what would you do?

[bkmn]

New to this board and I'm wondering what others would do. Two years ago my wife and I had had enough. Our money was slipping out of our hands faster then we could made it. We have followed DR's plan and today we are debt free other then the house. We stopped the 401ks and all other spending to get here. We have a emerg fund of 20k today and both are of the thought why not just keep going, add another 30k to that and pay off our mortgage. That will leave use with almost nothing in the bank but we feel we could rebuild cash quick with no mortgage. I am 51 and my wife is 49. We have a little over 450k in 401k's. And plan to pay for half of our childrens college. The money for that is in the bank and ready when they are. They are 16 and 20. We truly believe we can do this in 8 months. Our combined income is around 140k. Any thoughts?

BKMN

[frugalfriend]

Wow, you guys are really doing great! Way to go! I would definitely put away 3-6 months of expenses FIRST and then go crazy on that mortgage and pay it off! You could still be totally debt free quickly with your income.

[Jamauk]

Welcome to the board and congrats on all of the hard work you guys have done so far!

Personally, I wouldn't want to wipe my savings clean. Maybe leave around 10K or so and throw the rest at the mortgage? Yes, you'll be able to rebuild quickly after the mortgage is paid, but I'd hate for you to pay off the mortgage, wipe our your savings and then have an emergency come up before you've had time to rebuild....

Just my two cents

[Greebo]

I don't think that's what he's saying but rather that he's saying he'd keep his retirement investing on hold to pay off the house.

Frankly, while 450k is good, I'm not sure I'd be comfortable with that amount in retirement funds when you're used to a six figure salary.

And you only have 30k left to pay off the house? That's really great - but at this point its a safe bet that paying it off *faster* will not save you very much in interest costs.

You do not want to get to retirement and have a paid for house and no money - so have you done the math? How long would it take you to pay off the house if you started funding retirement again with 21k a year (15% of gross) - 16k in 401k's and 5k in a ROTH (you aren't over the limit so you should definitely use one).

Thing is - at 51 retirement isn't some long distance goal anymore - your oldest child has more years behind her than you have left till retirement age. You NEED to be stockpiling up some serious savings for your post work years.

I get the desire to pay the house off early - but if you can only save $1,000 or $2,000 extra in interest (I'd need more numbers to tell you exactly how much), that's not worth giving up ten times that amount or more in retirement.

[frugalfriend]

Greebs ~ If it would only take 8 months to do it, still a bad idea? Then all extra money (including previous mortgage pmt amt.) could be directed to retirement.

[rcwso]

Not to jump in but I think they were saying that they had 20K in emergency funds, wanted to add 30K more and then pay off the mortgage. I am not sure they are saying they only have 30K remaining on the mortgage. I thought they wanted to save 30K more and use retirement funds to pay off the mortgage. At least the way I read it. Is that correct and if so, how does that change the plan?

We have a emerg fund of 20k today and both are of the thought why not just keep going, add another 30k to that and pay off our mortgage. That will leave use with almost nothing in the bank but we feel we could rebuild cash quick with no mortgage.

[Greebo]

Assuming my assumption that there is 30k left on the mortgage is correct (to rcwso's point)

Greebs ~ If it would only take 8 months to do it, still a bad idea? Then all extra money (including previous mortgage pmt amt.) could be directed to retirement.

That is a fair point. 8 months probably wouldn't make a huge difference in the end numbers.

Hmm - lets see - he's 51 - assume retirement at 67 so 16 years - or 15 years and 4 months...

Using 10% per year, if we assume only $100/month invested, the 8 months difference starting will be $43,251.00 if they wait 8 months (so 15y4mo investing) or $47,043.64 if they start now (16 yr even).

$100 a month for 8 months = $3,792.64 difference. At their income of $140,000, at 15% gross, missing that 8 months means missing out on $66,371.23 at retirement.

I'm damn sure they won't be saving $66k in interest if they only need 30k to pay off the mortgage.

Ah but the market doesn't return 10% you say? We could argue about that but lets use a lower number. How about 6%? At 6%, at their income level, skipping 8 months is skipping $35,669.17.

Now IF their mortgage is $30,000 - and they have a decent rate - then the most they're paying in interest per year at $300 per point is what, $1,800? MAYBE on a really bad rate $2,100?

So how badly do the investments have to do to make paying the mortgage off early worth it?

Simply put - the investments would have to lose more than 10% a year for 16 years. Just putting the money under the mattress would make them better off at retirement in terms of having income saved up than paying their mortgage off will in terms of saved interest.

Even in the roughest patch we've seen since the great depression, if you STAYED in - if you rode the roller-coaster and didn't jump out at the bottom - you'ld be even with about 2 years ago. The markets have never consistently lost 10% a year for 16 years. Ever.

[bluebuff]

I think you should be able to clear the debt in just 1 year.
Try to figure whats going wrong.

[bkmn]

I would like to clarify some points. In September we will have 50k total in our savings and will use that to pay off our mtg. Then we will begin putting 15% in our 401k each and I will put 6k in my Roth and my wife will put 5k into hers. We will also be putting money in our savings to have cash on hand to live a debt free lifestyle. Thank you for sending us your comments.

[Greebo]

I would like to clarify some points. In September we will have 50k total in our savings and will use that to pay off our mtg. Then we will begin putting 15% in our 401k each and I will put 6k in my Roth and my wife will put 5k into hers. We will also be putting money in our savings to have cash on hand to live a debt free lifestyle. Thank you for sending us your comments.

Do I understand you correctly - you're going to save up and THEN pay your mortgage down?

So - in addition to choosing to lose the benefit of investing now when, according to the DR plan, you *should* be investing, you're also going to deliberately make sure the mortgage costs as much as it possibly can w/o being late on payments?

IF you are determined to pay the mortgage off before you invest, then AT LEAST pay the extra to the mortgage as soon as you are able. Every time you pay a little extra on the mortgage, you compound the savings on future interest so you ultimately pay less.

[bkmn]

Pretty smug there buddy. I really don't see your numbers being as damaging as you claim. Maybe someone on this board thinks your sharp, but I on the other hand I find you rather a bore. My real-estate holdings alone far out weigh any of your trivial blabbering. What a mistake to even post here. I have dealt with this type of know it all and walk away laughing.
May your dreams all come true.

[frugalfriend]

Pretty smug there buddy. I really don't see your numbers being as damaging as you claim. Maybe someone on this board thinks your sharp, but I on the other hand I find you rather a bore. My real-estate holdings alone far out weigh any of your trivial blabbering. What a mistake to even post here. I have dealt with this type of know it all and walk away laughing.
May your dreams all come true.

No, no, no, with all due respect I think you are misreading his post. Greebo only has good intentions and tries to help people on this board. He spends a lot of his time giving people GOOD advice and he is respected here. We all like to tease him a bit, all in fun, but I can vouch that he means well and I back up his advice.

[forHISglory]

To the OP:
What kind of money do you envision needing in retirement? Will you be living where money goes further? Or living where the cost of living is high?

I ask this because I am retired, and had some fears of taking this step in life. But I found, to my pleasant surprise, that retirement living doesn't take as much money, at least for us. You have a wonderful retirement account and savings. Great start! But you have several possible scenarios to think about. And one of those is how you intend to live during retirement. If you plan to live simply, then you can consider directing some of that money towards the mortgage or other debt. If you plan to live with the same outflow as you have today, you need to do some extra thinking. Do stay in touch with your thoughts and decisions!!

[Greebo]

Pretty smug there buddy. I really don't see your numbers being as damaging as you claim. Maybe someone on this board thinks your sharp, but I on the other hand I find you rather a bore. My real-estate holdings alone far out weigh any of your trivial blabbering. What a mistake to even post here. I have dealt with this type of know it all and walk away laughing.
May your dreams all come true.

Um - ok - sure. I mean, I only ran the math for you and showed you the difference. It's difficult to get applicable advice when you don't give a complete picture - you didn't mention other real estate holdings for instance - which I certainly would think would constitute a major portion of your retirement plan that should have been included in your original post. But hey, whatever.

I don't really object to you NOT investing yet - I get the desire to be house debt free. I do wonder why you asked for any opinions at all...

But could you explain to me, you know with my trivial matching income, half a dozen rental units and being 10 years your junior, how it makes ANY financial sense to NOT pay your mortgage earlier? How saving up to pay it off all at once when you could be paying extra every month and thus pay less overall - how does that work?

Or when presented with numbers, is it generally your practice to boast, insult, and wander away?

[NewLeaf]

bkmn,
I have been a member of FV for a couple of years now. I have never seen Greebo do anything other than try to help people out. I think if you go back and read again, you will see that no one here is trying to upset you or put you down. Sometimes we post a question and don't get the answer we want or like - but everyone here just wants to help in a spirit of kindness. I'm just very sorry you felt the need to be so hateful when Greebo was only taking the info you presented and doing his best to offer an opinion (which, btw, you asked for when you posted ).

I hope you come on back and let by gones be by gones.