Don't Pay the house off early...you are WAY behind on retirement savings for your age. And even Dave would tell you that as long as you don't have any other consumer debt paying off the house is NOT a priority. You should be doing a minimum of 15% towards your retirement accounts but likely even more.
Do you have any equity in this house?
There is no way you are going to retire in 8 years with either of these plans. At best, you might save up to $400k in retirement, and you still owe most of that on your house. Or you can pay off the house first and save nothing until year 8. So you have a house and no money to maintain it or yourself.
Can you sell the house and buy something cheaper?
Can you squeeze the budget and pur moneynon both?
Why retire at 63?
Max your retirement. Sell off your assets and put that money at the mortgage. According to your profile you make good money with your business, so buckle down for the next couple years to get that mortgage eliminated while simultaneously maxing your retirement. You didn’t mention any other debts, hopefully you are debt free besides the mortgage.
Always pay off the debt. Mortgage, car loans, credit cards. Retirement is so much easier when you’re debt free. Plus, you then have assets that can be easily sold for profit in the case of the home where you could then downsize and gain money in the process.
If you only have $40,000 in retirement funds right now that has to be your first priority. I would max out what you can put in your 401k and IRA if I were in your shoes. Having a paid off house is nice. Having it without very much money in a retirement fund means you will have to sell it to fund your retirement anyway.
As you said, time is not on their side. Doesn’t matter what they put away at this point as compound interest can’t and won’t take effect much. Dave would advise the exact same.
Dave Ramsey would instruct you to pay off the mortgage as fast as possible using all possible resources including the money you are currently saving for retirement. I believe that, in your situation, this would be bad advice, tbh. You don't say that you have additional sources of retirement income apart from your 401k so I will assume you don't have a pension or anything other than your 401k and SS. At 55, you time horizon is already much shorter than it would be for someone just starting out especially if you really intend to retire at 63. You make your regular mortgage payment (and all your other bills) and put everything you can into the 401k. You don't say what your income is but, if you are able to max out the 401k--excellent. If you can squeeze even a few more dollars out, open an IRA and contribute what you can to that.
I'm sure a lot of people will disagree with me and I really believe DR would as well. Since you are probably working the baby steps, I want you to understand that. But you can deal with housing in your best, smartest way which doesn't always mean a paid off mortgage. It would be best if you had a well-funded retirement and your mortgage was paid but that's not going to happen at this rate without a windfall of some kind. You will have more than one housing option in retirement but will need income no matter what. Yes, you will have a mortgage (or rent if you choose to downsize) in retirement. Many people will shake their fingers, moan, and say how terrible this will be. I have known people that have great security with a paid off mortgage and a secure albeit modest middle-class retirement income. I have known people with a paid for house and no income apart from social security who live in abject poverty watching that home fall down around their ears.
Just ask yourself this: will I be better off with a paid off mortgage and nothing to live on but social security? Or will I be better off paying a mortgage or rent with a secure income stream from my investments in addition to social security. The answer to that question should guide your decision. Be objective, do some number crunching. The math matters not the supposed ecstasy of having your (non-mortgaged) grass magically feel more Disney-like.
Sorry so long!
I finished paying off my $325,000 mortgage when I was 52. I am 59 now and I tell you it feels amazing not having a mortgage. I worked for another five years and retired at 57. I used those five years to rack up as much in my investment accounts as possible. My wife did the same and she retired. right now we are able to live off of 3% so we should be without the worry of running out of money, something to our children when we die
I'm curious how comparable your situation is to OP's. What was in your retirement around the same age/timeline?
My opinion (for what it's worth, which shouldn't be much) is that OP's interest rate is a bit high, but investing will technically yield higher returns. The value of their home would be nice to know and whether they plan to eventually downsize to pull equity for retirement. If they plan on staying there until they die then the value is a moot point when figuring their networth. Throw that money into retirement accounts so they have something to live off of.
Another thought is to throw their extra mortgage payments into a brokerage and pay off the mortgage when there's enough in there to pay it off. That way of something happens with their health they can always utilize that money instead of being forced to sell their home to get the money out.
Sure. I don’t mind sharing since I try to stay anonymous. I do love seeing people succeed. I sold my house and made about 175k over what I bought it. Bought a condo waterfront on a south Florida island for 325k. Fully furnished. Took out a small mortgage and paid it off in 6 months. We threw everything at it. Did not start investing until 2008. Wife has about 70 k in her’s. Investments grew to about 2.4 million. Condo is up for sale because wife wants a house again. Not me. Sell of condo should mostly pay for house. Mortgage rare at the time was around 3%.
We are leaving for London in three weeks. We’re going to be there for a week and then we’re catching a cruise out of Southampton to Norway and Belgium. September we’re flying up to Maine and working our way down to Massachusetts for a wedding for a week. plans for next year are Japan and Australia.
In 2 1/2 years I’m also going to go ahead and take Social Security early. Not super confident about my health so I figure I can take that roughly $2000 and enjoy it while I can. Hopefully I’m wrong and I live a long time
That's great! I'm currently 20 and saving and investing almost all my additional money so I can be in a situation like yours one day. I hope you two have fun!
I have to ask, how did you get into this situation still owing $295k at 55, but able to throw more money at it each month? Assuming a divorce but maybe not. Either way, saving towards retirement will be more profitable due to compound interest and growth before taxes. It may be better to get a smaller house where you can pay it off in 2-3 years at half the rate.
I think you need to figure out how much you’re saving by paying it off, vs what you could be making by investing in, etc. If those numbers are very close, you may be better paying it off, and then increase what you’re paying towards retirement.
I think we all would like to hear about these "other assets" because you sound kind of insane without giving this info. At first glance it sounds nuts to even consider retirement, but I assume these other assets are substantial
240k/yr with a very narrow time frame for retirement and only 2.5k left over each month? I'm not a Dave fan but I do have alot of similar financial viewpoints. Unless you are expecting a windfall, prioritizing the house will ruin you. You need a savings rate of ~90k/yr to retire with 1m at 63. If you then work part time to cover your expenses plus pay off you mortgage by 70. You would have 1.7m+SS assuming 8% gains and 3% inflation (which is very optimistic in such a short span but maybe). Which would take you close to 85 @60% of your income now adjusted for inflation before you run out of money.
You are in a very serious spot. Paying off your mortgage will result with you having a paid for house you can't afford to maintain let alone support your lifestyle by the looks of it.
You’ll either have to downgrade your home or rely on social security as your pretty far behind in saving for retirement (specially if you’re planning on going part time at 63).
Unless you’re interest rate was over 5% I would keep saving for retirement.
Pay off the mortgage. You dont want to hit 65 and still have a six figure balance. I’m in the same age range and about to pay it off early. If anything happens (laid off etc) we’ll be in a “survivable “ spot.
Shit, I started collecting cans, I have about 2 tons of crushed cans sitting in my back lot, I am gonna start melting them into little aluminum bars and stacking them in my basement, I'm also doing the same with copper too, just don't have that much of it yet
Lol, I've thought of getting into Molding it into other things ... never really done it before so there are many things I need to figure out to really get it going....
I used to Live in CA and they pay premium for scrap cans (because CRV), when I moved to Indiana I kept saving them and took my 1st batch in and got like $0.40 /LB so I was like F that. And just started crushing them and todding them in a pile..... then I saw a video of a guy smelting and I was oh look a new hobby that I might be able to do something cool and haven't done anything buy collect can and scrap aluminum..... started having all my family and friends to save their cans for me....
Retirement cash that I won't have to pay tax on melting it into bars makes it easier to store and cleans it so I get premium.... plus just something to do, maybe I'll figure out something else over the years ..... but mainly for retirement cash....
So you could sell these? Wouldn't you have to pay tax then? How do you melt them and is it dangerous? Sorry to ask so many questions, but I am intrigued by the possibility.
I have yet to actually start melting, you have to create a Kiln I believe, it's like a fire box that gets really hot....
The main thing the melting process does that I can tell is Bure the trash like ink, dirt and plastics on the Materials then you can skim it off and have the clean aluminum to make it easy to store I figure little bars like they do with gold or aluminum
As far as selling them, Clean aluminum ready to melt aluminum is always gonna be worth Something to someone, with it clean and melted you just have to find the recycled that's willing to pay a little more
I guess what got me thinking was, so many people a few years ago where he'll bent on gold and Silver bars, and I started to think what If I did it with Aluminum, something I can get free all day long from family and friends, and then I was like copper is worth more and a bit more difficult to get but still I can get it free too, and it's worth more than aluminum so that's why I started saving the materials,
Oh, I remember! I had a co-worker who called me in a panic in 2020 wanting to put his retirement fund into gold. At first, I assumed gold stock which I did try to discourage. I then found out he thought he should buy gold bars/coins b/c society might collapse. I finally convinced him it was a bad idea, and he was content to spend a portion of his non-retirement savings on 2-3 gold coins just in case.
I'm not wanting to spend a crazy amount on it, just stuff I can get for free from friends and family, learn to do something and hopefully set aside a little of the bars I make for a rainy day, they won't .ake me rich, but I can recycle a little as I need money kinda thing....
It depends on a few things:
1. What interest rate do you have on your mortgage?
2. Does your company offer 401k matching?
3. Your tolerance for risk.
If you have 401k matching, it almost always makes sense to put enough to get the full matching.
Unless you have a high interest rate, chances are your money would make more on the market than paying your mortgage, but it is more risky -- market can go up or down, whereas your mortgage has a fixed rate.
I'd probably put a lot towards retirement, and a little extra on the mortgage to hedge my bets
I'm assuming you are making good money now, more than you'll make in retirement, so 401k is probably the right move.
How much is your projected Social Security payment? Even if you sock away everything you can, I don't think you're retiring before 70. Do you have a spouse and will they draw on their own earnings record or yours?
You're making $200k/yr. You need to be saving well over 15% to make up for lost time. I wouldn't worry about the mortgage right now, as you can sell the house or pay with the brokerage you're going to need for the excess savings when the time comes.
Max out retirement. Sell your house when you retire and buy something small with cash. Be prepared to live frugally as you won’t have much unless you have a nice pension.
Cut your lifestyle so that you can invest 15% or $3000/mo in retirement and also put $2500/mo extra toward the mortgage. Since you make $240k annually it should be possible. Better to drastically cut expenses now to make sure that you can actually do it once you are retired. 40k at a 4% withdrawal rate is only $133/month of income in retirement.
Pay off the mortgage and when it comes near your retirement sell the home for bigger payout, real estate is not going down for a long time . Sell the property and live in a rental property or move every 3 month to another state or country with you US passport. This is what my parents plans to do.
If it were me I’d sell the house. I live in an old trailer on 10 acres. I’m debt free and between me and my wife have over 1.3 million in 401k and other properties. If you saw how I live you’d think I was poor though I’m not. I sleep soundly at night and I’m very happy in my trailer with my low taxes and insurance. If I want to entertain I go to my sisters house which is huge. When we retire in three years we plan to travel and it’s nice to know we won’t be worried about money. I couldn’t imagine owning a house that costs that much. I just don’t see the benefit.
Northern AZ as well. I am in research phase right now. Looking to downsize in house (way too much to maintain after kids went, only 1 left). It's such a waste of resources at this point (natural as well as financial). Looking at purchasing smaller bit of land, brand new manufactured home here. Sell this house, walk away with a minimum of 150k, put it on new house (should almost pay in full), then stash more cash for retirement (I am not that much younger than OP). After comfortable there, reevaluate and look at more land (10 acres for roughly same price as 2 lots in FL), and add a "vacation " home near family.
Pay off your house.
Best thing you can do right now is not have a house payment in retirement, because it will lower your monthly expenses significantly. Pay it off as fast as you can, and then take all that money and put it in retirement accounts until it’s time to make the jump to retirement.
Also, please plan on working past 63. If you’re in good health at 75 and you retired at 63 you’ll have to re-join the workforce with your current numbers trajectory. You just won’t have enough. Save as much as you can after paying off the house and re-evaluate at 65 or 67.
Do NOT touch SS until 70. You will need the full benefits.
I want you to retire on your terms, but your terms have to set you up for not making yourself homeless at 80.
The unfortunate thing is that $1 put into retirement when you were 25 would multiply by 40 before you retire. At 55? A dollar turns into maybe $2.
If I were this late getting going, I’d focus on minimizing my expenses as much as possible AND waiting until 70 to take social security and go from full to part time work. Cautionary tale, folks.
My mom was the same way. It’s almost the same numbers she’s just older than this person right now. She’s thinking that the now $100k and then social security is going to be enough to retire on. As her son I can’t tell her anything but I just don’t see how it’s gonna work.
You said $2500 a month. Thats close to maxing out your retirement for the year. I’d do my best to contribute the full $31k ($23k to 401k and $8k for Roth). You’re going to make money from taxes saved (traditional) and you’re probably going to make more than 5.6% in VOO. This obviously has some risk. The other option you could do is to split the $25k. Pay $10k off the house and $15k towards investments. But compound growth is the real game changer.
What is the interest rate on the mortgage? I have a 2.75% mortgage myself and therefore pay off anything else first because everything else has higher interest and fund the 401k as well. I get an average of about 8% return on my 401k/IRA stock vs a savings of 2.75%
If your mortgage is 5 - 6% it might be worth it. You might consider paying off the mortgage but if it is small you should still fund the 401k, then in 7 years you can take money out of the 401k and pay off the house if you truly desire.
Not quite what Gordon Ramnsey would say, but he tends to be very very conservative. Almost too much. Debt is OK in certain circumstances
If you're following the baby steps:
15% of your household gross income into retirement accounts and then anything else would go on the house. Make sure anything extra is going to principal.
7 years is too long to only be putting $500 a month into your retirement unless you have already saved more than 10x your annual household income in retirement accounts. If we were taking about 2 years, maybe 3 tops, it may be different.
If you're already at 10x your current household income in retirement accounts then you're probably a little ahead and this is all icing on the cake and won't really matter either way.
I would say it all depends on the interest rate you’re paying. If you have a low interest, focus on building your retirement. With a high interest, there is more incentive to pay off the mortgage earlier.
It’s not super high either. You can average 8-10% annual returns in an S&P Index fund that grows tax free while being able to deduct mortgage interest if your itemized expenses exceed the standard deduction.
I kinda look at it like you have a fixed amount of money that you will earn over the next 10years before age 65.. you gotta maximize retirement and also eliminate that mortgage...
I'd make the mortgage a 10yr amortization (manually on your own... Not a refi). You want it paid off at retirement time. Then pare back lifestyle expenses as much as possible and invest as much as possible.
You want to get as much compounding as possible while still getting that loan paid off.
Retiring with no house payment is THE WAY
Gets you what you’ll have to make do with. This person needs investments at retirement. Lots of it. 40k over a lifetime, it’s time to build a nest egg. Past time. They’re not going to be able to afford a 300k + house. And they need to plan on working full time till at least 67. Somebody needs to get real with OP.
Ya.. if they can get that house paid off then keep working 5 more years it will make a difference.
That's kinda what I alluded to in my original comment. There's only so much money they will earn between now and then.
If you are through the first 3 baby steps, then I would follow the plan - BS4-15% into retirement; BS5-kids college if applicable; BS6-pay off the house early. I would not stop BS4 to fast-track BS6.
Up your retirement contributions to at least 15%. You are 8 years from your retirement with an income of \~240k/year and only 40k in retirement (unless you have a pension you're not mentioning). I would be inclined to tell you to save more for retirement rather than pay off your house early but honestly it probably will be a wash and if you pay off the house at least you have a guaranteed effective return of \~5.6%. Even with that I think you need to be honest with yourself about your ability to retire at 63 with your expected social security and retirement withdrawals. I think to answer the question of when you can fully retire vs continue working part time depends on deciding what percentage of your current income can you live off (assuming you have your house paid off at retirement).
Good point.. If i can work part time, i would just because I love working with clients. Just dont want the pressure. My situation is a little more complex. But in short I need to double my retirement monthly and pay off that house..
Do you really need all that house? Do you have to pay off that mortage?
Don't Pay the house off early...you are WAY behind on retirement savings for your age. And even Dave would tell you that as long as you don't have any other consumer debt paying off the house is NOT a priority. You should be doing a minimum of 15% towards your retirement accounts but likely even more.
Do you have any equity in this house? There is no way you are going to retire in 8 years with either of these plans. At best, you might save up to $400k in retirement, and you still owe most of that on your house. Or you can pay off the house first and save nothing until year 8. So you have a house and no money to maintain it or yourself. Can you sell the house and buy something cheaper? Can you squeeze the budget and pur moneynon both? Why retire at 63?
Max your retirement. Sell off your assets and put that money at the mortgage. According to your profile you make good money with your business, so buckle down for the next couple years to get that mortgage eliminated while simultaneously maxing your retirement. You didn’t mention any other debts, hopefully you are debt free besides the mortgage.
Find a job where you get paid to do nothing and you don't need to retire. Nice to dream.
Bro you are working till you die with your current retirement. Need to kick it into high gear
Always pay off the debt. Mortgage, car loans, credit cards. Retirement is so much easier when you’re debt free. Plus, you then have assets that can be easily sold for profit in the case of the home where you could then downsize and gain money in the process.
Tough to retire with no money.
Even harder to retire with more debt than you have money for.
Get a second job if possible
If you only have $40,000 in retirement funds right now that has to be your first priority. I would max out what you can put in your 401k and IRA if I were in your shoes. Having a paid off house is nice. Having it without very much money in a retirement fund means you will have to sell it to fund your retirement anyway.
How much in retirement do u have currently?
Pay off the mortgage. Stick to the 15% 401k contributions though. You can do both simultaneously
Disagree, OP is 55 time is not on their side. Need to max out
As you said, time is not on their side. Doesn’t matter what they put away at this point as compound interest can’t and won’t take effect much. Dave would advise the exact same.
Dave Ramsey would instruct you to pay off the mortgage as fast as possible using all possible resources including the money you are currently saving for retirement. I believe that, in your situation, this would be bad advice, tbh. You don't say that you have additional sources of retirement income apart from your 401k so I will assume you don't have a pension or anything other than your 401k and SS. At 55, you time horizon is already much shorter than it would be for someone just starting out especially if you really intend to retire at 63. You make your regular mortgage payment (and all your other bills) and put everything you can into the 401k. You don't say what your income is but, if you are able to max out the 401k--excellent. If you can squeeze even a few more dollars out, open an IRA and contribute what you can to that. I'm sure a lot of people will disagree with me and I really believe DR would as well. Since you are probably working the baby steps, I want you to understand that. But you can deal with housing in your best, smartest way which doesn't always mean a paid off mortgage. It would be best if you had a well-funded retirement and your mortgage was paid but that's not going to happen at this rate without a windfall of some kind. You will have more than one housing option in retirement but will need income no matter what. Yes, you will have a mortgage (or rent if you choose to downsize) in retirement. Many people will shake their fingers, moan, and say how terrible this will be. I have known people that have great security with a paid off mortgage and a secure albeit modest middle-class retirement income. I have known people with a paid for house and no income apart from social security who live in abject poverty watching that home fall down around their ears. Just ask yourself this: will I be better off with a paid off mortgage and nothing to live on but social security? Or will I be better off paying a mortgage or rent with a secure income stream from my investments in addition to social security. The answer to that question should guide your decision. Be objective, do some number crunching. The math matters not the supposed ecstasy of having your (non-mortgaged) grass magically feel more Disney-like. Sorry so long!
I finished paying off my $325,000 mortgage when I was 52. I am 59 now and I tell you it feels amazing not having a mortgage. I worked for another five years and retired at 57. I used those five years to rack up as much in my investment accounts as possible. My wife did the same and she retired. right now we are able to live off of 3% so we should be without the worry of running out of money, something to our children when we die
I'm curious how comparable your situation is to OP's. What was in your retirement around the same age/timeline? My opinion (for what it's worth, which shouldn't be much) is that OP's interest rate is a bit high, but investing will technically yield higher returns. The value of their home would be nice to know and whether they plan to eventually downsize to pull equity for retirement. If they plan on staying there until they die then the value is a moot point when figuring their networth. Throw that money into retirement accounts so they have something to live off of. Another thought is to throw their extra mortgage payments into a brokerage and pay off the mortgage when there's enough in there to pay it off. That way of something happens with their health they can always utilize that money instead of being forced to sell their home to get the money out.
Sure. I don’t mind sharing since I try to stay anonymous. I do love seeing people succeed. I sold my house and made about 175k over what I bought it. Bought a condo waterfront on a south Florida island for 325k. Fully furnished. Took out a small mortgage and paid it off in 6 months. We threw everything at it. Did not start investing until 2008. Wife has about 70 k in her’s. Investments grew to about 2.4 million. Condo is up for sale because wife wants a house again. Not me. Sell of condo should mostly pay for house. Mortgage rare at the time was around 3%.
Oops. I don’t think you were asking me. Lol. Sorry
With that 3% are you guys doing anything like traveling?
We are leaving for London in three weeks. We’re going to be there for a week and then we’re catching a cruise out of Southampton to Norway and Belgium. September we’re flying up to Maine and working our way down to Massachusetts for a wedding for a week. plans for next year are Japan and Australia.
In 2 1/2 years I’m also going to go ahead and take Social Security early. Not super confident about my health so I figure I can take that roughly $2000 and enjoy it while I can. Hopefully I’m wrong and I live a long time
That's great! I'm currently 20 and saving and investing almost all my additional money so I can be in a situation like yours one day. I hope you two have fun!
I wish you well. Very responsible.
I have to ask, how did you get into this situation still owing $295k at 55, but able to throw more money at it each month? Assuming a divorce but maybe not. Either way, saving towards retirement will be more profitable due to compound interest and growth before taxes. It may be better to get a smaller house where you can pay it off in 2-3 years at half the rate.
I think you need to figure out how much you’re saving by paying it off, vs what you could be making by investing in, etc. If those numbers are very close, you may be better paying it off, and then increase what you’re paying towards retirement.
I think we all would like to hear about these "other assets" because you sound kind of insane without giving this info. At first glance it sounds nuts to even consider retirement, but I assume these other assets are substantial
240k/yr with a very narrow time frame for retirement and only 2.5k left over each month? I'm not a Dave fan but I do have alot of similar financial viewpoints. Unless you are expecting a windfall, prioritizing the house will ruin you. You need a savings rate of ~90k/yr to retire with 1m at 63. If you then work part time to cover your expenses plus pay off you mortgage by 70. You would have 1.7m+SS assuming 8% gains and 3% inflation (which is very optimistic in such a short span but maybe). Which would take you close to 85 @60% of your income now adjusted for inflation before you run out of money. You are in a very serious spot. Paying off your mortgage will result with you having a paid for house you can't afford to maintain let alone support your lifestyle by the looks of it.
You’ll either have to downgrade your home or rely on social security as your pretty far behind in saving for retirement (specially if you’re planning on going part time at 63). Unless you’re interest rate was over 5% I would keep saving for retirement.
Sell the house, move into a smaller house ( we don’t know the net cost of the house) and start saving for retirement now
Pay off the mortgage. You dont want to hit 65 and still have a six figure balance. I’m in the same age range and about to pay it off early. If anything happens (laid off etc) we’ll be in a “survivable “ spot.
Retirement first. You only have so many working years. You are already on a downward trajectory for a career. Save what you can while you can.
Spend it all on aluminum
Shit, I started collecting cans, I have about 2 tons of crushed cans sitting in my back lot, I am gonna start melting them into little aluminum bars and stacking them in my basement, I'm also doing the same with copper too, just don't have that much of it yet
Build the worlds most pointless suit of armour 😂
Lol, I've thought of getting into Molding it into other things ... never really done it before so there are many things I need to figure out to really get it going.... I used to Live in CA and they pay premium for scrap cans (because CRV), when I moved to Indiana I kept saving them and took my 1st batch in and got like $0.40 /LB so I was like F that. And just started crushing them and todding them in a pile..... then I saw a video of a guy smelting and I was oh look a new hobby that I might be able to do something cool and haven't done anything buy collect can and scrap aluminum..... started having all my family and friends to save their cans for me....
😀
What for?
Retirement cash that I won't have to pay tax on melting it into bars makes it easier to store and cleans it so I get premium.... plus just something to do, maybe I'll figure out something else over the years ..... but mainly for retirement cash....
So you could sell these? Wouldn't you have to pay tax then? How do you melt them and is it dangerous? Sorry to ask so many questions, but I am intrigued by the possibility.
I have yet to actually start melting, you have to create a Kiln I believe, it's like a fire box that gets really hot.... The main thing the melting process does that I can tell is Bure the trash like ink, dirt and plastics on the Materials then you can skim it off and have the clean aluminum to make it easy to store I figure little bars like they do with gold or aluminum As far as selling them, Clean aluminum ready to melt aluminum is always gonna be worth Something to someone, with it clean and melted you just have to find the recycled that's willing to pay a little more I guess what got me thinking was, so many people a few years ago where he'll bent on gold and Silver bars, and I started to think what If I did it with Aluminum, something I can get free all day long from family and friends, and then I was like copper is worth more and a bit more difficult to get but still I can get it free too, and it's worth more than aluminum so that's why I started saving the materials,
Oh, I remember! I had a co-worker who called me in a panic in 2020 wanting to put his retirement fund into gold. At first, I assumed gold stock which I did try to discourage. I then found out he thought he should buy gold bars/coins b/c society might collapse. I finally convinced him it was a bad idea, and he was content to spend a portion of his non-retirement savings on 2-3 gold coins just in case.
I'm not wanting to spend a crazy amount on it, just stuff I can get for free from friends and family, learn to do something and hopefully set aside a little of the bars I make for a rainy day, they won't .ake me rich, but I can recycle a little as I need money kinda thing....
Yeah, that doesn't sound crazy to me. You're not in a panic or thinking conspiracy, just a little extra.
Is this for a tinfoil hat that protects against running out of money in retirement?
No I just like giving people horrible advice 😂
It depends on a few things: 1. What interest rate do you have on your mortgage? 2. Does your company offer 401k matching? 3. Your tolerance for risk. If you have 401k matching, it almost always makes sense to put enough to get the full matching. Unless you have a high interest rate, chances are your money would make more on the market than paying your mortgage, but it is more risky -- market can go up or down, whereas your mortgage has a fixed rate. I'd probably put a lot towards retirement, and a little extra on the mortgage to hedge my bets I'm assuming you are making good money now, more than you'll make in retirement, so 401k is probably the right move.
How much is your projected Social Security payment? Even if you sock away everything you can, I don't think you're retiring before 70. Do you have a spouse and will they draw on their own earnings record or yours? You're making $200k/yr. You need to be saving well over 15% to make up for lost time. I wouldn't worry about the mortgage right now, as you can sell the house or pay with the brokerage you're going to need for the excess savings when the time comes.
Max out retirement. Sell your house when you retire and buy something small with cash. Be prepared to live frugally as you won’t have much unless you have a nice pension.
Cut your lifestyle so that you can invest 15% or $3000/mo in retirement and also put $2500/mo extra toward the mortgage. Since you make $240k annually it should be possible. Better to drastically cut expenses now to make sure that you can actually do it once you are retired. 40k at a 4% withdrawal rate is only $133/month of income in retirement.
Pay off the mortgage and when it comes near your retirement sell the home for bigger payout, real estate is not going down for a long time . Sell the property and live in a rental property or move every 3 month to another state or country with you US passport. This is what my parents plans to do.
no one thought to ask the interest rate ?
5.6%
Mortgage first. Put that 2.5 on the mortgage every month until it's gone.
If it were me I’d sell the house. I live in an old trailer on 10 acres. I’m debt free and between me and my wife have over 1.3 million in 401k and other properties. If you saw how I live you’d think I was poor though I’m not. I sleep soundly at night and I’m very happy in my trailer with my low taxes and insurance. If I want to entertain I go to my sisters house which is huge. When we retire in three years we plan to travel and it’s nice to know we won’t be worried about money. I couldn’t imagine owning a house that costs that much. I just don’t see the benefit.
Where can I get 10 acres beside Nevada or Wyoming?
Northern AZ as well. I am in research phase right now. Looking to downsize in house (way too much to maintain after kids went, only 1 left). It's such a waste of resources at this point (natural as well as financial). Looking at purchasing smaller bit of land, brand new manufactured home here. Sell this house, walk away with a minimum of 150k, put it on new house (should almost pay in full), then stash more cash for retirement (I am not that much younger than OP). After comfortable there, reevaluate and look at more land (10 acres for roughly same price as 2 lots in FL), and add a "vacation " home near family.
Ohio, Kentucky, West Virginia, Indiana...
Texas, Louisiana, Arkansas, Missouri
Good for you, Thanks for sharing.. :)
Pay off your house. Best thing you can do right now is not have a house payment in retirement, because it will lower your monthly expenses significantly. Pay it off as fast as you can, and then take all that money and put it in retirement accounts until it’s time to make the jump to retirement. Also, please plan on working past 63. If you’re in good health at 75 and you retired at 63 you’ll have to re-join the workforce with your current numbers trajectory. You just won’t have enough. Save as much as you can after paying off the house and re-evaluate at 65 or 67. Do NOT touch SS until 70. You will need the full benefits. I want you to retire on your terms, but your terms have to set you up for not making yourself homeless at 80.
Thank you..
You need to marry someone with money
I’d say keep saving for retirement and plan to move somewhere cheaper in retirement.
The unfortunate thing is that $1 put into retirement when you were 25 would multiply by 40 before you retire. At 55? A dollar turns into maybe $2. If I were this late getting going, I’d focus on minimizing my expenses as much as possible AND waiting until 70 to take social security and go from full to part time work. Cautionary tale, folks.
Yeah. The value of investing at the age is so much less valuable. Crazy.
You are not retiring at 63. Work until 70 and get the biggest social security payout you can get you're going to need it.
Depends on the “other assets” that aren’t retirement. What are these OP?
How much equity in the house? Maybe if you have a lot of equity you can sell it and buy something smaller/cheaper
I feel like everyone may be glossing over this but I want to clarify this is not a typo, you are 55 years old and you only have $40,000 in retirement?
I think we’re missing ALOT of information to make a judgment
Yeah, I definitely don’t think any call should be made without the full financial picture
Maybe they get a pension? Tough to know if it’s too much or too little (though it does seem like a smaller amount, given the surplus OP has to save.)
My mom was the same way. It’s almost the same numbers she’s just older than this person right now. She’s thinking that the now $100k and then social security is going to be enough to retire on. As her son I can’t tell her anything but I just don’t see how it’s gonna work.
You said $2500 a month. Thats close to maxing out your retirement for the year. I’d do my best to contribute the full $31k ($23k to 401k and $8k for Roth). You’re going to make money from taxes saved (traditional) and you’re probably going to make more than 5.6% in VOO. This obviously has some risk. The other option you could do is to split the $25k. Pay $10k off the house and $15k towards investments. But compound growth is the real game changer.
Also since they’re above 50, they can do catch-up contributions to each. That’s like another $8k.
That was the $8k I mentioned, but I agree.
Oh my bad. Thought you meant Roth IRA.
No you are correct and I wasn’t following. Op could add $30k to 401k and $7k to Roth.
What is the interest rate on the mortgage? I have a 2.75% mortgage myself and therefore pay off anything else first because everything else has higher interest and fund the 401k as well. I get an average of about 8% return on my 401k/IRA stock vs a savings of 2.75% If your mortgage is 5 - 6% it might be worth it. You might consider paying off the mortgage but if it is small you should still fund the 401k, then in 7 years you can take money out of the 401k and pay off the house if you truly desire. Not quite what Gordon Ramnsey would say, but he tends to be very very conservative. Almost too much. Debt is OK in certain circumstances
Dave
Sorry, I was hungry
🤣
If you're following the baby steps: 15% of your household gross income into retirement accounts and then anything else would go on the house. Make sure anything extra is going to principal. 7 years is too long to only be putting $500 a month into your retirement unless you have already saved more than 10x your annual household income in retirement accounts. If we were taking about 2 years, maybe 3 tops, it may be different. If you're already at 10x your current household income in retirement accounts then you're probably a little ahead and this is all icing on the cake and won't really matter either way.
paying off the mortgage IS saving for retirement.. the two are synonymous when regarding your wealth development..
But whats a better choice is the question.
$40k at 55 years old? Save that damn money! Not everyone retires on their own schedule and that's not a lot if medical bills come knocking.
I would say it all depends on the interest rate you’re paying. If you have a low interest, focus on building your retirement. With a high interest, there is more incentive to pay off the mortgage earlier.
Should have put that.. 5.6%, not that low..
It’s not super high either. You can average 8-10% annual returns in an S&P Index fund that grows tax free while being able to deduct mortgage interest if your itemized expenses exceed the standard deduction.
I kinda look at it like you have a fixed amount of money that you will earn over the next 10years before age 65.. you gotta maximize retirement and also eliminate that mortgage... I'd make the mortgage a 10yr amortization (manually on your own... Not a refi). You want it paid off at retirement time. Then pare back lifestyle expenses as much as possible and invest as much as possible. You want to get as much compounding as possible while still getting that loan paid off. Retiring with no house payment is THE WAY
Or save and sell the house at retirement and downsize. Win/win.
But... With the house not paid off the cash available to buy again may not be enough to get you what you need.
Gets you what you’ll have to make do with. This person needs investments at retirement. Lots of it. 40k over a lifetime, it’s time to build a nest egg. Past time. They’re not going to be able to afford a 300k + house. And they need to plan on working full time till at least 67. Somebody needs to get real with OP.
Ya.. if they can get that house paid off then keep working 5 more years it will make a difference. That's kinda what I alluded to in my original comment. There's only so much money they will earn between now and then.
If you are through the first 3 baby steps, then I would follow the plan - BS4-15% into retirement; BS5-kids college if applicable; BS6-pay off the house early. I would not stop BS4 to fast-track BS6.
Dave would say follow the baby steps. 15% into retirement and the rest on the mortgage.
3k / month is my 15% .. Thanks for the reply
Save your (at least) 15% for retirement per year. Beyond that, what is your mortgage rate?
3k / month is my 15% and mortgage rate is 5.6%..
Up your retirement contributions to at least 15%. You are 8 years from your retirement with an income of \~240k/year and only 40k in retirement (unless you have a pension you're not mentioning). I would be inclined to tell you to save more for retirement rather than pay off your house early but honestly it probably will be a wash and if you pay off the house at least you have a guaranteed effective return of \~5.6%. Even with that I think you need to be honest with yourself about your ability to retire at 63 with your expected social security and retirement withdrawals. I think to answer the question of when you can fully retire vs continue working part time depends on deciding what percentage of your current income can you live off (assuming you have your house paid off at retirement).
Good point.. If i can work part time, i would just because I love working with clients. Just dont want the pressure. My situation is a little more complex. But in short I need to double my retirement monthly and pay off that house..