Yeah I get that. Ours is at 2.125% which is why its been a slower payoff since 2022/23 where we refi'd. This is a personal goal now of just being debt free as we dont owe much anymore. Could pay it off today, but you're correct, paying into the market is a better move and we have been doing it. Thought a few years out was a reasonable goal in the meantime.
A professor I had at ISU had one of the best off-topic conversations about credit cards during a lecture. She wanted them banned from being able to solicit on college campuses because most 18-22 year olds don't use them correctly and fall into the trap of getting buried in CC debt. That led to a lot of good conversation and life advice that hopefully some in class that day were able to take and make some good choices.
Three prong approach, SS, investments and their either a pension or some other type of 401K program. If you are trying to do it on SS and investments alone you are rarely going to reach that number. Our post tax income each month is between 10 and 11K a month, taking about 4% from our investments and that money has remained steady for over a decade.
Bought my first house last year at 6.75% and I'm paying down a bit extra now since extra principle payments in year 1 can cut years off your mortgage. If a 15 year refinance drops to 5% I'll be paying the same monthly since I've paid down a small chunk already.
The key here is two-fold. The obvious one is the interest rate. If we were sitting on a 6%+ interest rate like many are right now I would probably have a different point of view. The other variable is what you're doing with that money instead. If you're just letting it sit in checking/savings or - even worse - spending that money on other $hit you don't really need (e.g. more expensive cars), it's a bad strategy. It's really just an exercise in deployment of your own personal capital.
'Some other type of 401k' would certainly count towards that $2m number. Pensions are a little trickier because its true there is no value other than the income they generate for the recipient/spouse, but I think its pretty fair to say a couple that has $10k+/mo retirement income while taking out investments at a 4% annual rate has an effective net worth of north of $2m.
The fixed income thing can either be wrong or self inflicted. If you invest money and planned, the withdrawal rate will be 2-3% below the gain to allow it to grow with inflation. Then throw in SS has COLA adjustments.
We purchased our new home in Ames two years ago this coming May, we are also at 6.75, and have been paying it down each month. Plan on refinancing when rates get into the fours. Our investment planner had us pay down $100,000 on the principal last summer. Looking at current rates we plan on moving from a 30 years loan with 28 years left to a 10 to 15 year loan, which should save us around $1000 a month over what we are currently paying. Just waiting for rates to drop.
Moving to a 15 year loan at some point is a good strategy for a lot of people. One thing I've always heard good loan officers suggest is to make sure that payment on the 15 year isn't going to be a stretch. If you stay at a 30 year, you have a lower minimum monthly payment and can - to your point - always pay down extra as you are able - without the pressure of having to do it every month. There is, of course, usually a benefit in interest rate if you're willing/able to go to a 15 year.
We are no where near $2 million in net worth if the house is not included. The way we structured our IPERS pensions will allow the surviving spouse to continue to draw the current monthly amount until both of us are gone. So no drop in monthly payment when one of us passes. We lose a little each month over the #1 plan where you maxed it out, but this way the surviving spouse will not have to worry about that part of our 3 prong approach. Our current monthly payouts are $2800 SS, $4000 from IPERS and $4000 from investments, all post tax numbers. The only one of those that should change is the SS number will drop when one of us passes.
If looking at the pure numbers, absolutely that generally ends up being a good play.
God forbid something happens to my wife but if so, I'm liquidating everything and becoming a hermit or nomad.
When you do the interest spread also factor what you are investing in and how it affects taxes. If you are in a money market add the top tax brackets you are in to the rate needed. If you are going long term gains and not taking interest payments, then factor that amount into the gain rate you would need.
