Jimonlimon
Recycles dryer sheets
- Joined
- Dec 12, 2022
- Messages
- 136
I know, another "should I pay off my mortgage?" thread.
Planning to retire in about a year at age 59. At that time we will have 15 years left of a 30 year, 4.5% fixed-rate mortgage with a balance of about $135,000 and monthly payment of $1013. All money to pay the mortgage installments or full pay off will be from my 401k, subject to Federal and California income tax. I'm figuring this money as at the "top" of my income and therefore subject to my highest tax rates. I'm also assuming both Federal and California tax rates remain the same with brackets indexed for inflation.
I see four options regarding the mortgage:
My plan had been to just keep it with the assumption that returns on my 401k will average more than 4.5% and pulling the money out all at once would result in 2-4% higher tax rates.
Obviously there's a "peace of mind" element to paying it off and not worrying about market downturns eroding the 401k value. We have about $1 million in 401k of which about 40% will be used to bridge the gap from retirement to starting Social Security. Pulling money out for the mortgage payoff now obviously reduces the capital but it would also reduce the annual needs by about $17,500 gross (for $12,156 net). My pension and SS combined will more than cover our current spending until our eventual demise. House is currently worth about $950,000 so no worries about loan to value ratios, we don't have mortgage insurance or annoying escrow accounts.
Opinions?
Planning to retire in about a year at age 59. At that time we will have 15 years left of a 30 year, 4.5% fixed-rate mortgage with a balance of about $135,000 and monthly payment of $1013. All money to pay the mortgage installments or full pay off will be from my 401k, subject to Federal and California income tax. I'm figuring this money as at the "top" of my income and therefore subject to my highest tax rates. I'm also assuming both Federal and California tax rates remain the same with brackets indexed for inflation.
I see four options regarding the mortgage:
- Keep paying $1013/month until paid off in 15 years. Tax 31.3% until we start drawing SS in about 8 years then 28%.
- Keep paying $1013/month until starting SS then pay off over one or 2 years. Tax 31.3% until SS then about 29.5%. This is my preferred plan.
- Pay off in 2 years. Tax 31.9%
- Pay off in 1 year. Tax 32.6%
My plan had been to just keep it with the assumption that returns on my 401k will average more than 4.5% and pulling the money out all at once would result in 2-4% higher tax rates.
Obviously there's a "peace of mind" element to paying it off and not worrying about market downturns eroding the 401k value. We have about $1 million in 401k of which about 40% will be used to bridge the gap from retirement to starting Social Security. Pulling money out for the mortgage payoff now obviously reduces the capital but it would also reduce the annual needs by about $17,500 gross (for $12,156 net). My pension and SS combined will more than cover our current spending until our eventual demise. House is currently worth about $950,000 so no worries about loan to value ratios, we don't have mortgage insurance or annoying escrow accounts.
Opinions?
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