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Keep investing or payoff mortgage?
Old 07-12-2008, 08:01 AM   #1
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Keep investing or payoff mortgage?

I"m currently in Public Service and always had the dream to ER. I retired from the military after 22years and started my second career with the mindset to do another 20 and retire with two pensions. I figured that would give me the security to sleep at night. I refinanced our home in 2001 to a 15 year mortgage as part of our plan to have no debt when we retired. I also started to slowly at first invest in our 457 plan at work and with annual raises increased my deferral amounts to almost having it maxed out for my age{52} My question is, Do I keep throwing money into the 457 plan or put that same money toward our mortgage and get that paid off. Originally I was hoping to do both,15 year mortgage and 457 plan for retirement savings. This market has me depressed to say the least. I plan on retiring in 5years or so at age 57. What say you?
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Old 07-12-2008, 08:08 AM   #2
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IMHO cash flow is king. You need to evaluate your asset base outside of tax sheltered plans that would be available in an emergency. If you don't have a large after tax stash, I would recommend not paying off your mortgage.

Another question is whether you are taking a tax deduction on your mortgage interest.

It's nothing to anguish about.
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Old 07-12-2008, 08:47 AM   #3
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Do I keep throwing money into the 457 plan or put that same money toward our mortgage and get that paid off. Originally I was hoping to do both,15 year mortgage and 457 plan for retirement savings. This market has me depressed to say the least. I plan on retiring in 5years or so at age 57. What say you?
IMHO, keep the mortgage and plow the money into the 457 and after-tax investments (after making sure you have 6-12 months expenses in cash,of course). I find a mortgage to be a great way to free up cash for investing, and a method of keeping myself in a lower tax bracket.

In my particular case, it was important to automate the investing. I have a tendency to spend money in my pocket, so I had to make sure it never gets there. YMMV.

The market being down should only be depressing if you need to sell. Otherwise it's the good side of DCA, or a good time to buy. It would be nice if this was a bottom, but you never know. The only time I don't like to buy is when the market is booming. Good luck.

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Old 07-12-2008, 09:08 AM   #4
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When the market is going down is the EXACT time to stop prepaying the mortgage and put it into equities.

When the markets back up another 20-30%, you can consider starting to prepay it again.
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Old 07-12-2008, 09:41 AM   #5
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I find a mortgage to be a great way to free up cash for investing
Hows that working out for you the last 8 years? I guess I should ask if this is supposed to be a positive or a negative...

I have a little smaller pile of 'free cash' without the mortgage, but without having to worry about volatility very much due to the lack of needing to make a large payment every month, I can invest more aggressively. Higher risk/return without the worry!

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and a method of keeping myself in a lower tax bracket.
Funny, thats what not having a mortgage does for me.

Joe, at your age and proximity to retirement, I'd definitely look into paying down the mortgage. Note that a survey I ran here a little while back indicated that the vast majority of early retirees had paid off their mortgage or planned to do so by the time they quit their jobs. Its a nice hedge against down markets and doesnt have to cause any limitations on your investments or lifestyle. Quite the opposite.
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Old 07-12-2008, 09:46 AM   #6
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Socking everything away in retirement plans and not paying off a sub-5% fixed rate mortgage has afforded us the ability to retire while we were under age 50.

So if your mortgage interest rate is reasonable, I would not bother to put any extra towards the principle.
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Old 07-12-2008, 09:51 AM   #7
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Paying off my mortgage in 2000 and avoiding having that principal amount drop 80% in the market crash in 2001 afforded me the ability to not have to unretire in 2002.

Being able to invest in riskier asset classes from 2001-current with an average annualized return of 14% has made me financially secure for this life and the next one.

But I think if I was one of the ten or twelve people who actually got a sub 5% fixed interest rate on my mortgage, I'd think about keeping it. But it'd have to be a lot closer to 4% than to 5%.
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Old 07-12-2008, 10:29 AM   #8
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I"m currently in Public Service and always had the dream to ER. I retired from the military after 22years and started my second career with the mindset to do another 20 and retire with two pensions. I figured that would give me the security to sleep at night. I refinanced our home in 2001 to a 15 year mortgage as part of our plan to have no debt when we retired. I also started to slowly at first invest in our 457 plan at work and with annual raises increased my deferral amounts to almost having it maxed out for my age{52} My question is, Do I keep throwing money into the 457 plan or put that same money toward our mortgage and get that paid off. Originally I was hoping to do both,15 year mortgage and 457 plan for retirement savings. This market has me depressed to say the least. I plan on retiring in 5years or so at age 57. What say you?
At age 57 will you have two pensions? Both with COLA? Will either or both cover your minimum expenses including the mortgage payment? 5 years from now you would be 12-13 years into a 15 year mortgage, so it sounds like you are talking about a small swing in investment allocation.

In my opinion, just stick with your plan. With a 15 year mortgage you essentially are paying off your mortgage early. You've got a lot of margin for error with two pensions.
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Old 07-12-2008, 10:42 AM   #9
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Yes, I will have two pensions with COLA. They would combined take care of our expenses, but it would be nice to not have to write that check to the mortgage company each month. I guess your right about the 15 year mortgage in terms of paying my mortgage down early as is. Thanks to all who responded. I've sure learned a lot on this forum. Thanks again!
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Old 07-12-2008, 10:49 AM   #10
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Yes, I will have two pensions with COLA. They would combined take care of our expenses, but it would be nice to not have to write that check to the mortgage company each month. I guess your right about the 15 year mortgage in terms of paying my mortgage down early as is. Thanks to all who responded. I've sure learned a lot on this forum. Thanks again!
One last thought, if you are plowing any money into conservative investements that pay less than the mortgage interest rate - tax deduction, I'd divert that to the mortgage. I'd let the stocks ride as is. You sound like you are in great shape to weather the storm!
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Old 07-12-2008, 12:58 PM   #11
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To me, this is an emotional/personality issue as well as a financial issue, maybe moreso.

We paid off our morgage in 8 years while still saving a nice sum albeit not as much as we could have saved {$300K house}. Now, with the mortage paid, we bought a townhouse in a GREAT spot that we want to retire for 20% less than it would have cost last year for $210K with $70K down {$$ available due to sale of business interest to recareer in non-profit world}.

Now, we are beginning to pile away huge $$, have the big, to be sold someday when FIREd house paid for, still have the tax deduction for the far smaller mortgage, can pay off that mortgage with the proceeds from the sale of house #1 and still have $150K free cash {making some assumptions}, we now own a place in an area I believe will boom once the economy recovers and best of all, having little to no debt and a decent nestegg means I CAN STICK IT TO THE MAN if I don't like how the career is going. That friends, is the emotional/personality part whereas the previous stuff was the financial.

Win, win, win.....Debt is the enemy even if it's "good debt".
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Old 07-12-2008, 01:57 PM   #12
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Joe, Do you have a good feel for how much interest and capital you are paying for your mortgage? If it is a standard mortgage do you know that in the last few years the interest rate is effectively very much higher because the principal is going down quite quickly with each monthly payment? I've attached a spreadsheet where you can poke in your own particulars and also play around around with the numbers to help you make your decision.

With 5 years to go I would be sure I was building up a good cash cushion ready for retirement. Sounds like you will have 2 pensions from age 57 so you are probably in good shape.
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Old 07-12-2008, 02:23 PM   #13
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Could you help explain how the interest rate is effectively very much higher? An amortization table shows how the vast majority of your last payments goes to principle, but I fail to see how that means it's a higher effective interest rate. It seems counterintuitive.
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Old 07-12-2008, 02:53 PM   #14
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Could you help explain how the interest rate is effectively very much higher? An amortization table shows how the vast majority of your last payments goes to principle, but I fail to see how that means it's a higher effective interest rate. It seems counterintuitive.
Bad mistake, you are correct. That was something I had heard in the past. Can't remember where, but looking at my own spreadsheet I see that it is not correct.

The main advantage would be that you are losing the tax advantage as most of the payments go to principal.
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Old 07-13-2008, 09:22 AM   #15
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Do note that the "tax advantage" is only what exceeds the standard deduction.

Unless you have one HECK of a loan, thats not much, if anything at all especially if you're married filing jointly.
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Old 07-13-2008, 09:43 AM   #16
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Paying off my mortgage in 2000 and avoiding having that principal amount drop 80% in the market crash in 2001 afforded me the ability to not have to unretire in 2002.
Paid mine off a year or two ago, and glad I did. You can't get a right or wrong answer to this dilemma by just doing the arithmetic. It depends too much on market performance (both stocks and real estate) as well as how much free cash you need on hand.

At least now I only have to account for the psychotic behavior of the stock market, not the residential real estate market.
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Old 07-13-2008, 10:18 AM   #17
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Do note that the "tax advantage" is only what exceeds the standard deduction.

Unless you have one HECK of a loan, thats not much, if anything at all especially if you're married filing jointly.
Absolutely, not a lot of people know that. (although most on this board know this I'm sure).

We paid ours off in 1999, timed it to coincide with DD going to college, so instead of the money going to the bank it went to the college. DS started college a couple of years later so didn't really feel the benefit of no mortgage until 18 months ago when he graduated.
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Old 07-13-2008, 02:38 PM   #18
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Absolutely, not a lot of people know that. (although most on this board know this I'm sure).

We paid ours off in 1999, timed it to coincide with DD going to college, so instead of the money going to the bank it went to the college. DS started college a couple of years later so didn't really feel the benefit of no mortgage until 18 months ago when he graduated.

All these awesome parents on this board paying for their kids college. I guess I'm an evil miser by planning on letting my kids take out some loans! In reality, I was going to pay the cost of tuition and books at a University of California school and help with room and board. If they wanted to go to a more expensive college I was going to let them foot the difference. Cheap b@st@rd! I just thought a little student loan debt never hurt anybody.
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Old 07-13-2008, 02:42 PM   #19
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You and I have the same plan Laurence.

Gabe can go to any UC school he wants to on our dime.

Given that he just sprayed me with the hose while sporting a huge maniacal grin, he might want to pick one near the other end of the state.
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Old 07-13-2008, 02:46 PM   #20
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You and I have the same plan Laurence.

Gabe can go to any UC school he wants to on our dime.

Given that he just sprayed me with the hose while sporting a huge maniacal grin, he might want to pick one near the other end of the state.
Heck, half the top 20 schools in the nation for many majors are UC, and barring we find out Olivia is the next Yao Yao Ming and must go to Juliart or something I just can't see what a more expensive university will get someone.
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