What should I do?

[RetireAge50]

We always did the max possible to 401k and also max to Roth IRA. A couple times we did cash out refinances on the mortgage because rates were so low.

Like you said we probably ended up with more money than we need but I do not see this as a negative thing.

Although we are now completely debt free I have started to think about getting some of that 2% mortgage money again. Too good of deal.

 

[captain3d]

Being ‘debt free’ is something of a misdirection/illusion I feel.

It does not mean you are expenses free. There is always something to pay. The real goal is to have enough invested to pay all expenses.

In general paying off a cheap home loan means you will have less invested to pay expenses even if those expenses include a mortgage.

It is a phycological decision not an investing decision.

 

[Koolau]

We always did the max possible to 401k and also max to Roth IRA. A couple times we did cash out refinances on the mortgage because rates were so low.

Like you said we probably ended up with more money than we need but I do not see this as a negative thing.

Although we are now completely debt free I have started to think about getting some of that 2% mortgage money again. Too good of deal.

I agree that "too much" money is okay - even if you die with it. My point is more about having too much in qualified funds (401(k), tIRA, 403(b) etc.) These funds are less flexible ('cause you have to "titrate" the taxes) and they also count against stuff like Medicare cost and other MAGI limits. YMMV depending on all sources of income.

 

[Katiek]

First off, congratulations, you've made a great start. But I echo the people who say a lot can change between now and when you and your spouse turn 58. I've been at my job for 25 years, and the benefits I get now look very little like the benefits that were there when I started the job - pension and retiree medical are among the things that have changed drastically.



Also, the benefits of saving early in life are very powerful. Compounding over years will have a big impact. I'd strongly recommend saving more in the retirement plans than just the 6%, but it doesn't have to be all or nothing. I'm not sure how much you're saving now, but you could pick some higher savings target - 10-15% and then put the rest towards the mortgage.

 

[NgineER]

Evaluate where you stand WRT the next tax bracket. If you are close to a tax bracket limit and can use the 401(k) to bring you down into a lower tax bracket it is definitely worth doing.
If you anticipate being in a lower tax bracket in retirement I’d go for the 401(k) as well.
Roths are good to have if you can get access to it via back door or after tax contributions.

 

[Luvtoride]

Being ‘debt free’ is something of a misdirection/illusion I feel.

It does not mean you are expenses free. There is always something to pay. The real goal is to have enough invested to pay all expenses.

In general paying off a cheap home loan means you will have less invested to pay expenses even if those expenses include a mortgage.

It is a phycological decision not an investing decision.

Captain3d, well said. That's exactly how I look at it. I have 2 mortgages (primary home and 2nd home) and I have built in the servicing of those mortgages along with property taxes and 2 sets of household expenses into our "spend" now and in retirement. I personally am comfortable that I will never NOT have a mortgage.

I can understand the psychological benefit to many of not having a mortgage but as long as it fits within your assets and income streams in retirement.

I guess the question comes down to a financial one...where can you benefit from that money more...being in your investment accounts (or as cash balances) or reducing low rate mortgage debt.

 

[Free2BMe]

We live in a wonderful 55+ community. We have been retired for years. Our largest expense was our mortgage. Paying that off and becoming debt free was a great decision for us, both financially and psychologically. Our expenses are so low that even with both of us receiving social security, we pay zero federal or state taxes. It's a personal decision based on your own goals and priorities. BUT it wasn't until we were close to retirement that we paid off the house. Until then, we were in the accumulation stage. Save.. Save.. Save!!

 

[HI Bill]

I'll echo what others have said. Just because the last decade has shown 15% returns in the markets, and low inflation, doesn't mean that you'll automatically end up with $1.7M in some uncertain date in the future. You could lose your job between now and then, you could have a major medical problem, could be divorced, etc. While working, I considered myself a mercenary...working hard and fast, and saving just as hard and fast. You have no idea how long your health or job lasts. All it takes is one big accident (car, fall, etc.) to derail your plans. I'd say that you just just keep investing in the 401K, ROTH IRA, and then taxable.

Having a mortgage used to bother me. Then I realized that between real estate appreciation, and the difference in what my $ earn in the markets versus the 2.6% APR I'm paying, having a mortgage isn't necessarily such a bad thing, especially at such a low rate. Look up the 'snowball effect'. What if you invest, rather than pay off your mortgage, and double your projected nest egg by the time you retire? Your house should be paid off by then, anyway (or close), and you'll have the cash flow to pay the few remaining payments. YMMV.

 

[Koolau]

I'll echo what others have said. Just because the last decade has shown 15% returns in the markets, and low inflation, doesn't mean that you'll automatically end up with $1.7M in some uncertain date in the future. You could lose your job between now and then, you could have a major medical problem, could be divorced, etc. While working, I considered myself a mercenary...working hard and fast, and saving just as hard and fast. You have no idea how long your health or job lasts. All it takes is one big accident (car, fall, etc.) to derail your plans. I'd say that you just just keep investing in the 401K, ROTH IRA, and then taxable.

Having a mortgage used to bother me. Then I realized that between real estate appreciation, and the difference in what my $ earn in the markets versus the 2.6% APR I'm paying, having a mortgage isn't necessarily such a bad thing, especially at such a low rate. Look up the 'snowball effect'. What if you invest, rather than pay off your mortgage, and double your projected nest egg by the time you retire? Your house should be paid off by then, anyway (or close), and you'll have the cash flow to pay the few remaining payments. YMMV.

AND paying off a mortgage in inflated dollars (as it appears is now the case for the immediate future) means YOU are getting a bargain. One inflation "strategy" IS to take out a mortgage to take advantage of this effect. I wouldn't do it and I love NOT having a mortgage, but don't ignore the issue. Do YOUR OWN math as YMMV.

 

[imnontrad]

First of all, I think everyone should plan to have all funds for retirement by at least age 60. My father was disabled at 59 and I lost my job at 60 due to illness and that financial situation relieved all stress.
Also, right now, any money invested will be worth a LOT later on. Investing rather than paying off your home will put you further ahead (pay the house off after ~50 and I have only owned one home that appreciated as the same rate as my investments). I would suggest contributing up to the 401K match. But also fully fund individual Roth accounts and, if offered, put money into a 401K Roth option. Also fully fund a HSA if you have it. And then you might consider more in the 401K or you might also consider investing in a taxable brokerage account to give you even more flexibility.

 

[Murph]

Good idea.

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 did something similar and it worked out well. Also, nothing like that feeling of being debt free.

 

[rmcelwee]

We went one step further and stopped all investing (even stopped getting the match on our 401K) until we paid our house off. It took about 2.5 years and it was one of the best things we have ever done. INT was 8.5% on the house so things are a little different now but I would do it again at these INT rates.

Some things don't translate well to math nerds. Pay off your house, put a smile on your face with less stress and smoother marriage, and invest like crazy when you are debt free. Trust me, you will have plenty of time to invest.

 

[Joe1954]

What should I do ?

I would continue to max out the 401K, and make extra principal payments on the mortgage when able. I found it hard to pass up the opportunity to reduce my annual wages as it helped reduce income taxes. Plus, the money/time/compounding really grew the nest egg.

 

[indiajust]

More is not better. I maxxed out retirement contributions early with STEM career layoffs. About 117k in IRA from 401k rollovers, plus 17k in IRA and 15k in Roth. Today its 905k in a Roth, and I am still 10 years from retire date. Could get 2 more doubles.

You have already won the retirement race. Contribute if you hate paying taxes, but put the rest of the money toward today. Tomorrow is baked.

 

[winyaz]

We paid off our house not long after the financial crisis, while others around us who had taken on extra mortgages were losing theirs. The peace of mind in being debt free is huge. And once the mortgage was paid off I was able to put a lot more money away. Would have put more into a Roth if I had it to do over again.

I think that the argument to keep investing because you can expect higher returns in the market is flawed because it ignores current valuations. Based on current valuations, stock market returns are likely to be zero to negative over the next 10 year period: https://www.gurufocus.com/global-market-valuation.php?#
or
https://interactive.researchaffilia...ed&model=ER&scale=LINEAR&terms=REAL&_k=5r93of

One can argue that the market has returned 10% +/- over the past 10 years and past 80 years or whatever, and so one should expect that over the next 10 years. And one could argue it's all guess work but I wouldn't ignore the current valuations which suggest lower future returns.