Please beat up this plan

[Jon K.]

I've been creating various financial models regarding my current goal of retiring in 5.5 years (age ~50) without having to touch my 401k.  Based on the T-12 cash flow from my rental portfolio, I need approximately $4,500 more per month after taxes to do so. In a recent model I explored what could happen if I were to pick five specific rental's mortgages and pay them down to the point where the regular monthly payment would pay off the loan in the desired timeframe (vs paying them off completely before moving to the next one). These are my higher interest loans. So in other words, put down $X on mortgage 1, knowing it will be paid off in full in 5.5 years. 6 months later, pay down mortgage 2 enough so that I know it will be paid off in full in 5 years. And so on.

The above would take me approximately two years from today with my current resources (meaning those 5 mortgages would all be paid off in the same month in which I am trying to retire), after which time I would build a liquid buffer in something diverse like an S&P 500 ETF for the remaining 3.5 years while I continued to work my W-2 job.

The things making me hesitate are that I'm heavily in real estate right now, even in my self directed 401k. This plan lacks diversity for the next two years. It's also not liquid. The pros are that the returns are guaranteed and tax free (you don't pay tax on money you save by paying off debt) and based on my T-12 get me to my desired number with a sizable buffer in a brokerage account.

Thought I'd ask for folks to weigh in on why this is dumb.

[Sophia Hayden]

Quote from @Jon K.:

Quote from @Chris Seveney:

Quote from @Jon K.:

I've been creating various financial models regarding my current goal of retiring in 5.5 years (age ~50) without having to touch my 401k.  Based on the T-12 cash flow from my rental portfolio, I need approximately $4,500 more per month after taxes to do so. In a recent model I explored what could happen if I were to pick five specific rental's mortgages and pay them down to the point where the regular monthly payment would pay off the loan in the desired timeframe (vs paying them off completely before moving to the next one). These are my higher interest loans. So in other words, put down $X on mortgage 1, knowing it will be paid off in full in 5.5 years. 6 months later, pay down mortgage 2 enough so that I know it will be paid off in full in 5 years. And so on.

The above would take me approximately two years from today with my current resources (meaning those 5 mortgages would all be paid off in the same month in which I am trying to retire), after which time I would build a liquid buffer in something diverse like an S&P 500 ETF for the remaining 3.5 years while I continued to work my W-2 job.

The things making me hesitate are that I'm heavily in real estate right now, even in my self directed 401k. This plan lacks diversity for the next two years. It's also not liquid. The pros are that the returns are guaranteed and tax free (you don't pay tax on money you save by paying off debt) and based on my T-12 get me to my desired number with a sizable buffer in a brokerage account.

Thought I'd ask for folks to weigh in on why this is dumb.

 Really personal decision, many who are debt free are very happy as they do not have to worry about things. the other question is what is the end goal. if its just to retire and not be worth $10M then the plan has some solid legs to it, the downside as mentioned is that you are illiquid. would you be better off taking that money and investing it in the markets whcih are more liquid (but also more volatile) -? Not any wrong answers here, I would speak to a financial advisor though as well.

 I appreciate the reply. I think it's the fact that there is no wrong answer here that's got me locked in analysis paralysis. I do agree a financial advisor would give me a good sanity check. The last few I talked to all would only work within an assets under management model and I didn't put a ton of effort into finding more to interview. I'll have to renew my efforts there.

 I think the one thing not really being talked about in this thread is the tax benefits, as well as the option to start and pause/pivot. Analysis paralysis is real. Your personal goals/stress need to be weighed into it, but not acting is also stressful. Long term, investing in real estate might be less liquid but you can always restructure financing, tap into equity, and again: tax benefits. As you withdraw from your 401k eventually, your income will need write offs. Cost seg with stacking rentals should directionally give you an advantage over simply being in liquid (and volatile) stocks more heavily. If you are heavily invested in real estate in those retirement accounts, and that is pushing you back, maybe diversify out of them into conservative names or indices. I am not financial expert, and I know much was left out of the framework in the post, but sounds like go for property #1, and reassess. Is the deal performing how you penned it, etc. Are there other investment options to maybe do like 1 four plex over the same time period, live in one unit for house hacking, and still financially net better.