Mortgage/Retirement question
- Thread starter pfgemployee
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Don’t ever defer below what your Employer will match (doesn’t sound like you were considering that anyway)
As someone who paid off their mortgage early (within the last year), this was my thinking in deciding to do so.
Yes, my interest rate rocked and it was cheap money, but I am personally not comfortable assuming anything with the markets or economy going forward will be anything similar to historic trends. Why? Unprecedented deficit levels at all levels of governments. We have never been in this situation before so we have nothing to gauge against on what this could mean if/when things go sideways.
I haven’t stopped investing in the markets (I do know people I respect that have), but I did decide that one sure “investment” was paying off my house. There was no downside and if things go poorly, I will be in a much better position if my investments all tank (as painful as that will be) , but I will at least no longer be hamstrung with a mortgage payment….and instead, will have that extra cash flow. That is a pretty powerful position to be in comparatively speaking. No one can take that away from you.
I say if you have the means, pay it off. We are in different times IMHO fiscally and politically. You’ll appreciate the peace of mind. You can’t put a “lost opportunity cost” on that.
As someone who paid off their mortgage early (within the last year), this was my thinking in deciding to do so.
Yes, my interest rate rocked and it was cheap money, but I am personally not comfortable assuming anything with the markets or economy going forward will be anything similar to historic trends. Why? Unprecedented deficit levels at all levels of governments. We have never been in this situation before so we have nothing to gauge against on what this could mean if/when things go sideways.
I haven’t stopped investing in the markets (I do know people I respect that have), but I did decide that one sure “investment” was paying off my house. There was no downside and if things go poorly, I will be in a much better position if my investments all tank (as painful as that will be) , but I will at least no longer be hamstrung with a mortgage payment….and instead, will have that extra cash flow. That is a pretty powerful position to be in comparatively speaking. No one can take that away from you.
I say if you have the means, pay it off. We are in different times IMHO fiscally and politically. You’ll appreciate the peace of mind. You can’t put a “lost opportunity cost” on that.
His brother is human
His livelihood was based on people investing in the markets, not tying up their money in their home.
In one scenario he gets paid. In the other he does not.
That is not a knock on his brother, it is human nature that you’ll tend to be bias toward a POV that supports what you do for a living.
Very disappointed the poster didn't pay cash for the home.
If you can't pay cash then you don't need it. It's the CF way
If you can't pay cash then you don't need it. It's the CF way
Speaking of retirement, I found this spreadsheet to be excellent. Once you hit 100%, you're ready to retire. If you want to plug in your own numbers, you'll need to make a copy since the person who created this has it in view only mode. Remove the dash in front of https
-https://docs.google.com/spreadsheets/d/18enyW-HloGFmLvH1pcVpEJDIQ0MKXJug5BYt456k7Y8/edit?usp=sharing
-https://docs.google.com/spreadsheets/d/18enyW-HloGFmLvH1pcVpEJDIQ0MKXJug5BYt456k7Y8/edit?usp=sharing
D
Deleted member 8507
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OK, I was just messing with that sheet. It is a good start but it needs refinement. It ONLY works if you are in your twenties as it is hard coded to 40 years of employment from the current input point. I am in my 50's and don't plan on working another 40 years. I do like a few of the features they put in and will incorporate those into my spreadsheets.
Yes, I noticed that if you want to retire at lets says 63, it still keeps putting in retirement savings even though you will no longer contributing. I also notice that the social security/pension number you put at the bottom doesn't do anything, which I like to do anyway.
Interesting. Would you still need to adjust for inflation somehow or is it in there? If you're 25, with approximately 2% inflation, the $ number you'd need at retirement would be double from what it is now.
Yeah, it's kind of why I still don't pay much attention to the calculators at age 34 because those assumed %s make so much difference. I'm going to have enough money for retirement sometime between age 50-80 depending on what percentages I use.
I'll echo what others are saying, put as much as you can into retirement and make minimum payments on your mortgage. It just makes sense mathematically.
Fun tool to play around with is this retirement calculator. I plug in 7% rate return when I do my figures. I figure I'll get around a 10% return, and then deduct 3% to account for inflation.
https://www.daveramsey.com/smartvestor/investment-calculator
Right now I contribute 15% to my roth 401k, and my employer contributes 6% pretax. Every 6 months I up my % by 1 so its easy to adjust to. Asking these questions means you're probably already doing a good job, so kudos to you.
Fun tool to play around with is this retirement calculator. I plug in 7% rate return when I do my figures. I figure I'll get around a 10% return, and then deduct 3% to account for inflation.
https://www.daveramsey.com/smartvestor/investment-calculator
Right now I contribute 15% to my roth 401k, and my employer contributes 6% pretax. Every 6 months I up my % by 1 so its easy to adjust to. Asking these questions means you're probably already doing a good job, so kudos to you.
Not a bad spreadsheet, but it does make a very big assumption - that your retirement savings accounts are your only source of retirement income. I am mid-50s and I have a fair amount more in real estate than in my combined retirement accounts. I also have a good chuck in a taxable E*Trade account. I do think you should only use "liquid / investible" assets for this kind of spreadsheet, so probably any equity in your primary residence should be excluded since it probably won't generate income for your retirement ( I know you can do things like reverse mortgage, but that generally is not a good idea).
However, many people that are approaching retirement have savings outside of their 401K / IRA - taxable investment accounts / stocks / bonds / real estate / etc. The income from those accounts needs to be factored into the amount that can be used to generate income in retirement. I also think the 4% withdrawal rate is something that you can play with as it is pretty conservative, and some people will be OK with having their total savings gradually decline over time as long as it remains > 0 until their most optimistic longevity estimate.
It's even more crucial to maximize your time when you plug in a more conservative 5.5% rate of return.
looks like baby steps 4,5, and 6 right there. Do 15% into Roth 401k and pay everything else toward the mortgage. Get that bad boy paid off quick. Max out all retirement once that is done and good growth mutual funds if you have more to invest. Don't thank me, thank Dave!
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I find it interesting that people are comfortable enough in our political climate as well as record gov’t deficits to simply rely on “mathematics” to make such a decision. I would suggest you need to look at this much deeper. This isn’t your father’s world (as the old saying goes).
Heck…you could be right and all will go as it has in the past and you’ll be fine. What give you confidence that this will be the case though?
If it doesn’t, not having that large outlay of cash every month will be a big benefit. It seems to me that erring on the side of caution with this decision makes a ton of sense….even if it didn’t for past generations.
Many times I've found that people ask if they should pay an extra payment a year on their mortgage or put that into retirement, and the answer is always retirement. In your scenario I'd say the same thing probably.
So you discount (or disregard) the risk that we could be headed into unpresented economic times in the future?
That is fine as long as you do so with your eyes wide open. I’m just trying to understand your point here.
