37 year old couple planning ER

[assos]

We are a 37 year old couple with three children. We would like opinions on what to do with $290k cash. We have $200k in retirement accounts and are seriously considering paying off our $220k mortgage and investing the balance. We understand the financial pros and cons of paying off the mortgage vs investing; however, freedom from debt is also very appealing!?

 

[brewer12345]

If you search you will finds lots of threads on "should I pay off the mortgage." This is an internecine debate. IMO, considering how far you are from ER you would be crazy to pay off the mortgage now.

 

[Major Tom]

I learned a new word today. Thanks brewer.

 

[brewer12345]

I learned a new word today. Thanks brewer.

I could teach you more new words of the variety that can only be looked up on "Urban Dictionary" but I bet I would get in trouble with the mods.

 

[Major Tom]

Thanks, but I already know plenty of those

 

[racy]

We are a 37 year old couple with three children. We would like opinions on what to do with $290k cash. We have $200k in retirement accounts and are seriously considering paying off our $220k mortgage and investing the balance. We understand the financial pros and cons of paying off the mortgage vs investing; however, freedom from debt is also very appealing!?

Hi assos,
If I were your age, I'd invest the $290K (rather aggressively, ie 60-70% equities) and keep the mortgage for 2 reasons:
(1) I believe the return on an investment will be greater than the mortgage interest, and
(2) Inflation will erode the real cost of the mortgage over time.

Also, you don't need to choose between pre-paying or investing; you could do some of both.

 

[Fermion]

We are closer to early retirement (2 years) and decided to pay off our house for two reason.

1) We have no kids and are very nearly at the standard deduction. We do not get the full benefit of the mortgage interest deduction.

2) We are planning to sell the house within 2 years thus the loan will need to be paid off then anyway.

It was a 3.5% loan, which is cheap money, but a 2 year CD pays nowhere close to 3.5%. We paid off the house and moved some bond money into the stock market in our investment accounts to balance things.

 

[aim-high]

I learned a new word today. Thanks brewer.

+1 Also glad for the ease of which my Mac allows me to highlight / right-click and Lookup the word. Mac / PC another internecine debate.

 

[Loving Life]

Pay off the house - during these troubled times, if the house is paid off, it takes a lot of stress off you and your family. Financially it might not make be the correct thing, but peace of mind and freedom it usually is. Take the $$$ that would have been your house payment and start saving like crazy.

 

[murpheyw]

My wife and I retired at 37 with 2 kids. We are now 39.

I would say to pay off that house, and invest the rest. It brings a lot of peace to not have that note over you. You might consider investing in a rental property with the surplus. You might have enough for a down payment.

 

[rodi]

I love this debate - I always end up with more things to think of.

If you pay off the house and INVEST/SAVE the money that was going towards the mortgage - you can build up a nest egg pretty quickly.

But the market returns are pretty enticing also, to keeping that money invested, vs paying off the mortgage. The downside is the market is not guaranteed - there's risk.

Conversely - your home value could go down. So risk there, too. On the other hand - that can happen with or without a mortgage...

Only you can decide what's right for your family.

 

[meekie]

Are you still getting a significant tax write off from your interest? Or have you had this loan for over 10 years?

Will you really invest the money that you're not paying on the mortgage, or will you be tempted to spend it?

I would be leaning towards investing for now, with the plan to pay it off in a few years after earning some gains from investing the money. In 7-10 years you might be able to double the money, and your balance should be significantly lower.

 

[FLD3C]

As others have noted there are both economic and emotional aspects to the decision:
Will the investments yield more than the interest rate of the mortgage (after taxes)?Probably yes
Will the change in cash flow be significant?
Will the change in cash flow provide protection from layoff et al?
Will you sleep better without the debt?
I chose to payoff the mortgage. A good nights sleep has economic value.

 

[seraphim]

Invest the entire amount. Live frugally to make the mortgage payments. Spend the money now and you'll probably never replace it, and will have lost a lot of accrued interest if you do have the discipline to replace the amount.

Just my $.02

 

[Mulligan]

Invest the entire amount. Live frugally to make the mortgage payments. Spend the money now and you'll probably never replace it, and will have lost a lot of accrued interest if you do have the discipline to replace the amount.

Just my $.02

I am with you Seraphim. It depends on the person obviously. But I am big on that "not paying yourself back" thing. I have done it too many times. That is why I borrow when I need big ticket items and pay it back even though I may be out a few bucks in interest doing it. I have retired and could pay off my home, but I quit thinking long ago of having a 6 figure debt hanging over my head. I just think of it as a $695 monthly bill to pay.