Pay off mortgage or increase retirement contributions

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Needsomeadviceplease
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Pay off mortgage or increase retirement contributions

Post by Needsomeadviceplease »

EDIT

Sounds like the overwhelming consensus is to invest not pay down early.

Follow up questions

1) 28k of the mortgage amount I listed above is actually a HELOC it has an adjustable rate currently set at 2.5%. Should I pay this portion of the mortgage down faster since it is adjustable rate?

2) if I invest do you recommend more into the 401k or more in a Roth (for retirement not college savings)? I’ve read that after employer match all money should go to Roth but sounds like here a lot are recommending 401k if I’m reading it correctly.



Original post:

39 married with 2 kids under 6. Wife stays home with jugs but may return to work part time once kids are both in school. Depending on spending habits each month we have about 1500-2000 each month to pay down mortgage or put into some other investment/retirement account. If pay of mortgage should be done with payments in about 6 years.

I make about 106k per year.

Our only debt is ~187k on home with value of 300k. Edit to add interest rate at 3.15%

~48k In assets that can be quickly liquidated/used as emergency fund.

Around 11k per year (counting employer match going into retirement account)

Current retirement balance of 250k. I have a spreadsheet based on gradually increased contributions and averaging a 6% return suggesting we will have over 2 million by age 67.

14k in Roth IRA (not counted in retirement figures above) that we are setting aside as college savings as we see benefits with this vs a traditional college savings plan. Putting 200$ per month into this account.

So what is our best move ? Pay mortgage off by age 45 then adjust savings? Increase retirement or other savings now?
Last edited by Needsomeadviceplease on Fri Dec 03, 2021 11:41 am, edited 2 times in total.
donaldfair71
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Re: Pay off mortgage or increase retirement contributions

Post by donaldfair71 »

Maybe missed it. What’s the mortgage rate?

If paying down the mortgage slower allows you to max out your Roth and get the combined retirement savings rate to 15%, I don’t think there’s much debate (unless you’re paying exorbitantly high rates on the house). Don’t know what your future plans are, but the savings rate piece stands out. It’s a vital one, and if the Roth is a college fund, take that out altogether of the 15% consideration and save all 15% in the workplace plan.

Listen to this podcast, might help in the decision anyhow.

https://podcast.app/planvision-podcasts ... dium=share
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JoeRetire
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Re: Pay off mortgage or increase retirement contributions

Post by JoeRetire »

Needsomeadviceplease wrote: Thu Dec 02, 2021 7:49 pmI have a spreadsheet based on gradually increased contributions and averaging a 6% return suggesting we will have over 2 million by age 67.

So what is our best move ? Pay mortgage off by age 45 then adjust savings? Increase retirement or other savings now?
Assuming your mortgage rate is less than 6%, you should just increase your retirement savings.
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JBTX
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Re: Pay off mortgage or increase retirement contributions

Post by JBTX »

Don't know the mortgage rate but at that stage and life and level of retirement savings I'd almost certainly say fund retirement accounts. If you still have extra consider ibonds which maybe earning more than your current mortgage rate.
DVMResident
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Re: Pay off mortgage or increase retirement contributions

Post by DVMResident »

The correct answer is either increase retirement contributions OR

Increase retirement and refi :wink:
MoonOrb
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Re: Pay off mortgage or increase retirement contributions

Post by MoonOrb »

I just cannot think of a very good reason to neglect retirement accounts and all of that tax advantaged space in favor of an earlier mortgage payoff.
donaldfair71
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Re: Pay off mortgage or increase retirement contributions

Post by donaldfair71 »

donaldfair71 wrote: Thu Dec 02, 2021 8:29 pm Maybe missed it. What’s the mortgage rate?

If paying down the mortgage slower allows you to max out your Roth and get the combined retirement savings rate to 15%, I don’t think there’s much debate (unless you’re paying exorbitantly high rates on the house). Don’t know what your future plans are, but the savings rate piece stands out. It’s a vital one, and if the Roth is a college fund, take that out altogether of the 15% consideration and save all 15% in the workplace plan.

Listen to this podcast, might help in the decision anyhow.

https://podcast.app/planvision-podcasts ... dium=share
When I say 15%, I mean that as a minimum. By all means go above and beyond.
KlangFool
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Re: Pay off mortgage or increase retirement contributions

Post by KlangFool »

Needsomeadviceplease wrote: Thu Dec 02, 2021 7:49 pm
Around 11k per year (counting employer match going into retirement account)

Current retirement balance of 250k. I have a spreadsheet based on gradually increased contributions and averaging a 6% return suggesting we will have over 2 million by age 67.
Needsomeadviceplease,

Why do you think paying 20+% taxes in order to save 3+% interest on your mortgage interest is a good idea?

<<Current retirement balance of 250k. I have a spreadsheet based on gradually increased contributions and averaging a 6% return suggesting we will have over 2 million by age 67.>>

What would be your number if you save 20+% taxes by maxing up your 401K instead?

They are tax-advantaged accounts. They are not retirement account. You can get the money out tax-free and penalty-free before 59 1/2 years old.

Please check out the following URL.

https://www.madfientist.com/how-to-acce ... nds-early/

KlangFool
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mortfree
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Re: Pay off mortgage or increase retirement contributions

Post by mortfree »

When I thought I had too much cash I started to max my 401k. Solved that problem.

You definitely want to max that out while you can.

I had a paid off mortgage too at age 39. We moved and I have a mortgage again. Not paying that down any faster than maybe $500 extra per year.

Focus on retirement.
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Topic Author
Needsomeadviceplease
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Re: Pay off mortgage or increase retirement contributions

Post by Needsomeadviceplease »

I guess my thought it 2 million plus and no debt at retirement is more than sufficient so didn’t see the advantage of increasing that even more compared to the peace of mind of having the mortgage paid off.

KlangFool wrote: Thu Dec 02, 2021 8:44 pm
Needsomeadviceplease wrote: Thu Dec 02, 2021 7:49 pm
Around 11k per year (counting employer match going into retirement account)

Current retirement balance of 250k. I have a spreadsheet based on gradually increased contributions and averaging a 6% return suggesting we will have over 2 million by age 67.
Needsomeadviceplease,

Why do you think paying 20+% taxes in order to save 3+% interest on your mortgage interest is a good idea?

<<Current retirement balance of 250k. I have a spreadsheet based on gradually increased contributions and averaging a 6% return suggesting we will have over 2 million by age 67.>>

What would be your number if you save 20+% taxes by maxing up your 401K instead?

They are tax-advantaged accounts. They are not retirement account. You can get the money out tax-free and penalty-free before 59 1/2 years old.

Please check out the following URL.

https://www.madfientist.com/how-to-acce ... nds-early/

KlangFool
KlangFool
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Re: Pay off mortgage or increase retirement contributions

Post by KlangFool »

Needsomeadviceplease wrote: Thu Dec 02, 2021 9:14 pm
I guess my thought it 2 million plus and no debt at retirement is more than sufficient so didn’t see the advantage of increasing that even more compared to the peace of mind of having the mortgage paid off.
Needsomeadviceplease,

1) You are 39 years old and you assume that everything can only goes well for the next 28 years until you are 67 years old. Are you that lucky?

<< didn’t see the advantage of increasing that even more compared to the peace of mind of having the mortgage paid off. >>

2) If you save 20+% taxes, you could pay off the mortgage earlier with your tax savings.

3) It is simple math.

A) Pay 20+% taxes and use the after-tax money to pay down the mortgage.

B) Save 20+% taxes and use the tax saving to pay down the mortgage.

C) 20+% is bigger than 3+%.

D) Which one will allow you to pay off the mortgage earlier?

4) 401K is not retirement account. It is a tax-advantaged account to reduce your taxes. You can get money out tax-free and penalty-free before 59 1/2 years old. So, it is NOT a retirement account.

KlangFool
Last edited by KlangFool on Thu Dec 02, 2021 9:27 pm, edited 2 times in total.
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dukeblue219
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Re: Pay off mortgage or increase retirement contributions

Post by dukeblue219 »

Needsomeadviceplease wrote: Thu Dec 02, 2021 7:49 pm 39 married with 2 kids under 6. Wife stays home with jugs but may return to work part time once kids are both in school.
Heh.
LittleMaggieMae
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Re: Pay off mortgage or increase retirement contributions

Post by LittleMaggieMae »

TLDR; Increase your retirement contributions BEFORE you pay down your mortgage. I've paid off mortgages after aggressively paying them down. The "warm fuzzy" didn't last very long. And in hind sight - I lost 10 years of getting additional money into tax advantaged accounts. 10 years that money could have been growing (and growing and growing). My hindsight experience screams: Increase your retirement contributions- don't aggressively prepay your mortgage Do NOT loose out on 6 or 10 years of being able to invest in tax advantaged accounts. Do NOT loose out on 6 or 10 years of the wonders of compounding that the money will do!!!

Here's the Too Long:
In theory, you bought a house and took a mortgage you could afford so that you would have a predictable long term housing expense so you could use MORE of your take home pay to BUILD WEALTH and provide nice things for your family. You didn't spend time and effort and worry looking for an affordable house and a low cost mortgage with a low interest rate - so you could rush to pay it off quickly. That's NOT how you build long term Wealth.
You build long term wealth by investing/saving. Your carefully chosen affordable mortgage - means that in the Big Picture you can save MORE early (so it has a longer time to compound) and over time as your income goes up - your mortgage gets even MORE affordable and you can continue to save more (and spend more) with more of that compounding goodness happening.

Make your fixed rate mortgage and predictable housing/shelter expense work for you - INCREASE YOUR RETIREMENT CONTRIBUTIONS do not aggressively pay down your mortgage.
LittleMaggieMae
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Re: Pay off mortgage or increase retirement contributions

Post by LittleMaggieMae »

Needsomeadviceplease wrote: Thu Dec 02, 2021 9:14 pm I guess my thought it 2 million plus and no debt at retirement is more than sufficient so didn’t see the advantage of increasing that even more compared to the peace of mind of having the mortgage paid off.
At 39 I'm sure it looks like working until 67 is totally doable. Do you know any old people? Do you hang around with any of them? Do you know a lot of 60 plus year olds who are excited about getting up and going to work EVERY work day? This is a good time to start looking around at the people around you - and the people in your work place and the people who are doing your "job" type of work. Is it common for someone in your position to work until they are in their 60's (are you a teacher and chained to your job by the pension?)

Most of the late 50's people in my life (work, friends, family) are actively planning WHEN they can leave the work force. They don't want to have to work until they are 65 or longer - they have grand kids (or some on the way) they want to spend time with, they want to not have the stress of their job, they want to be "retired". Yes, most of them are healthy and active - but all of us late 50's and early 60's people have noticed the toll that age (even being in good shape) is starting to take.

You have the opportunity to "buy" yourself a lot of future "work" flexibility (maybe you won't have to work to 67) by investing more now. Why not do it?
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Metsfan91
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Re: Pay off mortgage or increase retirement contributions

Post by Metsfan91 »

Needsomeadviceplease wrote: Thu Dec 02, 2021 7:49 pm So what is our best move ? Pay mortgage off by age 45 then adjust savings? Increase retirement or other savings now?
Increase retirement or taxable savings. If you do this, you get more years of compounding. Your nest egg will grow faster. You take a look at your nest egg down the road, some years from now, and decide whether you need to continue investing the extra or reduce it.
"Know what you own, and know why you own it." — Peter Lynch
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Watty
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Re: Pay off mortgage or increase retirement contributions

Post by Watty »

What are your federal and state tax brackets?

What retirement account options do you have?
Needsomeadviceplease wrote: Thu Dec 02, 2021 7:49 pm Our only debt is ~187k on home....
Instead of just sending in extra money each month another option would be to save up your money for a bit then call your lender and ask if they will "recast your mortgage"(Google this). They are not required to do this but they usually will for a couple of hundred dollar fee or even for free. The way this works is that if you pay down your loan by 10%(or whatever makes sense) and do a recast then your required mortgage payment will be reduced by the same percentage. The length of the loan and the interest rate stay the same. This could be very important if something happens like you are laid off or disabled, or interest rates go up higher than your mortgage rate.
Triple digit golfer
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Re: Pay off mortgage or increase retirement contributions

Post by Triple digit golfer »

LittleMaggieMae wrote: Thu Dec 02, 2021 9:27 pmIn theory, you bought a house and took a mortgage you could afford so that you would have a predictable long term housing expense so you could use MORE of your take home pay to BUILD WEALTH and provide nice things for your family. You didn't spend time and effort and worry looking for an affordable house and a low cost mortgage with a low interest rate - so you could rush to pay it off quickly. That's NOT how you build long term Wealth.
You build long term wealth by investing/saving. Your carefully chosen affordable mortgage - means that in the Big Picture you can save MORE early (so it has a longer time to compound) and over time as your income goes up - your mortgage gets even MORE affordable and you can continue to save more (and spend more) with more of that compounding goodness happening.
This is an excellent point. We took a mortgage that we knew we could afford while being able to invest an amount acceptable to us. We thought of it as a housing expense. That's what it is. We're paying for housing, just like we pay for food, utilities and insurance.
capran
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Re: Pay off mortgage or increase retirement contributions

Post by capran »

An unpopular idea: We both worked in education earning decent salaries, with a combined income of @ 150k. We always maxed out our Roths and contributed to our Teachers Retirement Plan. But we also paid off our homes, and when moving to a nicer home rolled the profit into the next house and then paid it off as soon as possible. (our 2nd and 3rd homes were each paid off in 4 years.) We always viewed it through this lense- We were doing decent contributions toward retirement via Roth and pension contributions but wondered about worst case scenarios. If one of us passed, could the other afford the home we love? (I guess that's why people pay money for life insurance, which we didn't do.) If the stock market took a big decline, how would we feel if our million dollar retirement savings fell to 500k, or 2 million turned into 1 million? Once we paid off our mortgage it really felt like money grows on trees. Most will say you can make alot more in the stock market, and certainly the market has been up, up and away except for one very short retreat since 2009. But not paying a few hundred thousand in interest remains one of best financial decisions.
Patzer
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Re: Pay off mortgage or increase retirement contributions

Post by Patzer »

The right answer depends on your relationship with debt.

Mathematically, the right answer is retirement contributions. Historically, you are very likely to beat the 3.15%.

Personally, I did the opposite, even knowing the math.
I grew up with parents who were bad with money and I took on the baggage of seeing debt as bad, because of that.
I don't sleep well at night with debt hanging over my head, and paying off my mortgage quickly felt a lot better than investing that money would have.

While I know I missed out on some great gains, it saved me a lot of stress, and there have perhaps been some financial benefits.
Living debt free, I don't worry about losing my job, so I have been able to put myself in a position where my salary increases significantly every year by taking on riskier and more challenging tasks and roles.
babystep
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Re: Pay off mortgage or increase retirement contributions

Post by babystep »

Looks like you are in 12% marginal tax rate. Almost half of the mortgage is paid off and income may go up in future if wife goes to work. I wouldn't rush to pay the mortgage in this case.

Are you maxing out two Roth IRAs? If I would have any extra money in this situation then I would put that towards the Roth 401k as long in 12% tax bracket. If any income is going over 22% then I would reduce that by putting in 401k and then contribute to roth 401k in 12%.
Ron Ronnerson
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Re: Pay off mortgage or increase retirement contributions

Post by Ron Ronnerson »

Invest in your retirement accounts. Compounding needs time to work well so invest as much as you can as soon as you can. You have a low mortgage rate which favors investing over the long-term.
MoonOrb
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Re: Pay off mortgage or increase retirement contributions

Post by MoonOrb »

capran wrote: Thu Dec 02, 2021 10:28 pm An unpopular idea: We both worked in education earning decent salaries, with a combined income of @ 150k. We always maxed out our Roths and contributed to our Teachers Retirement Plan. But we also paid off our homes, and when moving to a nicer home rolled the profit into the next house and then paid it off as soon as possible. (our 2nd and 3rd homes were each paid off in 4 years.) We always viewed it through this lense- We were doing decent contributions toward retirement via Roth and pension contributions but wondered about worst case scenarios. If one of us passed, could the other afford the home we love? (I guess that's why people pay money for life insurance, which we didn't do.) If the stock market took a big decline, how would we feel if our million dollar retirement savings fell to 500k, or 2 million turned into 1 million? Once we paid off our mortgage it really felt like money grows on trees. Most will say you can make alot more in the stock market, and certainly the market has been up, up and away except for one very short retreat since 2009. But not paying a few hundred thousand in interest remains one of best financial decisions.
What would your net worth have been if you had invested it instead?
KlangFool
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Re: Pay off mortgage or increase retirement contributions

Post by KlangFool »

Patzer wrote: Thu Dec 02, 2021 10:42 pm The right answer depends on your relationship with debt.

Mathematically, the right answer is retirement contributions. Historically, you are very likely to beat the 3.15%.

Personally, I did the opposite, even knowing the math.
I grew up with parents who were bad with money and I took on the baggage of seeing debt as bad, because of that.
I don't sleep well at night with debt hanging over my head, and paying off my mortgage quickly felt a lot better than investing that money would have.

While I know I missed out on some great gains, it saved me a lot of stress, and there have perhaps been some financial benefits.
Living debt free, I don't worry about losing my job, so I have been able to put myself in a position where my salary increases significantly every year by taking on riskier and more challenging tasks and roles.
Patzer,

<<I don't sleep well at night with debt hanging over my head, and paying off my mortgage quickly felt a lot better than investing that money would have.>>

Then, why take on the mortgage? I only buy a house with a mortgage that I can pay off at any time. That was true even with a 50% stock market drop.

This is the strange and interesting part of human emotion. If someone does not like debt, they should not take on a mortgage. But, they choose take on the debt/mortgage. Then, they have buyer remorse and choose to pay down the mortgage ASAP. If they are lucky, they do not run into a recession and faced a serious liquidity problem. But, if they are not lucky, by paying down the mortgage, they are in a more serious trouble if they are unemployed in a recession. They would faced serious liquidity problem. Due to survivor bias, we only hear from the lucky folks in the forum. The unlucky folks would not survive financially and they would be posting in the forum.

To each its own.

KlangFool
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Topic Author
Needsomeadviceplease
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Re: Pay off mortgage or increase retirement contributions

Post by Needsomeadviceplease »

Sounds like the clear consensus is to invest vs pay down.


Follow up questions

1) 28k of the mortgage amount I listed above is actually a HELOC it has an adjustable rate currently set at 2.5%. Should I pay this portion of the mortgage down faster since it is adjustable rate?

2) if I invest do you recommend more into the 401k or more in a Roth (for retirement not college savings)? I’ve read that after employer match all money should go to Roth but sounds like here a lot are recommending 401k if I’m reading it correctly.
pizzy
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Re: Pay off mortgage or increase retirement contributions

Post by pizzy »

Needsomeadviceplease wrote: Fri Dec 03, 2021 11:40 am Sounds like the clear consensus is to invest vs pay down.


Follow up questions

1) 28k of the mortgage amount I listed above is actually a HELOC it has an adjustable rate currently set at 2.5%. Should I pay this portion of the mortgage down faster since it is adjustable rate?

2) if I invest do you recommend more into the 401k or more in a Roth (for retirement not college savings)? I’ve read that after employer match all money should go to Roth but sounds like here a lot are recommending 401k if I’m reading it correctly.
1) when does it adjust?

2) 401k to match, max roth IRA, max 401k, college 529/taxable, pay down low interest debt
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KlangFool
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Re: Pay off mortgage or increase retirement contributions

Post by KlangFool »

Needsomeadviceplease wrote: Fri Dec 03, 2021 11:40 am Sounds like the clear consensus is to invest vs pay down.


Follow up questions

1) 28k of the mortgage amount I listed above is actually a HELOC it has an adjustable rate currently set at 2.5%. Should I pay this portion of the mortgage down faster since it is adjustable rate?

2) if I invest do you recommend more into the 401k or more in a Roth (for retirement not college savings)? I’ve read that after employer match all money should go to Roth but sounds like here a lot are recommending 401k if I’m reading it correctly.
Needsomeadviceplease,

1) You should not pay this down until your max both Trad 401K and 2X Roth IRAs.

<<~48k In assets that can be quickly liquidated/used as emergency fund. >>

2) You have enough money plus that 48K to do both. You can use your Roth IRAs to store your EF.

https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

3) Trad 401K and Roth IRAs space are limited. And, if you do not use it, you lose it forever.

KlangFool
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Golf maniac
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Re: Pay off mortgage or increase retirement contributions

Post by Golf maniac »

First, max out your Roth. Growth tax free is the best deal in town. I retired 6 years ago at 56 and was very happy that we saved a lot and were in a position for me to retire. I would encourage you to save like you plan to retire at 60. That way you have the option to retire and won’t be forced to continue working. Many in their late 50s and early 60s are either laid off or have medical issues that lead to disability. These issues can really put you in a bind if you have not saved enough. Also, remember that $2 million will not be what it is today due to inflation. You are in a great position to have additional funds to invest each month which can really place you in a great position by 60.
Patzer
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Re: Pay off mortgage or increase retirement contributions

Post by Patzer »

KlangFool wrote: Fri Dec 03, 2021 11:30 am
Patzer wrote: Thu Dec 02, 2021 10:42 pm The right answer depends on your relationship with debt.

Mathematically, the right answer is retirement contributions. Historically, you are very likely to beat the 3.15%.

Personally, I did the opposite, even knowing the math.
I grew up with parents who were bad with money and I took on the baggage of seeing debt as bad, because of that.
I don't sleep well at night with debt hanging over my head, and paying off my mortgage quickly felt a lot better than investing that money would have.

While I know I missed out on some great gains, it saved me a lot of stress, and there have perhaps been some financial benefits.
Living debt free, I don't worry about losing my job, so I have been able to put myself in a position where my salary increases significantly every year by taking on riskier and more challenging tasks and roles.
Patzer,

<<I don't sleep well at night with debt hanging over my head, and paying off my mortgage quickly felt a lot better than investing that money would have.>>

Then, why take on the mortgage? I only buy a house with a mortgage that I can pay off at any time. That was true even with a 50% stock market drop.

This is the strange and interesting part of human emotion. If someone does not like debt, they should not take on a mortgage. But, they choose take on the debt/mortgage. Then, they have buyer remorse and choose to pay down the mortgage ASAP. If they are lucky, they do not run into a recession and faced a serious liquidity problem. But, if they are not lucky, by paying down the mortgage, they are in a more serious trouble if they are unemployed in a recession. They would faced serious liquidity problem. Due to survivor bias, we only hear from the lucky folks in the forum. The unlucky folks would not survive financially and they would be posting in the forum.

To each its own.

KlangFool
When I bought my house my mortgage was the same cost as renting before maintenance costs. It made sense, and since then housing prices have appreciated dramatically.
You are completely right in that paying early could create a liquidity problem.
An emergency fund is still a higher priority than paying a mortgage down early, which shelters against that risk.
LittleMaggieMae
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Re: Pay off mortgage or increase retirement contributions

Post by LittleMaggieMae »

I must be doing something wrong... I've had a paid off house... and the expense still bothered me I still had a sizable bunch of line items in my monthly budget dedicated to me keeping my house (taxes, insurance) AND keeping my house in good working order. I needed to account for the property taxes, the insurance, the long term maintenance, and dang it - the washing machine was making funny noises - maybe I'd need to replace it (versus a DIY repair) and I noticed some seepage in the basement from the last big storm we had... how much was that going to cost to fix? and on and on and on. It didn't keep me up at night (it's all part of home ownership (with or without a mortgage) - but my house is often on the top of my mind a handful of times per year (when taxes and insurance are due - and then with routine maintenance expenses and then when something fails...) My paid off house is STILL an expense!! How is that "peace of mind"???

In the Big Picture of my home ownership the PI part of the mortgage - was the least of my worries. Maybe I've just had small mortgages so the PI part wasn't a big piece of my "House/Shelter expense"??? Once the PI part was gone - I still had all those other worries - and my house remained an expense... that I COULD still loose (or have to sell and downsize) if I lost my job or had life happen in a bad way where I ran out of EF money (and had little income coming in).

I'm not sure how removing a small part of the House Expense is so liberating?

ADDED: for me - peace of mind came from having an EF, savings, investments that could cover ALL of my expenses. When I was younger - a years worth was comforting - and as it grew and became 2, 5,10, 15, 20 years worth (of mortgage payments and all the other stuff) my peace of mind got stronger and stronger. Yes, my investments could fall in value... but odds are I'd still have some amount of time (10 years instead of 20 years?) that provides some comfort - I have a lot of flexibility to "fix" my situation if I can cover my bills/expenses for 5, 10, or 15 years.
capran
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Re: Pay off mortgage or increase retirement contributions

Post by capran »

MoonOrb wrote: Fri Dec 03, 2021 10:47 am
capran wrote: Thu Dec 02, 2021 10:28 pm An unpopular idea: We both worked in education earning decent salaries, with a combined income of @ 150k. We always maxed out our Roths and contributed to our Teachers Retirement Plan. But we also paid off our homes, and when moving to a nicer home rolled the profit into the next house and then paid it off as soon as possible. (our 2nd and 3rd homes were each paid off in 4 years.) We always viewed it through this lense- We were doing decent contributions toward retirement via Roth and pension contributions but wondered about worst case scenarios. If one of us passed, could the other afford the home we love? (I guess that's why people pay money for life insurance, which we didn't do.) If the stock market took a big decline, how would we feel if our million dollar retirement savings fell to 500k, or 2 million turned into 1 million? Once we paid off our mortgage it really felt like money grows on trees. Most will say you can make alot more in the stock market, and certainly the market has been up, up and away except for one very short retreat since 2009. But not paying a few hundred thousand in interest remains one of best financial decisions.
What would your net worth have been if you had invested it instead?
Great question, and one that I often reflect on. To compute it would be a full time job, as I would have to back track both the savings side, with all it's annual up's and downs, as well as the home side. It's not like we didn't invest. We had so much extra income after the house(s) paid for we maxed out deferred opportunities. (We were only in debt on house 2 and 3 for a total of 8 years). In addition to the on-going 15% Self Directed teachers retirement fund and the Roth for each of us, when houses were paid off, we took advantage of a program allowing for contributing to a state run deferred compensation program (at @ 24k annually each) which grew to @330k each when we retired. We were able to offer our 2 kids free college. One only went for 1 1/2 years but the other went to a state school for his BA but got his MS from a Private University, allowing him to start his teaching career debt free, so I guess that would be an additional 60k drag on our current net worth. I guess whatever a person decided to do within their comfort zone is always subject to reflection and the ever present "should-a, would-a and could-a". Even with ultra-ultra conservative ideas, we're still stuck in the 22% tax bracket with trying to get our deferred accounts down while trying to avoid the IRMAA surcharge, so that if one of us passes "early" the others income might just barely avoid the IRMAA cliff. But deferring too much was our worst decision, and another story. Our net worth has pretty much stayed in the same ballpark since retiring in 2013(2.5 then) and 2.7 now.
exodusNH
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Re: Pay off mortgage or increase retirement contributions

Post by exodusNH »

Needsomeadviceplease wrote: Thu Dec 02, 2021 7:49 pm EDIT

Sounds like the overwhelming consensus is to invest not pay down early.

Follow up questions

1) 28k of the mortgage amount I listed above is actually a HELOC it has an adjustable rate currently set at 2.5%. Should I pay this portion of the mortgage down faster since it is adjustable rate?

2) if I invest do you recommend more into the 401k or more in a Roth (for retirement not college savings)? I’ve read that after employer match all money should go to Roth but sounds like here a lot are recommending 401k if I’m reading it correctly.
1) You almost certainly want to pay down the HELOC before the rate resets. Even a single reset will probably put it above your primary mortgage.

2) You'll need to run the numbers. Pre-tax 401k reduces your income. That may make you eligible for more tax credits / rebates ("free money".) You'd probably want to contribute enough pre-tax to get your income down to the 12% bracket. Then it might make sense to switch to Roth 401k. Though, at that point, I'd probably put it into a Roth IRA instead if you won't be able to max out both your Roth IRA and 401k ($19,500) as long as you've maxed out your employer match. (Unless you have fantastic 401k options, you'll probably be able to get lower expenses in the Roth IRA, but you wouldn't want to give up any match.)

Note that as long as you have sufficient income, you can contribute to your wife's IRA as well.
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