retirement question 2: payoff mortgage early or drive up retirement account

[eliza61]

So, it seems most folks here would fund their retirement question before the kids education (or in addition to) but the question that I see more often is
Whether or not to pay off the mortgage.

So, would you soup up your retirement account or pay off your mortgage early?

Me, I've never been a "debt is evil" fan. So I would put any extra toward my retirement account.

1) considering I want to own a beach house some where and a primary residence some where else, I will probably always have one type of mortgage or another. In fact I may not even buy the beach place, maybe rent a condo.

2) My philosophy is more of "increase my net wealth" as opposed to being debt free. right now with interest rates ungodly low, I can make more money, keeping my money invested.

3) I'm not in my "forever" house. I had never heard of the concept until coming to the dis. As my needs change so will my living arrangements. I think I would get so bored living in the same place 50 years.


What about everyone else?

 

[HM]

Retirement account.
I am also not in my 'forever house'.

 

[Cadiewampus]

I would say retirement account. Even though I am doing it backwards. Our house will be paid off 11/2016 and then I will up my retirement contributions

 

[TAX GUY]

Pay off the mortgage. Why pay the interest if you don't have to? The rate of return will be less than the current mortgage rate, so the way I see it, more money in my pocket (vs to the bank). This is assuming one would be closer to retirement and not willing to take higher risks (for a possible higher rate of return).

 

[Bec3b1g]

Our plan is to have no mortgage in retirement. I make 1 extra principal payment yearly so the mortgage will be paid off when we turn 55.

I'm not sure whether there's a right choice. It just needs to fit in with your projected retirement lifestyle as part of the overall picture.

 

[MickeySP]

Well we paid off the mortgage & now put 1/2 that money each month in retirement.

We also plan on the snowbird thing. We started a separate " house" fund awhile ago, we throw 1/2 of any overtime in it. The plan is sell house here, buy scaled down home here & in warmer climate. We should end up with no mortgages barring unforeseen circumstances.

 

[pryncess527]

It's reasonable for me to think I can get better returns in the market than I pay in interest because my mortgage interest is so low (and I'm still a long ways from retirement), so I'd just pay the house off in the normal time frame and put extra into retirement. If my interest were higher, I might make a different evaluation.

 

[Bec3b1g]

I would say retirement account. Even though I am doing it backwards. Our house will be paid off 11/2016 and then I will up my retirement contributions

Lucky you! I'm jealous

 

[4under4]

Our choice has always been "debt free, ASAP".

Once you are debt free, you will not have to worry [much] about an unexpected crisis arising. In a worst case situation, if you NEEDED money to pay your mortgage and had to tap your retirement account to do so, any/all gains you may have made would be gone in a flash. But if you are debt free, it doesn't take very much to support your most very basic needs.

I certainly wouldn't skip making contributions along the way, especially enough to max any matching offer by an employer, but when it comes to discretionary funds, put it towards your mortgage (or other debt if at a higher interest rate).

Go out to eat or put an extra $50 to the mortgage this month? No question for us. Buy that new pair of shoes or put the $75 towards the mortgage? They're cute, but I can live without those shoes. Every little bit adds up, and makes a HUGE difference in how much interest you pay over the life of the mortgage. We paid off our mortgage in <10 years, and yes we still went on vacation and drove good cars.

 

[eliza61]

Our choice has always been "debt free, ASAP".

Once you are debt free, you will not have to worry [much] about an unexpected crisis arising. In a worst case situation, if you NEEDED money to pay your mortgage and had to tap your retirement account to do so, any/all gains you may have made would be gone in a flash. But if you are debt free, it doesn't take very much to

Not necessarily true. I lived in NJ & I can't tell you how many people lost or loose their homes (fully paid off) because they can't afford the outrageously exploding property taxes. My property taxes were 1000 month when I moved two years ago, my neighbor said her's just increased to 1150. Mortgage or no mortgage makes absolutely no difference, if an unexpected crisis arises and she can't pay that, they are out.

 

[FlightlessDuck]

Would you make more money in your 401(k) than you would spend if you don't pay off your mortgage early? That's always the question you ask about these sorts of things.

 

[Goofy_Disney_Dad]

I'd go with whichever offered me the best return on the investment.

 

[Hisgirl]

Two words.

Compounded Interest.

I would beef up my retirement account to take advantage of the time value of money. Let that money earn interest on itself. Our market returns have been great for several years now.
One thing you might want to consider, would be to refi to a 15 year mortgage and take advantage of these low rates. we did that a few years back and will have our home paid off soon right after retirement.

 

[Wishing on a star]

This could be very subjective, based on the interest rate on the mortgage, how it is accrued, how much is remaining on the mortage, etc.

Financing a mortgage, over time, is NOT cheap.

I would have to run the numbers, given the interest rates on my mortgage, and the amount of interest that I would be making in the types of saving investments that I was comfortable with...

If one were to pay off their mortgage, saving that accrued interest, and then also pay themselves back, the amount of that monthly mortgage payment.

We are actively planning for retirement right now....
My husband has become very adept at running numbers on these kinds of things!

PS: We have put a priority on paying off debt... getting out from under that accrued interest, and that drain on cash-flow. To us, it makes more sense to make that money work for us, instead of paying it to others.

 

[Gumbo4x4]

We're not currently paying enough interest to deduct it, so I'm not really getting any sort of tax advantages from having a mortgage. So, I'd be tempted to focus on that. But, I tend to do a little in both directions. In other words, if I had an extra $1,000 a month, I'd put $500 toward each.

 

[Cadiewampus]

Lucky you! I'm jealous

when we refinanced a few years ago I went with a 15 year mortgage. Everybody said why don't you just get a 30 and then pay extra. I ain't very bright but I am bright enough to know I would not have the discipline to just pay extra on a 30. So went with the 15 so I had no choice. About the only smart thing I have ever done.

 

[georgina]

It depends on individual factors. We've been in the same house for 28 years, it's been paid off for a while. It is a great feeling to be debt free. Youngest has 2 more years of college, DH is near retirement age, we're doing a much needed kitchen remodel (cabinets are 60 years old) so I expect to be living here another 20 years.

 

[tvguy]

In my case, I have always put the maximum allowed amount into an IRA and later, 401k. And I always added $100 to my mortgage payment. So I would say it isn't an either or situation, many folks can do both, and should do both. Bought the house at age 25, had it paid off by age 40 thanks to a 15 year mortgage. Other thing we did was when we refinanced, we kept making what our original payment was, $1,100, even though the refis lowered our actual payments to $900, and then $625.
Age 40 to 57 the house payment money went to college savings for the kids, with the equity in the house as a backup. Now at age 58, kids are done with college, no mortgage, maxed out on retirement contribution, so we have an extra $1,100 mad money each month.

 

[Meriweather]

Well, we paid for both of our childrens' educations.....no loans.
We paid off our house in WA and when we sold it, we paid off this house.
We retired a couple of years ago. I guess we just invested wisely.

 

[Colleen27]

Mortgage, but that's an answer that comes from many years of up and down income. I quite simply sleep better at night knowing that the roof over our head is paid for even if it isn't the best choice from a purely financial perspective. Our property taxes are low enough ($1100/year) that losing the house to taxes is unlikely to the point of near impossibility, so not having a mortgage represents a great deal of financial security for us.

Now that we have a predictable income for the first time in our married life I may find I feel differently as I adjust to the "new normal", but I don't imagine I'll regret owning our home outright. It probably isn't our "forever" home (I don't think we will have such a thing) but it is the home where we plan to stay for at least another decade, and since we bought a fixer upper at a crazy low in the market the value has nowhere to go but up.