I Plan to Retire with Over $1 Million of Debt


From financial advisors to personal finance bloggers, there are countless views on debt in retirement. Many in the FIRE community view eliminating debt as an important step of achieving financial independence. There are many benefits of living debt free. However, I am planning on achieving financial independence and retiring early with over $1 million in debt.

You see, I view debt as a wonderful tool when utilized properly. No, I am not talking about getting a loan to buy a new car; that cost my friend over $240,000.   Rather, my mountain of debt will consist of various fixed-rate mortgages for rental properties. Fixed-rate mortgages or debt means the interest rate stays the same and does not fluctuate. On a side note, my primary residence will be paid off or I will elect to rent (TBD).

So, why am I comfortable with so much debt?

First, I will not personally pay my monthly mortgage payments. My tenants will pay the mortgage via their rent payments. The properties rent for substantially more than my monthly caring costs which is commonly referred to as PITI (principal, interest, tax, and insurance). The difference between the rents and carrying costs allows for the property to support itself, pay for repairs, AND provide me with monthly cash flow.

Second, the cushion between the monthly rental rate and carrying cost will allow me to build up a reserve for repairs and/or vacancies (read emergency fund for the property). I self-manage my properties and my only vacancy to report was a half of a month on one property. For those new to real estate investing, I would recommend assuming at least 5-10% vacancy rate when analyzing a property. Additionally, the cushion allows me to drop the rent if the area becomes less desirable or if rents decline while still paying myself every month. Please note, rental rates typically do not decline. Rather, rental rates typically increase with or faster than inflation. (Obviously, this depends on the market).

Furthermore, I have fixed-rate debt which means my monthly payment will not increase for the next 30 years. Naturally, over the next 30 years, inflation will be my best friend. My rental rates should continue to increase gradually over time which will increase my monthly cash flow. I will also be paying back my debt with less valuable money since $1,000 twenty years from now will be worth less than $1,000 today.

Over time, my mortgages will be paid down and eventually be paid off. This is commonly referred to building equity. The properties will likely be worth more in 10, 20 or 30 years, however, I never assume the homes will appreciate in value. I recommend never buying a property because you think the price will appreciate; that is pure speculation. BUT!!!! There is a good probability the value will increase gradually over time but I am conservative in my underwriting/investing assumptions. As such, I care more about the cash flow and less about the property’s appreciation.

Once the properties are paid off, my monthly cash flow will increase greatly. The extra cash flow creates more financial freedom. I can use the new cash flow to buy more properties. I will have the freedom to travel to more places. Donating more to charitable causes that I am passionate about will be another great use of the extra cash flow. More cash flow = more options = more freedom.

Have you thought about how much debt you want in retirement? What are your plans? Will you be debt free or have debt like me? No one size fits all.

7 thoughts on “I Plan to Retire with Over $1 Million of Debt

  1. 1 million buckaroos is a lot of debt, but at least it’s making you money instead of costing you money. I will probably have some “good debt” when I hit the FIRE button, but I doubt it’d be $1 mil. That’s a lot of property in my LCOL area.

    • If people are not doubting or making fun of your dreams, you are not dreaming big enough! Thank you for the comment! Cannot wait to see your first real estate purchase.

  2. A million would be a lot of properties in this area unless you were buying on the high end. I’ll probably have some strategic debt at retirement, though unless I change course it probably won’t be rentals. Still everyone has their own path.

    • I live in the Washington, D.C. area and sadly $1 million dollars could mean a single property or only 2-3 properties. Buying in modest neighborhoods now costs $500k+

  3. Think about what happens in a down economy, or when the eventual shift to people not wanting to rent, but own comes. If your property sits empty, or rents come down… is it still worth it. Rentals are becoming a very over-saturated and mainstream thing. Everyone wants rental properties now and they are getting them. That’s a sign to me of a topping in the business cycle! If you can’t get 1% per month of the cost of your rental house, it’s not a positive EV decision.

    • All valid points and concerns. I’ve spent time thinking about all of those. Thankfully, I have plenty of cushion with rental rate to the carrying costs. The properties are well located in an area people will always want to live. I also do not believe in the 1% rule. Risk is also mitigated when you have adequate cash reserves to weather the down times.

  4. Pingback: My First Property - Guy on FIRE

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