What should I do?

[Wyohandscold]

Hi I’m new here. I’m 35 and have 400k in my 401k. My wife has a pension that will be good at 50% of her wage at age 58.
My question is with that much in my 401 could I take a 7-8 year break from maxing it out, match my company’s 6% and still be ok at 55? I’ve done the math and in that 7-8 year timeframe I could take that money and pay off everything including my home.

 

[Wyohandscold]

To be clear I’m talking about taking money I currently contribute and using that to make extra payments on my home. I’m not talking about cashing out my 401k

 

[aaronc879]

From a pure financial standpoint you are likely better off putting the money in your 401K since your return on investment will very likely be better than what you save in mortgage interest. Only you can decide if the feeling of being debt free is worth losing some purchasing power later in life.

 

[JRon]

I agree completely with aaronc879. When faced with that, we made the choice to be debt-free.

 

[aaronc879]

I agree completely with aaronc879. When faced with that, we made the choice to be debt-free.

I paid off my house this year instead of putting the money in the stock market. Neither option was "right" or "wrong". I just wanted to be debt free and have very low annual expenses going forward.

 

[old medic]

I would keep maxing out the 401... put any extra into paying stuff off, highest interest 1st.

 

[Gumby]

To be fair, I did make extra principal payments to retire our mortgage early, but that was likely not the optimal financial move. It did make us feel better, but if I could go back in time, I would put enough in the 401k to get the match (although I never did have a match) then fill up my Roth. If there is anything left after that, I probably would go back to my 401k and contribute as necessary to make it to the next lower tax bracket if possible. And, finally, once I hit the desired tax bracket or the 401k contribution limit, I would invest in an after tax account. I wouldn't make early mortgage payments, especially if I had a very low rate mortgage.

 

[Ian S]

I would keep maxing out the 401... put any extra into paying stuff off, highest interest 1st.

+1! I'd focus on getting the high interest stuff paid off. If you have a very low mortgage interest rate, then it really doesn't make a lot of sense to rush to pay it off instead of putting it into a 401k. Make sure you have a sufficient rainy day fund and make sure you are getting your company's full match in the 401k.

 

[Wyohandscold]

I guess how much does a guy really need? All the online calculators are showing even if I didn’t put another dime in the account I’d still have 1.7 by 60. That works out to $9500 a month or $3800 in today’s purchasing power I think. My wife works until 58 and gets a big discount during retirement for medical (currently $700 month for retirees).
I don’t have anything high interest so my plan was to pay off the house and let the vehicle loans go the full term. I hate loans haha and I have three good ones now

 

[Wyohandscold]

House is 3.1%, vehicles are 1.9%
Just finished the house last year and with the 30 year it won’t be payed for until I’m 64 so I’d have to make extra payments anyways. I see what you’re all saying. From the financial side it makes sense to capitalize on the return of a 401. I definitely made more than 3.1 last year

 

[Wyohandscold]

That’s what is driving me to do this. I make great money but am tied to my job because of my monthly expenses. Very small town that I love but we don’t have any other jobs that even come close to my current pay scale

 

[JeffyD]

I agree with many here: keeping socking away into your 401k.
You have a lot of years of compounding left.
I also agree with striking a balance with your mortgage payoff, but that should be secondary. Paying off a mortgage is a GREAT feeling, but (I am guessing) not as great as that last day of work.

 

[Sunset]

I paid off the house, not having debt felt good.
Having all that money in the house felt good when the market tanked ~ 2000

You could do a mix, right now the stock market is high, so divert the extra contributions towards getting rid of your debt.
Should the stock market fall 15% or more, increase your contributions to take advantage of buying when stocks are on sale.
Over an 8 year period, there will probably be a few times of switching back and forth.

You could build up your cash, if you are worried about losing your job and meeting your monthly expenses.

 

[CardsFan]

House is 3.1%, vehicles are 1.9%
Just finished the house last year and with the 30 year it won’t be payed for until I’m 64 so I’d have to make extra payments anyways. I see what you’re all saying. From the financial side it makes sense to capitalize on the return of a 401. I definitely made more than 3.1 last year

With those kind of rates I would not be in a hurry to pay off the loans right now.

While I am a fan of entering retirement without a mortgage (and did), I did it the old fashioned way, over time.

Without knowing any more about your finances it is hard to give a recommendation, but here goes anyway:

Keep maxing out your 401k, and if offered, put some of that into a Roth 401k. No tax advantage for the Roth, but having tax free money available when you retire can help you manage income if needed.

As your income increases, devote at least 1/2 of that toward paying down the mortgage. In 5-10 years you might get to the point you can pay an extra months principal every month, so that the house is fully paid off in 20 years instead of 30. Just in time for you to retire at 55 .

 

[grasshopper]

I paid off my house in 2003 when I realized I had enough dollars in a REIT to pay off the balance. So I just exchange RE for RE.

I DCA my nonpayment back into the market and paid myself instead of the bank.

 

[OldShooter]

I guess how much does a guy really need? …

I teach an adult-ed investing class and use “pop quizzes” to make points that I think are especially important. Here is one:

You’re 75 years old, healthy, and find that you have made a mistake in your financial planning. Which would you prefer?

A. You find that you’re running out of money.

B. You find that you’ve saved more money than you really need.
​

You’re 40 years from that point. In 40 years a lot can go wrong in your personal life and in the world of finance. For example, a disability or death without adequate insurance. Extended unemployment of one or both of you. Or 40 years of the US long-term average inflation of 4.11% will cut the buying power of $1.7M by about 81%. Even a “mild” 3% inflation will cut your buying power by 70%.

The point I try to make with this quiz is the the future is so uncertain that the prudent path is to save like crazy in one’s younger years where the power of compounding is on your side. Maybe at some point past middle age, look at one’s finances and see if backing off can be considered. But to confidently project 40 years into the future would not be my cup of tea.

 

[Bamaman]

You should contribute to the 401K as long as you're being matched. Then Roth IRA's are the place to go. You're doing pretty well for someone of your age.

I'd let the house stand on its own as far as the payback goes, and hopefully you have it on a 15 year note. If not, prepay the principal to payoff the mortgage in 15 years. You'll still have time to save prior to retirement after that. I hope it's a house that you won't have to "trade up" as time goes on.

I've been looking at homes for my daughter, and the housing market is pretty frightening right now. The home prices locally are up $100K in the last year--on modest 1800 square foot new homes. Sell out and most will have to pay another inflated price to go up a notch in size and quality. I honestly don't know how young families will be able to pay these prices on houses and cars while saving substantially for retirement.

 

[Wyohandscold]

I’m on a 30 year note and got really lucky to get all of my materials ordered before the prices skyrocketed. Luckily my wife(a nurse) told me to get everything ordered because she saw what was coming before I did. Our house will be way too big and at some point we will likely sell and buy a smaller home for our retirement. Yes house prices are out of control and as nice as it is to look at our homes value.,,..this is not going to last. Our house is just over a year old and we already have 400k in equity. I don’t qualify for a Roth but have considered a traditional and probably should get one started

 

[jollystomper]

I agree with those who say keep maximizing your contributions to get that 6% match. That is an automatic return on your contribution without having to do anything that you do not want to give up, as long as your company keeps providing it.

Since I lean towards LBYM, I would look at ways to reduce my current expenses and put that towards paying down your debt, rather than stop saving in the 401K. That is the approach DW and I took when we were working.

 

[Dean56]

I agree with those who say keep maximizing your contributions to get that 6% match. That is an automatic return on your contribution without having to do anything that you do not want to give up, as long as your company keeps providing it.

This is what I did. I also sent extra money with my mortgage payment to pay down the principle. My house payment was $900, so I would add an extra $500 each month. You will be amazed how fast the principle amount drops over time.

 

[ut2sua]

Hi I’m new here. I’m 35 and have 400k in my 401k. My wife has a pension that will be good at 50% of her wage at age 58.
My question is with that much in my 401 could I take a 7-8 year break from maxing it out, match my company’s 6% and still be ok at 55? I’ve done the math and in that 7-8 year timeframe I could take that money and pay off everything including my home.

I don't think either of your options is bad. If you are in a higher tax bracket, then it is definitely financially better to put more into deferred $ (401k/IRA). If you dislike debt, go ahead with your plan. After all, it is your $, and you can do what you like. You are not doing anything extremely wasteful here. Having fewer debt will improve your cash flow and bringing less worry concerning job security etc. Happiness is priceless. Some of my choices in life cost more $, but I am happier with those.

 

[CRLLS]

There is more to paying off a mortgage than financial analysis or the comfort knowing there is not house payment. One might be a strategic plan should one looses their job. Sure, you can always withdraw with penalty to keep up the mortgage payments. Paying off a mortgage might be considered part of a "Bond" or cash side of AA. Or it might reduce the size needed in a bucket strategy. With the house paid for, the need for less to cover that part of monthly expenses can be rationalized in several ways.

I was traditionally a "keep the mortgage and use that dough for investments. I changed my thinking a few years back even though I am retired. I just wanted to simplify my monthly nut. No further analysis was done.

There is no one right answer for everyone.

Whichever way you choose, I would definitely say keep contributing to the 401K at least to get maximum match from your company.

 

[RetireeRobert]

I agree with those who say keep maximizing your contributions to get that 6% match. That is an automatic return on your contribution without having to do anything that you do not want to give up, as long as your company keeps providing it.

OP stated he intends to keep contributing enough to 401k to get the 6% match. But he wondered about the excess 401k contributions he has been making "over and above" the amount needed to capture the employer match.

I agree with his idea to use those "excess" 401k contributions to pay down debts for his suggested 7 or 8 year period.

Debt free is a very nice thing to be!

 

[badatmath]

I just wanted to point out that your wife may not be working until 58, or they might change her benefits, etc. I wouldn't count on things not changing over a 20+ year time span. Save as much as you can in the 401k.

 

[Koolau]

OP stated he intends to keep contributing enough to 401k to get the 6% match. But he wondered about the excess 401k contributions he has been making "over and above" the amount needed to capture the employer match.

I agree with his idea to use those "excess" 401k contributions to pay down debts for his suggested 7 or 8 year period.

Debt free is a very nice thing to be!

I will add another wrinkle to the discussion. I always crammed as much into the 401(k) as possible. NOW, I'm taking RMDs and am paying the piper. I think the best approach would be:

1) Get the 401(k) match
2) Max out the Roth for the year
3) Some combination of a) pay down some debt b) add more to 401(k) c) add to after-tax/taxable investments

I consider that I put TOO MUCH into my 401(k) at the expense of instead paying down mortgage and contributing to taxable accounts. It's difficult to know exactly what to do as we don't know the future of tax structure - HINT: We will soon be "taxing the rich" and guess what? WE ARE the RICH! (Just my opinion so YMMV.)