The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: hammiehaack on March 26, 2014, 12:11:07 PM
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I'm 46. I plan to retire at 55. I have a nice pension and about $40,000 in cash and 457 Plan. Not much, I know.
Our house has a current market value of $220,000. We owe $106,000. We currently have $114,000 in equity. We have a 15 year mortage at 3.25%. Other than this we are debt free. I am currently making extra payments on the principal so that we would have the mortage paid off in 9 years or the year 2023 which is the same year I plan to retire.
However, I could be paying enough in payments to pay the mortage off in five years and then invest what would be equal to that payment in the 457 Plan until the year 2023 when I retire. Also, we would then sell the house and build another at a much lesser price (my husaband is a sub-contractor and would do most of the work) and then invest the remaining profit which would be about $100,000 +.
Or should I invest the extra payment amount in my 457 right now?
Also we have the option of sellin and building anytime before or after retirement, too.
Oh gosh, what should we do?
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Use more of your pre-tax dollars to generate greater income for your retirement in your 457 rather than using after-taxed dollars to pay off a tax deductible mortgage. Missing out on 9 years of compounding dividends and interest could mean thousands in potential lost retirement income. Your 3.25% mortgage is the perfect inflation hedge against the bank/mortgage co. (3.25% interest rate minus 2% annual inflation=1.25% mortgage, and then on top of that with the tax deduction you pretty much have a free mortgage) Unless you sleep better at night knowing your own your home, then go for it. But, you can earn much more sustainable passive income from investments (like your 457) than your cheap mortgaged home you live in that doesn't pay you any money.
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DON'T pay off your 3.25% mortgage. Invest in your 457 and any other tax deferred accounts you can.
The ONLY time (in my opinion) that paying off a mortgage with favorable terms should be considered is the day before you enter retirement as a cost-cutting measure.
If you can build a smaller, cheaper house NOW and sell your giant, illiquid money sink, do it. That's what I'm getting ready to do.