And what comes after debt?

[Preston]

So, my last credit card will be paid off at the beginning of March. Yay. Then I have two more non-mortgage debts to pay off and they will be done by the end of the year. While I'm knocking these out I am also building EF. So that will be completed about the same time (I feel more secure this way)

At that point I know the Dave Ramsey plan says to do 15% toward retirement... but I'm looking at my wife and my health and we don't know if we'll live to be that old, but we will plan for it anyway -- right now we are simply doing 6%, since our 401k matches 3%.

See, the problem is our mortgage was bought by Bank of America. I HATE BOA!!! I cannot describe how much I hate these cretins. I could refinance, but I don't want a) risk having BOA buy the thing again b) have closing costs.

But having my hatred toward BoA further pushes me to be intense about paying off debt.

That and with how many variables in the market I don't know what other factors may come into play by then.

So I was thinking, instead of 15% toward retirement, I just keep doing the 401k and start knocking out the mortgage hardcore.

I could refinance to get rid of them, and also in the process drop the escrow account -- which would free up some cash flow to knock at the mortgage even harder.

I don't know -- I'm just thinking maybe I'd feel better in a paid for house instead of having money I may never see again. But then again, there's the tax benefits.

opinions?

[Josephhgoins]

Others don't agree, but the way I see it, paying credit card companies big money in interest is just as bad as paying a bank big money on mortgage interest.

If it was me, I would do whatever possible to get rid of the mortgage.

FYI, A 115,000 house at 5.25% interest rate will be paid for almost twice on a 30 year mortgage.

[2ndGenGranola]

I would aim at the mortgage too AND put away some to pay cash for the next car.

[ladytoysdream]

Get rid of the mortgage asap.

[Greebo]

The reason one invests in retirement before one focuses on paying off one's house is that one does not want to get to age 65, have a paid for house, and have nothing on which to live.

If you are otherwise debt free but cannot both put 15% towards retirement AND pay off your house in 15 years, you either have too much house, or are not trying hard enough.

You can hate BoA all you want - but my recommendation - invest in retirement, then pay down the mortgage enough that you can refinance to a small local bank or credit union.

If you don't live to retirement, your not going to care. If you do live to retirement, you'll regret it if your emotional response to BoA puts you in a place where, at retirement, you're starving to death.

[nodmicks]

Preston could you split the difference? We kind of do. We do 10% to 401K plus dh's bonuses go in there. He has a pension with UPS so we figure 10% is fine for right this second.

We pay extra mortgage principal also. Could you maybe do something similar and split the difference?

[monkeywrangler71]

The choice to pay off your mortgage is no different than the choice to invest in any other vehicle. It is entirely dependent on your personal preference, financial situation, and risk tolerance. From a financial planning perspective, it is fundamentally the same as any investing. If you have a certain amount to invest over a set period of time, you will end up in relatively the same place regardless of whether you pay your mortgage early then save, save and pay your mortgage at the same time, or save and let your mortgage run for the entire term. The only difference is going to be in the rates of returns for your various investments. Paying off your mortgage has a certain guaranteed rate of return based on the interest rate, other investments you choose may have a higher rate of return, or they may be lower.

It is a low risk investment, and it is obviously in line with your personal values. However, the issue that concerns me is your current overall financial situation. Your liquidity requirements are inversely proportionate to your financial stability. Meaning the less stable you are, the more liquid you should be. Now, I am making assumptions about your financial health based solely on the fact that you are currently in debt - if my assumptions are incorrect, then my recommendations are equally so. However, if your current net worth is low - or negative - I would recommend against exclusively paying your mortgage until after you have built up a reasonable level of liquid savings.

Lack of liquidity significantly increases overall risk, and if you have few financial resources to draw on, your risk tolerance should be low. You need money in the bank first, then build a portfolio of increasingly riskier (and/or illiquid) investments which suit your personal taste.

[Preston]

Thank you for your responses.

One hybrid situation was to put 10% into retirement while I put the rest toward knocking out the mortgage. The mortgage balance at the end of the year will be around $78000. This will be at 5% interest rate. May not be as good as 12% on a mutual fund, or whatever, but in all honesty I would rather not have the big payment every month. Once I knock that out I can then pay myself a house payment and put 20% of that into retirement to make up for the time I was hitting the mortgage.

Realistically, I can knock the mortgage out in about 3 years if I push it.

[ladykemma2]

[QUOTE=Greebo;1323514]
If you are otherwise debt free but cannot both put 15% towards retirement AND pay off your house in 15 years, you either have too much house, or are not trying hard enough
QUOTE]

disagree. i am working as hard as i can. i cannot at this time put 15% to retirement in addition to the huge teacher pension money that gets taken out of my check. and have any quality of life.

[Greebo]

[quote=ladykemma2;1323724]

If you are otherwise debt free but cannot both put 15% towards retirement AND pay off your house in 15 years, you either have too much house, or are not trying hard enough
QUOTE]

disagree. i am working as hard as i can. i cannot at this time put 15% to retirement in addition to the huge teacher pension money that gets taken out of my check. and have any quality of life.

What % of your take home pay does your PITI represent on your house?

[ladykemma2]

[quote=Greebo;1323728]

What % of your take home pay does your PITI represent on your house?

560 a month taxes and insuracne and 250 a month sinking fund for upkeep and maintenance. on a 52000 salary

[monkeywrangler71]

disagree. i am working as hard as i can. i cannot at this time put 15% to retirement in addition to the huge teacher pension money that gets taken out of my check. and have any quality of life.

If you go to a real financial advisor they will not give you a cookie cutter percentage amount that everyone needs to save. Instead they would look at your required income at retirement and calculate how much you need to put away to get there.

You need a certain amount of income to maintain your standard of living. Your pension provides some of that income, your savings make up the difference. The amount of your current salary that needs to be put away is something that should be worked out with a retirement calculator, not just by using an arbitrary percentage which could easily be either too much or too little.

[Greebo]

[quote=ladykemma2;1323736]

560 a month taxes and insuracne and 250 a month sinking fund for upkeep and maintenance. on a 52000 salary

52000 salary - is that you alone? I don't know your specifics - married/single, etc. Assuming you're single that's the 25% tax bracket. If you're contributing pre-tax to retirement at 15% then that's $7,800 a year but lets assume you have a Roth you fund first so that's $2,800 a year pre tax (5k later). Taxable income lowers to 49200 - 25% of that is 12300. 560+250 = 9720 a year
52000 salary
-2800 401k
-12300 taxes
-5000 roth
-9720 house
=22180 left

And that's $1,848 per month.

Now I know there's other essentials in there - but I'm curious - what about $1,848 per month isn't enough for "quality of life"?

I mean sure it's not living at the Ritz, but - well I hope your pension plan is really solid. I mean really. As a teacher - being a state employee - I'd be really worried if you live somewhere like, oh, CA, MN, MD, or some of the other really seriously underfunded states right now. I'd be pretending like the pension didn't even exist when it came to retirement planning. Just thinking about the number of people who've lost their secure pensions in the corporate world would set my teeth on edge...

And if you put that 7800/year aside, and invested it in the kinds of mutual funds that have been around 30 years + with > 12% returns since inception, you'd be looking at 25 years down the line having 1.2 million saved up for retirement. Now that's some quality of life!

[ladykemma2]

[quote=Greebo;1323748]

52000 salary - is that you alone? I don't know your specifics - married/single, etc. Assuming you're single that's the 25% tax bracket. If you're contributing pre-tax to retirement at 15% then that's $7,800 a year but lets assume you have a Roth you fund first so that's $2,800 a year pre tax (5k later). Taxable income lowers to 49200 - 25% of that is 12300. 560+250 = 9720 a year
52000 salary
-2800 401k
-12300 taxes
-5000 roth
-9720 house
=22180 left

And that's $1,848 per month.

Now I know there's other essentials in there - but I'm curious - what about $1,848 per month isn't enough for "quality of life"?

I mean sure it's not living at the Ritz, but - well I hope your pension plan is really solid. I mean really. As a teacher - being a state employee - I'd be really worried if you live somewhere like, oh, CA, MN, MD, or some of the other really seriously underfunded states right now. I'd be pretending like the pension didn't even exist when it came to retirement planning. Just thinking about the number of people who've lost their secure pensions in the corporate world would set my teeth on edge...

And if you put that 7800/year aside, and invested it in the kinds of mutual funds that have been around 30 years + with > 12% returns since inception, you'd be looking at 25 years down the line having 1.2 million saved up for retirement. Now that's some quality of life!

you forgot about medicare, pension , insurance, and all the stuff that gets taken out of the check. 1848 - 2( 370) of all the stuff that gets taken out of my check, leaves me 1108 dollars

please note the correction

[Greebo]

No I took federal out. I didn't take out state, ssa or medicare.