The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: stevekc45 on May 09, 2018, 03:32:40 PM
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I apologize as I assume a situation like this has already been discussed. I'm new to the forum and have been debating my below question for a bit and thought I'd ask the MMM community for advice.
My Wife and are 39. We have 1,100,000 invested in VG index funds. 770,000 is in Retirement accounts and the remaining 330,000 is in a brokerage. We owe $150k on our home and have no other debt. Based on rule of 72 we'll likely have $6MM at 60 which will be way more then we need and as i understand it we'll be faced with mandatory withdrawals of around $300k. We are splitting all our extra income between the mortgage and brokerage account and should be done with the mortgage by the end of 2020.
My question: We have been maxing our 401ks out but should we stop contributing to them at this point and focus that money on our mortgage & brokerage accounts to reach FI earlier? I get a 50% match on 6% so might keep doing that but my wife gets no match. What would you do - stop the 401K investments and put the money towards brokerage & mortgage or keep maxing the 401ks?
My Accountant said keep doing the 401ks as we the new tax system is not going to be friendly to us but that is what it is.
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Assuming you have a reasonably low mortgage rate, and the mortgage isn't causing you to lose sleep at night, I'd keep going with your 401ks as is.
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stevekc45, welcome to the forum.
Do you have
...a Roth 401k option?
...an After-tax 401(k) (https://www.bogleheads.org/wiki/After-tax_401(k)) option?
See How to withdraw funds from your IRA and 401k without penalty before age 59.5 (https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/) and Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) for some general thoughts.
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I'd quit putting anything towards the mortgage and max the 401k - using the tools above to get money out when i retired. Following the investment order really nothing should be going into the mortgage assuming you have a low fixed rate - I'm in the KC area too.
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My question: We have been maxing our 401ks out but should we stop contributing to them at this point and focus that money on our mortgage & brokerage accounts to reach FI earlier? I get a 50% match on 6% so might keep doing that but my wife gets no match. What would you do - stop the 401K investments and put the money towards brokerage & mortgage or keep maxing the 401ks?
Welcome Kansas City Steve!
I think sticking with the 401k and investing rather than extra mortgage payments will propel you to FI sooner. Is your goal to be debt free or to reach FI a bit earlier than otherwise?
You only get so much tax-advantaged space. Use it. As mentioned there are ways to access retirement funds prior to normal retirement age and RMDs do not occur until you are 70 1/2.
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Are you taking advantage of a backdoor Roth IRA too?
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Thanks for the welcome and the replies/advice. Our mortgage rate is 3.2 so low. I should have provided more about our motivation in the initial post but the desire to get rid of it is my wife and my strong dislike of debt and the anxiety we get having it. Also, neither of us enjoy our careers but a career change would result in at least a 50%+ pay cut. Lastly, our kids are 1 & 3 and in a couple of years my wife is going to request to go part time or change jobs/careers to be around them more and not having a mortgage makes that easier (or at least us more comfortable with the change).
No we don't have Roth 401k options or after-tax 401k options - i wish!
I'll explore the early withdrawal links ! Thank you for those MDM!
Schmerna, For the backdoor Roth - we are in a high tax bracket and the new changes aren't favorable to us. so from what i understand about Backdoor IRAs now wouldn't be a good time for us to do that. Do you have more info on them you can share on them?
Thanks again for the advice everyone! Based on it, I think we'll keep maxing the 401ks, but keep splitting the surplus between the brokerage and mortgage. I understand from a numbers stand point, leaving the mortgage alone and investing the extra is best but i can't picture myself regretting the decision once the mortgage is gone!
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For the backdoor Roth - we are in a high tax bracket and the new changes aren't favorable to us. so from what i understand about Backdoor IRAs now wouldn't be a good time for us to do that.
What is it that you understand?
Your understanding may be correct if a significant portion of the $770K is in pre-tax IRAs, but one can't tell that....
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Your reasons for dumping a mortgage are normal reasons people state. But paying it down actually decreases your security up until the day it's paid off. But even after it's paid off the only real protection you get is sequence of return risk. Investing money will allow you to reach FIRE faster and allow your wife to go part time sooner in most circumstances. This is a very counterintuitive way to think but based on your goals you'd be working part time and more secure in your faster road to FIRE not paying an extra penny towards the mortgage.
You want to reach FIRE sooner. The best and easiest way to do that is educate yourself and your wife on why holding that insanely low mortgage will jump start it.
We have a club you can check out with some calculors you can use on the last page.
https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/550/?topicseen