’s benefits (and their transfer to family members) are the best they’ve been in a generation. Veterans and their families are getting more employment support than ever before.

I think current retiree benefits will stay about the same. There will be brinkmanship over the $200 annual fee for Tricare For Life, but Senator McCain’s proposal to lock retirees out of Tricare Prime was rendered moot by the disbanding of the deficit reduction committee. The debate continues on how to adjust Tricare fees with rising healthcare inflation.  A popular proposal during previous drawdowns has been forcing bridge-career retirees to use their employer’s health insurance before Tricare. The good news? I think veteran’s medical benefits will only get better as society realizes that we need to take care of the decades of sacrifices to servicemember’s health and bodies. Modern combat has produced thousands of injured & disabled veterans who will not be ignored. “Thank you for your service” will not be an empty promise.

We’ll see extensive debate and experimentation with new retirement plans. For example, the Roth TSP begins in a few months and will be used as a model to suggest other retirement reforms.  I think the process will also go much better than previous changes. REDUX was implemented before the World Wide Web existed, and during the 1990s drawdown most Web users only had dial-up Internet access. This time the retirement-program development will be transparent and we’ll have a greater voice in shaping the results.

What actions could servicemembers and families take now? As always, financial independence gives you choices. This is the time to make sure your spending plans are aligned with your priorities, and to try to accelerate savings. Active-duty members will have months of warning of impending discharges, but if you’re within a year of the end of an obligation then it’s a good time to build up the emergency fund.

Take the time to learn your benefits and “use them or lose them”.  “The Military Advantage” is the best benefits guide I’ve ever seen. Work through the Military.com website benefits tools to figure out what’s available and what you need to do to use it. If you’re planning to separate then get on LinkedIn and Military.com’s job-search tools to learn about the networking offered by your service groups. Colleges (especially the service academies) are improving their alumni career-search seminars and job fairs. Many employers are beefing up their “hire a veteran” programs for the tax credits– plus the benefits of your leadership, management, and crisis-response skills. Even if you’re being separated, consider joining a Reserve or National Guard unit. You won’t have to deploy for at least two years, and if the funding is really tight then you might not deploy at all. Whether you drill or go inactive, you still tap into a valuable contact network for programs, jobs, and new careers.

If you’ve considered improving your education, then now is the time— before the program requirements are tightened. Even just a semester of college courses or progress toward an advanced certification could make a difference. If you’re not planning to use the GI Bill for yourself then make sure you know how to transfer the benefits to your family– especially your college-bound teens.

Posted in Career | Leave a comment

Update to “Just Write It”


I’m writing my first post from our new familyroom. The construction is finished and 99% of the interior painting is done, so yesterday my spouse and I spent a couple of hours moving back in. (We bribed a neighbor’s teen at $10/hour to help us haul the boxes and move the big pieces of furniture.)  For the last four months, after squeezing all our furniture & tchotchkes into the rest of the house and cramming my computer desk into our already-crowded study, I felt like I was simulating submarine life at home again.  (Especially #11 with contractors.)  Now our study is back to “normal”, and it seems so empty without all that extra familyroom furniture in the way. (Spouse has the study to herself again, and she’s secretly relieved that I’m not sitting right there behind her. She knows where to find me if she wants me.) I’m going to spend a lot of time in this new familyroom.

The new familyroom.

The space is big & tall enough to double as a racquetball court, and it still echoes as we move things around. It’s so quiet (thanks to the wall insulation and energy-efficient windows) that I can hear the PC’s ventilation fan and the monitor’s transistor whine.  I think I’m going to enjoy this new writing environment!

Here’s the room before we cluttered it up with the boxes and furniture. So far only my computer desk is where it belongs on the left-hand wall of this photo.

Ko'olau sunrise, and maybe a papaya for breakfast...

I just had to take a moment to admire one of the most beautiful sunrises I’ve seen in months. Part of it is because I haven’t been in here for nearly four months! But I’ve enjoyed nearly 4000 Ko’olau sunrises from this east-facing room, and this morning’s solar event is still quite an accomplishment. (Another one of those sunrises is the background for my Twitter feed @TheMilitaryGuid.) There must be extra Kilauea vog in the air this week, but the reds and oranges and purples are simply fantastic.

It’s appropriate that the first post in this new room is about writing. I should’ve figured this out years ago, but my writing habits were shouted down by my old workplace habits. I don’t have a workplace interfering with my time anymore, and last week’s big epiphany was that a new room gives me a chance to develop new writing habits.

I’ve been an early riser since July 1978, when the U.S. Naval Academy’s dormitory bells started blaring us awake at oh-dark-thirty for our daily dose of screaming fresh air & exercise. Later in the submarine force, when your sub was inport you wanted to be onboard before 6 AM so that you were ready to get scolded talk with the Engineer or the CO about any problems your troops had last night. Ashore I had to be in before 6 AM to review the overnight message traffic for the admiral’s fury brief. Underway I routinely rose at 4 AM to get ready to yell take the morning watch. Even at the end of my career, when it was less critical to review the overnight news and deal with the boss, I was still going to work early. We were beating the rush-hour traffic or getting in an early morning workout, and I’d be at my desk well before the rest of the command started finding things for me to do. I’ve been retired for nearly a decade, yet I’m still waking up at 3-4 AM. Hence those 4000 sunrises.

During two decades of work my morning routine evolved from paper stacks of message traffic to e-mail, but at the end of those years I was still trying to catch up on the submarine world before I started my own projects. Bad idea. I didn’t have to brief the boss first thing in their morning anymore, so I should have started working on my own projects. When I retired, I became the boss– I should’ve started working on my own projects as soon as I woke up!

Researchers have concluded that morning e-mail greatly inhibits our effectiveness.  When we arrive at our desks, relatively fresh and full of creative thoughts, our e-mail manages to completely distract us from all those great plans. Writers have reached the same conclusion about “writing time”. We feel a daily pressure to write something– anything– and it can just as easily be frittered away on e-mail jokes as it can on crafting a book outline. In one of my favorite writer’s blogs, one author actually feels that she’s wasted her day if she hasn’t worked on her writing.  Her problem was that she wasn’t setting aside the time to write, and as the day raced by she got crankier.

Then she changed her habits. Over Thanksgiving she started writing during that first morning hour– before her houseguests were stirring– and she managed to feel productive for the entire weekend. She also got her “urge to write” out of the way so that she could relax and enjoy the day with her family & friends.

When I wake up it’s usually with a good writing idea that I literally dreamed up overnight. But then I check e-mail, I get a thoughtful question on the blog, I start crafting a response and tweaking it… two hours pass before I realize it. I’m writing, but I’m not working on the things I should be writing first. I have to get a blog post ready and write a couple of book paragraphs. Even my favorite posters can wait for another hour.

It seems so simple in retrospect. Now when I stumble sleepily into the familyroom at oh-dark-thirty and turn on the computer, I don’t read e-mail. After I admire the night sky or the impending sunrise, I start working on a blog post. Every morning, seven days a week. I thought it would be a waste of time because I’d still be waking up, too fuzzy-headed to really be productive. I thought I’d have to admonish myself that I was going to keep working for at least 20 minutes. Instead, even before my first cup of tea is ready, I find the words spilling out of my keyboard. By the time I’m ready to admire the sunrise, I’m usually halfway through the post!

What do I write about? That’s turned out to be the easy part. I have a topic list. Or maybe I wrote a few paragraphs to a discussion board yesterday, and I cut & pasted that text into a document to work up into a blog post. Or my daughter learns something at her NROTC unit and has a career question. Or she reads something about money and has a financial independence question. Or my spouse and I start a project and blog about it. Or one of you has a question or a comment, and the cycle starts all over again.

If you’re a writer then you write. You can’t help yourself. You’re going to write something. The challenge is to manage your effort so that you’re productive every day, and so that you’re working on the blog first (or the next book) instead of on your e-mail.

Just write it.

So what subjects would you like me to write about? (I get plenty of inspiration from this blog’s statistics and the phrases you’re searching for when you get here.) What questions would you like me to answer?

Related articles:
Just write it.
“So, Nords, how did you start blogging?”
Writing and publishing

Does this post help? Sign up for more free military retirement tips via e-mail, Facebook, or Twitter!

Posted in Entrepreneurship | 2 Comments

Covering a Mortgage in Retirement – How Not Paying Off Your Mortgage Can Lead to More Financial Flexibility and a Larger Investment Portfolio


(This post has been updated with 2021 data!)

Conventional wisdom claims that retirees shouldn’t carry debt. If you’re going to enjoy retirement then you want to minimize your non-discretionary expenses and maximize your entertainment!, er, I mean, discretionary spending.

However, military retirees (and any retirees with annuities) have the “unusual” situation of highly reliable retirement income. We know how much we’ll get each month, and we’re relatively confident that it’s going to happen every month. That predictability offers an opportunity to try to earn money from the difference of interest rates (the “spread”) between borrowing and investing. Many Wall Street professionals profited handsomely from arbitrage… until 2008.

Before reading the financial analysis, consider this: Does a mortgage suit your comfort level? Some retirees take great “sleep at night” comfort from having zero debt. They don’t want the risk of paying a mortgage simply because they can invest the money for more profits. They’d rather pass up potential profits and enjoy peace of mind. If you fall into this group, then you may not care to leverage your portfolio with a mortgage. If you’re unhappy with a financial strategy then you won’t stick with it, no matter how compelling the math or logic may be.

But mortgage rates are the lowest in four five decades, and this opportunity won’t might not be repeated in my lifetime.

How Investing Instead of Paying Off Our Mortgage Worked for Us

My spouse and I backed into this situation through repeated refinancing. When we bought our house in 2000, the interest rate on our 30-year fixed mortgage was 8.50%. Two years later I retired. In 2010 2017 we finally closed on a 30-year fixed-rate mortgage of 3.625% 3.50% that will be paid off when I’m 80 87 years old. Each mortgage refinance has paid for itself (lower payments minus the closing costs) within a few months to a few years. Over the decade our mortgage payments have dropped by over 40%.

We could have paid off the mortgage before we retired, but our retirement portfolio would have been much smaller. We were also concerned that once we retired (without our employment income) we’d never be able to qualify for a mortgage again. (We were right… especially after 2008.) We had no idea what we’d be doing in retirement, but a mortgage seemed to offer more financial flexibility for the first few years. Financial flexibility is one of the reasons many people choose to carry a mortgage.

We ran many projections on our idea using FIRECalc, cFIREsim, and FinancialEngines. We were concerned about making higher monthly payments, but the calculators indicated that a larger retirement portfolio was more survivable– because our safe withdrawal rate was about the same. However, this didn’t address the emotional perspective of the decision.

In late 2004 I decided to put numbers on the debate, and I started tracking the performance of investing a mortgage in a small-cap value fund. (The mortgage payments, of course, would be covered by pension payments.) I chose the iShares S&P SmallCap 600 Value Index (ticker symbol IJS). Taxes would be paid after each quarterly dividend distribution and the rest would be re-invested. I didn’t count the tax savings of the deduction for mortgage interest. The goal was to earn a higher return than the mortgage interest rate: 30-year fixed rate of 5.5%. Today we have an even lower rate, but back then 5.5% seemed like a reasonable challenge.

Yes, I’ve been updating that spreadsheet for over seven 17 years. Ironically it’s taught me as much about emotions as about math. Every time I entered the data and calculated the APY, I felt as if I was competing in a marathon and struggling to stay in front of the pack.  Every time I edited a formula, I wondered “Am I doing this right?”

Here’s the fund’s performance summary compared to our initial 5.5% benchmark:

  • Date (mostly October) and Compound Annual Growth Rate
  • Oct 2004 (start)
  • 2005 17.1%
  • 2006 13.3%
  • 2007 13.5%
  • 2008 5.3%
  • 2009 2.0% (-7.36% in March 2009!)
  • 2010 3.3%
  • Apr 2011 6.4%
  • Oct 2011 2.3%
  • 2012 5.90%
  • 2013 8.39%
  • 2014 8.18%
  • 2015 7.44%
  • 2016 8.24%
  • 2017 9.04%
  • 2018 9.53%
  • 2019 8.33%
  • 2020 6.22% (even with the pandemic recession)
  • 2021 9.41%

A few more observations:

Between late 2008 and mid 2009 the portfolio’s CAGR briefly dipped below zero. Mortgage arbitrage looked like a horrible mistake.  However, the dividends reinvested during that time were an incredible bargain.

IJS’s dividend rate is slightly over 1%. Over the last seven years, reinvested shares have risen to nearly 10% of the total. By the end of 30 years they may exceed 40% of the total. A small rise in the share price will be magnified 40% by reinvested dividends.

Volatility has dramatically affected APY.  March 2009 and April 2011 are two examples of a short-term changes in the share price causing the ETF’s CAGR to (briefly) fluctuate around the mortgage’s 5.5% interest rate.

Will the portfolio continue to beat its benchmark? History says “Yes”. We’re barely a quarter of the way over halfway through the experiment, and it’s been a tough history. Dividends have been invested at attractive values over the last few years. I think 30 years is enough time for long-term performance to win out.

In late 2017, we restarted the experiment with a new 30-year mortgage at 3.50%. This time we’re invested in a Vanguard total stock market index (VTI) that should be less volatile than the small-cap value ETF. We also appear to have caught a tailwind from a large-cap bull market.

  • Date and CAGR
  • Oct 2017 (start)
  • 2018 16.7%
  • 2019 9.98%
  • 2020 10.42%
  • 2021 17.01%

How Should You Design Your Retirement Portfolio for Mortgage Arbitrage?

First, minimize your investment costs. Don’t try to profit from the interest-rate spread if you’re going to be buying/selling a home every decade. (We’re trying to keep this house until I die.) Minimize expense ratios by using passively-managed index funds.

Second, minimize your mortgage costs.  Choose the lowest fixed interest rate on the longest mortgage term.  I’ve only done the analysis for fixed-rate 30-year mortgages. Your investment is compounding for a historically significant length of time and you’re paying back the lender with dollars that are worth less every year due to inflation.  15-20 years may not be long enough for an investment to recover and compound after a recession.  Even worse, a variable-rate mortgage forces you to accept the inflation risk.

Third, invest in broad asset classes earning a long-term rate higher than the mortgage interest rate. Your asset choices are probably equities and a long-term CD ladder. Even long-term CDs will occasionally fall below the mortgage interest rate. Over 30 years, an index fund of highly-rated bonds will probably not pay more than a 30-year mortgage rate. A single 30-year bond might have a higher interest rate, but unless it’s a Treasury then that also adds in a significant default risk.

Fourth, allocate a meaningful percentage of your portfolio to sectors with long-term returns historically likely to exceed a mortgage rate. This includes equity sectors like small-cap value and international value. It may also include large-cap value index funds, high-yield bonds, high-growth stocks, private equity, and even Berkshire Hathaway. However, the latter three will require a significant effort to screen, select, and monitor.

Finally, diversify. Small-cap value index funds will easily beat a 30-year mortgage rate, but with breathtaking volatility. They might diversify well with blue-chip equity dividend funds (like the iShares Dow Jones Select Dividend fund, DVY), or a rebalanced portfolio of 20-30 dividend-aristocrat stocks, or maybe a REIT.

Should You Invest or Pay Off Your Mortgage?

What if you’re not retired yet– should you try mortgage arbitrage? That depends.

First, if you’re on active duty then you probably shouldn’t try to own a home. The costs of buying (and later selling) a house are usually 3-6% of the price for each transaction, and even if you’re moving “only” every 3-5 years that can wipe out any other gains.

Second, if you’re earning a reliable income then you may be willing to invest aggressively. Then you’re likely to earn more on your investments than you’ll pay on your mortgage. However, even in a civilian career you still may not know whether you’re going to stay in one place long enough to beat the costs of buying/selling a home.  If you’re laid off  without other sources of reliable income then you definitely don’t want to be exposed to the risks of mortgage arbitrage.

Third, your aggressively-invested portfolio will be quite volatile. You’re able to handle that if you’re still earning a paycheck and saving money every month, but the rapid price swings may cause some investors to have trouble sleeping at night. Again, if you’re not happy about what you’re doing then you’re unlikely to stick with it.

Whenever I talk about mortgage arbitrage I get two more questions:

  • Do you really need to take this much risk?
  • Do you really need to work this hard?!?

Every investor has to choose their own risk tolerance. My spouse and I have “enough” to live our low-key lifestyle, so we don’t mind taking on more risk with the money that we’re not using. If you’re not hard-wired to enjoy this type of research and tracking, then you shouldn’t feel obligated to attempt mortgage arbitrage.

A military pension is an extraordinary opportunity to arbitrage the century’s lowest interest rates with reliable income. If you’re already living a lifestyle that supports mortgage arbitrage, and if you think it’s worth risking money that you don’t expect to need, then over a 30-year mortgage you should make a profit! You have the time to let the investment compound, and at any point in the process you can cash out to pay off the remaining mortgage. In our case, the potential rewards are worth the risks and the effort.

Related articles:
ESIMoney:  If You’ve Won the Game, Stop Playing
White Coat Investor:  The Wrong Way to Think About Debt

Does this post help? Sign up for more free military retirement tips via e-mail, Facebook, or Twitter!

Posted in Mortgage & Real Estate | 4 Comments