27 Replies Latest reply on Sep 13, 2013 12:21 PM by DBowman

    Pay Off Mortgage or Beef up retirement

    cyber888
      I'm close to 50 and planning to pay off my mortgage in 3 years, and plan to beef up retirement after mortgage is paid off.  
       
      What have you guys prioritized -  become debt-free or snowballed your pre-tax retirement?
        • Re: Pay Off Mortgage or Beef up retirement
          JerryD
          It was always my goal to eliminate debt while maximizing savings. We paid off our mortgage while I was unemployed to get rid of that uncertainty and to insure a place to live with the need for only taxes and insurance. During the course of the final10 years or more when I was in and out of the job market, I always maximized my retirement savings even when the current employer did not match it. This was easier without the constant cost of a mortgage. Even when I did temp, low paying jobs I always took all of that income and put it equally into a Roth for me and my spouse.
           
          Along with moving to a cheaper area although not even a smaller home in a beautiful location, all of this debt reduction and retirement savings has now made it possible to retire in a comfortable if not extravagant manner.
           
          Planning and discipline can promise a joyful and comfortable life.
          • Re: Pay Off Mortgage or Beef up retirement
            JerryD
            When deciding to play the game of investing while carrying debt, I believe that one needs to be quite sure that they have sufficient reserves for unexpected events whether good or bad. When retired, most of us have very few options for adding to the income and debt is a drain that might jeopardize this.
             
            Regarding investments making 10-16%, fine and good at the moment. The true challenge is to always have investments with good returns, Not always possible when one considers the breaking after the last few market "bubbles". I personally look for investments that: 1) ALWAYS preserve principal, 2)  beat or at least equal inflation (I assume 3.5%) and 3) make a do-able return beyond inflation (I personally picked 5% beyond the 3.5% inflation assumption or 8.5%).
             
            Just my humble opinions on debt and investments.
              • Re: Pay Off Mortgage or Beef up retirement
                I'd like to know why my post was deleted. All I asked was what are the diversified funds that yield 10-16% that Reefguy wrote in his post. I did not delete my own post. I didn't even realize that someone can delete another person's post. I don't think what I asked was in any way offensive or vulgar, so why was it deleted?
                 
                 
                  • Re: Pay Off Mortgage or Beef up retirement
                    JerryD
                    Swishums said...
                    I\'d like to know why my post was deleted. All I asked was what are the diversified funds that yield 10-16% that Reefguy wrote in his post. I did not delete my own post. I didn\'t even realize that someone can delete another person\'s post. I don\'t think what I asked was in any way offensive or vulgar, so why was it deleted?
                     
                     
                    TIAA-CREF is touchy about discussions of specific investments on this site. As I understand, it has something to do with incorporation rules. I have had posts deleted when discussing specific TIAA-CREF services.
                     
                    Did they send you a message explaining? Go to "My Profile" and check. You can also send a message there to the "Community Manager", I believe and ask why.
                    • Re: Pay Off Mortgage or Beef up retirement
                      Swishums said...
                      I\'d like to know why my post was deleted. All I asked was what are the diversified funds that yield 10-16% that Reefguy wrote in his post. I did not delete my own post. I didn\'t even realize that someone can delete another person\'s post. I don\'t think what I asked was in any way offensive or vulgar, so why was it deleted?
                       
                       
                      I attempted to reply in a non-specific manner to Swishums but it was deleted with a message sent to me stating "We appreciate and enjoy your participation in the MyRetirement.org online community. Posts that imply performance yields or returns are not permitted." I certainly did not mention any fund by name. Let's just say that there are several reputable websites out there that publish the rates of return from a wide variety of funds ... including TIAA-CREF funds.
                        • Re: Pay Off Mortgage or Beef up retirement
                          Thanks Reefguy and Jerry D. I got your post Reefguy before it was deleted. Thank you very much.
                          • Re: Pay Off Mortgage or Beef up retirement
                            cyber888
                            Reefguy said...
                            Mortgage rate 4-8%. Yield on decent diversified fund 10-16%. Easy decision.
                             
                            It's not as easy as you make it sound.  Sure my mortgage rate is 3.75% and my stocks are earning 12% .. and I get a tax refund on interest payments ... great!
                             
                            Here's the danger in today's economy.  I'm approaching 50, and there is an age-bias in the workforce.  If my mortgage is paid and I get fired at 55,  I'm not going to be worried.    
                             
                            If I max out my retirement, then I get fired at 55, and I still owe $200,000 on my mortgage and I cannot get my retirement funds without being taxed 20% by federal and 6% by state + 10% penalty.  Not only will I possibly lose my house, but I'd be depleting my retirement pretty fast.  And as you probably know, not many companies will hire 55 yr old people.   Get it ? It's not that easy.   
                              • Re: Pay Off Mortgage or Beef up retirement
                                JerryD
                                Reefguy, your job concerns are exactly what happened to me. At about 50, there were layoffs at a national lab where I had worked for 15 years. I spent the next 10 years in and out of jobs, one year with no earnings. True, I finally made a good amount more than at the lab, but the work wasn't steady. We decided to pay off the mortgage to get rid of the debt so that we only had to worry about taxes and insurance (Oh, plus living and kids in college!). This continued until I threw in the towel and "retired" at 60, living on savings after moving to a cheaper area.
                                 
                                We then both took Social Security at 62 and Medicare kicked in at 65. Still supplementing with savings and waiting for the IRA Required Minimum Distributions.
                                 
                                Several things that we always did concerning retirement were to max out 401k contributions at permanent jobs even if the employer didn't match and contribute every penny to Roth's on temp jobs. At the 401k "opportunities" we always put the money in the most conservative investment that gave us a bit of return but NEVER lost principal. The idea was to absolutely insure that those funds would be there for retirement. Another thing that we did while at the lab was to totally max out all supplemental retirement savings in later years along with another standard 5% required from my income and an almost double that lab contribution. These funds at TIAA-CREF are now our retirement salvation.
                                 
                                Just a few things that we did along with verifying your fears of job lose. Employers are very fast to let go of older, more expensive worker and getting a new job at equal pay when over 50 in my experience was very difficult and frustrating. Good luck!

                                  • Re: Pay Off Mortgage or Beef up retirement
                                    Dard
                                    I lost six-figure paper profits in the dot.com bubble burst and learned my lesson.  I decided to pay off my mortgage instead so I was spared from the next bubble burst.  Now I am sitting pretty with a lot more disposable income each month.  Even if your mortgage is only 3.5%, you cannot get guaranteed investment that will match it.  Pay it off; sleep well. 
                                  • Re: Pay Off Mortgage or Beef up retirement
                                    smaneck

                                     
                                    If I max out my retirement, then I get fired at 55, and I still owe $200,000 on my mortgage and I cannot get my retirement funds without being taxed 20% by federal and 6% by state + 10% penalty.  Not only will I possibly lose my house, but I\'d be depleting my retirement pretty fast.  And as you probably know, not many companies will hire 55 yr old people.   Get it ? It\'s not that easy.   
                                    The retirement funds that are in a 401K or a 403B can be sometimes be accessed at 55 without a penalty as long as long as it is taken out in equal distributions. It is called Section 72(t) distribution. 
                                      • Re: Pay Off Mortgage or Beef up retirement
                                        cyber888
                                        Thanks for the info.  I did a search and it says the 401k or 403B needs to be transferred to an IRA account. 
                                         
                                        smaneck said...

                                         
                                        If I max out my retirement, then I get fired at 55, and I still owe $200,000 on my mortgage and I cannot get my retirement funds without being taxed 20% by federal and 6% by state + 10% penalty.  Not only will I possibly lose my house, but I\\'d be depleting my retirement pretty fast.  And as you probably know, not many companies will hire 55 yr old people.   Get it ? It\\'s not that easy.   
                                        The retirement funds that are in a 401K or a 403B can be sometimes be accessed at 55 without a penalty as long as long as it is taken out in equal distributions. It is called Section 72(t) distribution. 
                                          • Re: Pay Off Mortgage or Beef up retirement
                                            smaneck
                                            You can't do a 72(t) distribution at 55 from an IRA, only from a 401K or a 403b. 
                                              • Re: Pay Off Mortgage or Beef up retirement
                                                cyber888
                                                Thanks Smaneck.  I think the article I read was mistaken then.
                                                  • Re: Pay Off Mortgage or Beef up retirement
                                                    llatman
                                                    What is your interest rate on the remaining 3 years of your mortgage?  You may want to re-finance at todays low, low rates leaving your monthly payments less.  Even if you are now at a low interest rate on your loan, you may want to split the difference.  In other words, pay 1 1/2 times your monthly payment each month,  invest the difference in your retirement fund of what you would have had to pay to close out your mortgage right now, and you will still be done in less than18 months instead of three years, with more in your retirement fund.
                                                      • Re: Pay Off Mortgage or Beef up retirement
                                                        cyber888
                                                        Hey Llatman.   My mortgage rate is at 3.75%, and I am refinancing it at 3.0% now with a 10-yr ARM and I am scheduled to close next week.  This will free up some money. 
                                                         
                                                        I will continue to pay extra for my principal  and was thinking of putting up also some extra cash for my TIAA-Cref retirement account.  Problem is - the market's overheated right now.  So I'll probably wait till there's some pull back during summer and I will add to my 403b.
                                                    • Re: Pay Off Mortgage or Beef up retirement
                                                      cyber888
                                                      Hey Smaneck.

                                                      If you do a 72t distribution and the distribution is less than $17,000/year ..... For a married couple,  if you make less than $17,600  in 2013, you're NOT suppose to pay federal taxes. 
                                                       
                                                      So, are you free from Federal Tax if the $17,000 distribution is your only source of income (I'm pretty certain withdrawing from bank savings do not count, except for interest rate income of course).  Thanks.  
                                              • Re: Pay Off Mortgage or Beef up retirement
                                                Sharon
                                                And where do you get 14-16% when your funds loose HALF their value in 2007?  Some of us may not live long enough to regain...or had to live on what money was left.  Paying off your house...makes more sense  so at least you have a place to live!
                                                  • Re: Pay Off Mortgage or Beef up retirement
                                                    smaneck
                                                    The best time to invest in equities was between 2007-2012. I'm investing a bit more conservatively than before. My retirement funds have not only recovered, I now have twice as much as I did before the crash and three times as much as I had at the bottom of the market. That's because I dumped every penny I could spare into retirement while the market was down and invested aggressively. But I'm too close to retirement now to take another hit, I did some extensive rebalancing last month. 
                                              • Re: Pay Off Mortgage or Beef up retirement
                                                Sharon
                                                How do you know an investment is any good?
                                                My TIAA CREFF funds have lost and gained but overall come out ahead.
                                                My husbands investments in stocks have lost more than gained over the past 10 years. Very depressing.
                                                Paying off our house seems the only sensible thing as its interest is 6% and having to live on social security isn't easy (we really don't want to spend all our retirement since we aren't even 70 yet.)
                                                You have such common sense and have done so well even in and out of jobs.
                                                How do you understand it all?
                                                  • Re: Pay Off Mortgage or Beef up retirement
                                                    JerryD
                                                    Sharon, thank you very much for your comments. I have made BIG mistakes in the past, including assuming that an investment adviser cares more than I do about our money. My interest in investing started when I worked at an investment banker that evaluated investment performance for the largest companies. Although I did not do the analysis work I got the "bug" and a few formulas that I could understand. I spent decades working on investment software and reading advice I purchased. I spent too many weekends with a sick feeling in the stomach as I watched the latest mutual funds go up and down. The drop in 1987 scared me away for 10 years or more. It was only when the jobs got scare and retirement got closer that I got a hold of myself regarding investing.
                                                     
                                                    One of the best things that ever happened to investors are ETF's. These provide broad diversification and access to the market when needed.  Since TIAA-CREF accounts closely mirror ETF's and I got really tired of trying to figure out the best choices among 10,000+ mutual funds, we consolidated all of our retirement funds there. This provided a small number of choices that do very well (at least well enough for more conservative, long-range goals) that we can understand pretty well.
                                                     
                                                    I work on a small number of investment goals and even wrote them down which insures that I understand them. Among these are:
                                                     
                                                    - Invest your own money for the long-term.
                                                    - Never lose principal.
                                                    - Always at least beat inflation if you can (I picked 3.5% as the long-term inflation rate).
                                                    - Aim for a modest but doable minimum long-term return (I picked 5% above inflation or 8.5%).
                                                    - And very important, know when you will sell an investment and why you will stay away until you buy it again (we stayed out of one of our primary investment accounts for over 2 years while getting roughly inflation returns until it was again attractive).
                                                    - Don't try to time markets at the absolute bottom (make sure it is really going up) or cross your fingers at the top hoping that it will recover (keep in mind that a 1/3 loss means you need to gain 50% and a 50% loss requires a 100% gain just  to BREAK EVEN)
                                                    - Trade as little as is needed to maintain the above goals.
                                                     
                                                    I don't believe in investment allocations as a simple way to protect you during bad times like 2008-09. An opportunity is an opportunity and it may come infrequently so you need to act even when others have just realized they lost a bundle and missed that this means a really good opportunity if their "powder was dry" (read Warren Buffet on this). On the other hand, an opportunity going bad means get out and ignore those that will call you a "market timer".
                                                     
                                                    I don't profess to be a great investor, but knowing yourself will help you to reach your goals, if realistic, and helps you sleep better at night. Good luck, Sharon!!!
                                                     
                                                    PS: I would like to add: Monitor, monitor, monitor. Not for trading but for rare opportunities and whether you are maintaining your goals.
                                                      • Re: Pay Off Mortgage or Beef up retirement
                                                        Sharon
                                                        Thanks so much.
                                                        Guess that means I have to get off the couch and get involved in what to invest my money in.
                                                        Paying off the house is still my highest priority.
                                                        And I'm lucky I put money into 5% CD's but they are coming due soon.
                                                        The stock market crash of 2008 really messed us up, but we are getting back, like you.
                                                        Loosing our jobs (school closing and business closing) sure didn't help when we were already in our 60's Had planned to work till I was at least 70.
                                                        But having grandkids keeps us busy and happy and life is good.
                                                        Miss teaching but don't miss the report cards or talking with parents, just the kids learning and loving. And I get that with grandkids.
                                                        Don't miss getting sick all the time catching everything they have either.
                                                        I watch Suze Orman on TV and she has helped with just spending less, finding priorities, and living frugally.
                                                        Thanks for all your good advice.  So glad you spend the time and energy to make life pay.