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I am 33 and paid off my mortgage. I am putting 20% of my paycheck towards 401k as well. I suggest you pay the mortgage off so that you don't have a monthly payment to deal with. But that's just a peace of mind portion, what's more is that you WILL save more money on the interests. I had a mortgage of $490K initially and throughout 7 years so far the interest I paid is 112K at various rates of 4.75%, 4.0%, 3.875%, and 3.5% throughout refinance years. You have more power to the 401k contribution as well. Market is very unpredictable and volatile so it is not guaranteed you will generate more $ in return. I know 401k is a long haul but given your age, having a mortgage paid for is a better solution at this point.
I know not everyone can afford to do so, but we do both. We max out 401ks and then pay a little extra toward mortgage. While it is true that the markets are volatile, our annualized returns on our investments since we have bought the house very handily beat the % deductible interest rate we are paying on the house mortgage so I'm pretty happy with our plan so far. I am 30 and my wife is 27 and we will probably have our house paid off when I am 40, but we have been maxing the 401k for years. I would much rather do that than pay the house off first and then start funding the 401ks at that point based on our mortgage interest rate. Personal preference I guess.
Having a house paid off is nice, but I don't see a reason to rush it at the expense of other investment vehicles.
We've been fortunate enough to do both as well. I'm 33 and wife 35. we just paid off our mortgage in October; simultaneously to doing so, we've been maxing our 401k and IRAs every year. We did calculations and decided that it's very likely that we'd lose out on the market growth (and we did), but decided to pay off the mortgage anyway. One of the main reasons was that we were already putting in about 30k a year towards the market between our 401k and IRAs (my wife doesn't have a 401k), as wel as about 20k in the market via 529 plans....so we viewed paying off the house as actually diversifying our portfolio!
Now that the mortgage is paid off, i plan on pouring all excess cash into S&P500 and ETF funds.
I would recommend you putting in 2 dollars for every company match dollars into your 401k. (ie. if company matches 4%, you put in 8%)....and pour the rest towards paying off the mortgage. you won't regret it.
murph1982, a lot of the posts had to make assumptions about the rest of your finances. And those assumptions can change the recommendation.
Is the $10,000 401k the only savings you have now?
What about an emergency fund?
What is your expected social security at retirement age (62 or 65, etc.)?
Do you have any other sources of retirement income (pension, annuity, etc.)?
Are those sources of income adjusted for inflation (COLA) each year or fixed dollar amount?
Hello CSRS Jim......I have 10k in 401k......Emergency Fund of 5k social security 1,250 monthly at 62......What is your opinion? Pay off the mortgage as fast as I can or start saving for 401k.....I am currently 51..Thank you for your response!
Hello CSRS Jim......I have 10k in 401k......Emergency Fund of 5k social security 1,250 monthly at 62......What is your opinion? Pay off the mortgage as fast as I can or start saving for 401k.....I am currently 51..Thank you for your response!
What about your wife? What will her SS benefits be? Does she have any retirement savings?
The interest has been paid up front.....no big savings at this point to refi.
I would say 401K, max contribution simply because you can't add more later and the time value of money is crucial.
The monthly cost for principal and interest stays the same through the life of the loan, but the allocation balance of the interest paid gets smaller each month for the life of the loan. So towards the end of the loan you are paying less in interest each month and much more towards principal.
Can you please give me your suggestion for a question I have? I am 51 years old. We currently have a mortgage with a balance of 120k and 7 years left on the mortgage at 5.75% interest. I currently have 10k in a non matched 401k . I would like to know should I consider doubling mortgage payments and have the mortgage paid off in 3 and a half years or should I start contributing more to my 401k? I appreciate your comments and suggestions.
This really depends on several factors. How much longer are you planning to stay in your home after you pay it off? If you never plan to move that's an important factor. But if at 51 years of age, you plan to move and retire at say age 62, then you would be better off putting all the money in the 401(K).
If you can find a zero cost or very low-cost refinance or better yet, a mortgage modification with your current mortgage that would be better. A mortgage modification either costs you nothing or very little and it leaves everything the same on the loan except you lock in a lower interest rate.
How much money do you have in an emergency fund, in case you have no income coming in? Do you have a year's worth of expenses? If you don't, put the money in there and don't worry about the 401(k) for now.
If you do put it in a 401(k), I recommend you select a moderately aggressive investment portfolio.
Also, do you have a HELOC in case you need emergency funds? If so, you could do with less in an emergency fund.
The interest has been paid up front.....no big savings at this point to refi.
I would say 401K, max contribution simply because you can't add more later and the time value of money is crucial.
If you are close to the end of the loan and owe less than 40% of the value of the home, then you can take out a 5-year fixed rate home equity loan and use it to pay off the mortgage.
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