Financial Advice Q&A

SKD
Occasional Visitor
SKD
Posts: 1
Question
Pay down mortgage or invest?
[ Edited ]

Should I pay an extra $500 toward principle each month knocking off ~9 years of payments? My current loan is a 30 yr 3% Fixed Rate with 29 yrs left and a current balance of about $388K. I have a $60K/yr gross pension, my current annual income is $107K/gross and no other debt. I plan on working FT for another 10 yrs at which time I'll be 62yo and will retire from my current job receiving another pension of ~$17K/yr gross. My plans are to NOT elect to receive Social Security until 67yo (which will be about $30K/yr gross). My conservative investments in IRAs have averaged 7% per year for the past 15+ years and have a current balance of $450K. Hope this info helps.

Other Answers: 1
Community Manager
JosephMontanaro
Posts: 63

First off, let me say that I like a lot of what I read in your question. It appears like you are well on the way to creating a financially secure retirement.  No debt other than your mortgage. Guaranteed income from Social Security and pensions that will eventually generate a six figure income without touching your retirement investments. All that and you've already got a good start on building a retirement nest egg to supplement your fixed income.

 

This isn't rocket science, but as I see it, you've got two basic tasks as you round the corner into the final stretch to retirement.  First, eliminating your mortgage and second, building your retirement investments.  Now and in the coming years you might want to consider splitting your available cash flow between those two efforts.

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If you look solely at the numbers you could make a case for pouring all your additional cash flow into your investments.  The 7% return you've earned over the years dwarfs the 3% rate you have on your mortgage.  Even incorporating taxes and an expected return of less than 7% given today's market and interest rate situation, this approach would lead you to focus available cash on increasing your retirement investments. 

 

On the other hand, there's nothing quite like reaching retirement with little, or better yet, no debt.  It increases your flexibility and options.  Over the years, the folks that I've worked with who've gotten to retirement without any debt have been about as happy as a group as your likely to see! 

 

So, a little bit of both probably makes sense and as your income increases in the coming years, so too will your contributions to retirement investments and eliminating your mortgage.  I think this balanced approach will work even if you intend to downsize homes at retirement.  I'd also encourage you to incorporate tax diversification in your retirement plan.  Build a retirement portfolio that includes taxable and tax free investment accounts along with traditional pre-tax vehicles.  This is another way to add flexibility to your situation.  Finally, while you didn't call it out specifically, I'm sure you are taking full advantage of any company match offered in your employer's retirement plan. 

 

Keep up the good work.

 

JJ

 

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