Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Keep investing or payoff mortgage?
Old 07-12-2008, 07:01 AM   #1
Confused about dryer sheets
 
Join Date: Apr 2008
Posts: 6
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?
Joe Bass is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-12-2008, 07:08 AM   #2
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,337
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.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Old 07-12-2008, 07:47 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
harley's Avatar
 
Join Date: May 2008
Location: No fixed abode
Posts: 8,764
Quote:
Originally Posted by Joe Bass View Post
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.

Harley
__________________
"Good judgment comes from experience. Experience comes from bad judgement." - Anonymous (not Will Rogers or Sam Clemens)
DW and I - FIREd at 50 (7/06), living off assets
harley is offline   Reply With Quote
Old 07-12-2008, 08:08 AM   #4
Recycles dryer sheets
gryffindor's Avatar
 
Join Date: Mar 2008
Posts: 51
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.
__________________
Gryffindor
gryffindor is offline   Reply With Quote
Old 07-12-2008, 08:41 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,708
Quote:
Originally Posted by harley View Post
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!

Quote:
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.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 07-12-2008, 08:46 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 10,252
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.
LOL! is offline   Reply With Quote
Old 07-12-2008, 08:51 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,708
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%.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 07-12-2008, 09:29 AM   #8
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,267
Quote:
Originally Posted by Joe Bass View Post
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.
laurence is offline   Reply With Quote
Old 07-12-2008, 09:42 AM   #9
Confused about dryer sheets
 
Join Date: Apr 2008
Posts: 6
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!
Joe Bass is offline   Reply With Quote
Old 07-12-2008, 09:49 AM   #10
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,267
Quote:
Originally Posted by Joe Bass View Post
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!
laurence is offline   Reply With Quote
Old 07-12-2008, 11:58 AM   #11
Recycles dryer sheets
 
Join Date: Jun 2008
Posts: 59
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".
huskerblue is offline   Reply With Quote
Old 07-12-2008, 12:57 PM   #12
Administrator
Alan's Avatar
 
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,021
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.
Attached Files
File Type: zip MORTGAGE.zip (13.4 KB, 13 views)
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
Alan is offline   Reply With Quote
Old 07-12-2008, 01:23 PM   #13
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,267
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.
laurence is offline   Reply With Quote
Old 07-12-2008, 01:53 PM   #14
Administrator
Alan's Avatar
 
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,021
Quote:
Originally Posted by laurencewill View Post
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.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
Alan is offline   Reply With Quote
Old 07-13-2008, 08:22 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,708
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.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 07-13-2008, 08:43 AM   #16
Moderator Emeritus
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
Quote:
Originally Posted by cute fuzzy bunny View Post
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.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Old 07-13-2008, 09:18 AM   #17
Administrator
Alan's Avatar
 
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,021
Quote:
Originally Posted by cute fuzzy bunny View Post
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.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
Alan is offline   Reply With Quote
Old 07-13-2008, 01:38 PM   #18
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,267
Quote:
Originally Posted by Alan View Post
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.
laurence is offline   Reply With Quote
Old 07-13-2008, 01:42 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,708
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.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 07-13-2008, 01:46 PM   #20
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,267
Quote:
Originally Posted by cute fuzzy bunny View Post
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.
laurence is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Mortgage-keep or payoff---with dollar amounts rayvt FIRE and Money 1 05-18-2008 06:12 PM
Private Mortgage Investing AJ290 FIRE and Money 35 03-25-2008 07:40 AM
mortgage payoff from investing jIMOh Young Dreamers 15 02-07-2008 09:31 AM
Analyzing the mortgage payoff option sgeeeee FIRE and Money 43 06-22-2005 09:29 PM
Another payoff the mortgage outlook dm FIRE and Money 12 10-13-2004 12:27 PM

» Quick Links

 
All times are GMT -6. The time now is 02:39 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.