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Old 01-12-2015, 12:13 PM
 
6,432 posts, read 3,047,478 times
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Quote:
Originally Posted by Jeo123 View Post
Actually, inflation becomes your friend when you have a mortgage and SS. Easiest way to see why is to use big numbers. If next year, 100% inflation came into play, you would make twice as much, but spend twice as much on new purchases.

Fixed debt doesn't increase in that situation though. So when the COLA comes along, it actually becomes easier to pay your mortgage.

The people who need to pay down their mortgage are the ones just living off a pile of cash. If your money is invested, typically the dividends/gains trend in the same direction as inflation(as long as it doesn't get too out of control and crash the economy).

So I still think I'd go 401(k) over trying to pay down the mortgage.
Theory is nice, but the last few COLA's on social security have been around 1%.

As in all things, it depends on the specific circumstances like how much social security you are collecting and what your expenses are on top of the mortgage.

A paid off home is a huge factor in a successful retirement for many people who are living off social security and modest investments.

If you are receiving a pension in retirement that's close to what you were making in salary, that's a whole different story and it doesn't matter if you ever pay off the mortgage imo.
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Old 01-12-2015, 12:18 PM
 
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Quote:
Originally Posted by Blondy View Post
Theory is nice, but the last few COLA's on social security have been around 1%.

As in all things, it depends on the specific circumstances like how much social security you are collecting and what your expenses are on top of the mortgage.

A paid off home is a huge factor in a successful retirement for many people who are living off social security and modest investments.

If you are receiving a pension in retirement that's close to what you were making in salary, that's a whole different story and it doesn't matter if you ever pay off the mortgage imo.
You're neglecting the fact that in the alternative scenario to paying it off, the "modest investments" would be much less modest.

Sure, if the alternative to paying the mortgage off is to blow the money in Vegas, then absolutely you should pay it off. But if your alternative is to invest the money, you may come out ahead that way rather than paying off a mortgage early.
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Old 01-12-2015, 12:26 PM
 
6,432 posts, read 3,047,478 times
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Quote:
Originally Posted by ncole1 View Post
You're neglecting the fact that in the alternative scenario to paying it off, the "modest investments" would be much less modest.

Sure, if the alternative to paying the mortgage off is to blow the money in Vegas, then absolutely you should pay it off. But if your alternative is to invest the money, you may come out ahead that way rather than paying off a mortgage early.
Well, this was a follow on convo. Go back to what I told the OP.

She should invest rather than pay the mortgage off early. All I said was her plan should include paying the mortgage off before she retires. We don't know how old she is, but from what she said I don't think paying off before she retires means paying off early. She can clarify.

Further, running the numbers in the situation you suggest, might theoretically put you ahead; but, if you have a mortgage to pay every month in retirement, you may not be willing to take the risk necessary to get the extra return.
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Old 01-12-2015, 12:53 PM
 
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Thanks for the input. It's funny, literally brought up the same topic with my friends and family this past weekend and they all opted for "pay off the mortgage." I was leaning towards 401k before that, but I mainly wondered if there was something I was missing because so many thought it was the best thing. Then again, maybe they weren't aware how low my interest rate is.

I have both 25 years until retirement and 25% equity in my house already (a fun co-incidence I suppose... but anyway, no PMI). I don't plan on staying in this house forever, like I said, the plan is to downsize when my daughter goes off to college/leaves the nest. My house isn't huge, but it's a bit much for just one person when it comes to it. I also plan to move someplace less expensive (I live where I live now for the school district/close to my ex for my daughter's sake. But it's a high housing cost area/high housing demand area). Where I am looking to move to is rural, closer to my family and I can literally buy a nice, but small home for almost what I have in equity right now (assuming zillow has my home value correct-which is a big assumption).

I also have no consumer debt at all, I pay off the one credit card I have each month and own my car outright (no car payments). No other loans or debt. Just the mortgage. So literally, this is all about where to save the money.

The 401k sounds the best, but so far, the average rate of return on it hasn't been all that great (and the costs are high on it). Then again, I am also leaning heavily towards 12 months emergency money as well. So I have some time.

Thanks for the food for thought!
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Old 01-12-2015, 01:27 PM
 
6,432 posts, read 3,047,478 times
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If you are that far away from retirement and you will pay able to pay cash for your retirement home I would invest in the 401 (k).

If the average rate of return is higher than the mortgage interest rate, you should be ahead of the game especially considering any earnings are compounding tax deferred.

If you are not happy with the rate of return, do you have options of different funds to invest in within the 401(k)? If so, maybe you need to look at that and whether or not you can change how you are invested.
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Old 01-12-2015, 01:41 PM
 
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Comfort level often is the biggest driver in this conversation and decision making process.


Outside of that be mindful on what your actual return is vs expected in your investments, the savings in terms of federal taxes if you contribute pretax to your 401k and mortgage interest if you itemize your deductions. While I wouldn't keep a mortgage to itemize it certainly plays a part in your decision
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Old 01-12-2015, 02:33 PM
 
Location: Boise, ID
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Quote:
Originally Posted by jillabean View Post
Thanks for the input. It's funny, literally brought up the same topic with my friends and family this past weekend and they all opted for "pay off the mortgage." I was leaning towards 401k before that, but I mainly wondered if there was something I was missing because so many thought it was the best thing. Then again, maybe they weren't aware how low my interest rate is.
I assume your friends and family are "average Joes". The average American doesn't know all that much about finances and investing. The average "Personal Finance" forum poster on City-Data is significantly more informed about the subject.

Paying off the mortgage is the "feel good" option. The average Joe will typically go for that. Having an emergency fund and investing in something with decent returns for retirement is the better financial option for someone in your situation, so if "feeling good" isn't necessary, the 401k or IRA is the better financial choice.

I actually seriously considered paying down my mortgage early, as I was at 5.75%. One of my primary goals was to be mortgage free by 40. But then I started doing the math. Even after only 11 years, my mortgage is already around $300 less than surrounding houses are renting for, and that amount keeps going up every year. The purchase power of a dollar keeps going down, but my payment stays the same. So I refinanced instead to a 3.74% interest rate 12 year loan and I'll be debt free by 48 instead of 40, but be much better off financially.
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Old 01-12-2015, 03:01 PM
 
Location: Portal to the Pacific
5,044 posts, read 5,043,027 times
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Quote:
Originally Posted by Lacerta View Post
I assume your friends and family are "average Joes". The average American doesn't know all that much about finances and investing. The average "Personal Finance" forum poster on City-Data is significantly more informed about the subject.

Paying off the mortgage is the "feel good" option. The average Joe will typically go for that. Having an emergency fund and investing in something with decent returns for retirement is the better financial option for someone in your situation, so if "feeling good" isn't necessary, the 401k or IRA is the better financial choice.
That's what I'm thinking. A lot of people I went to school with are "average joes" and for them the biggest financial accomplishment after buying a house is paying it off.

Ask most people in this particular forum what they strive for and it's going to a look considerably different.
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Old 01-12-2015, 03:43 PM
 
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Quote:
Originally Posted by Lacerta View Post
I assume your friends and family are "average Joes". The average American doesn't know all that much about finances and investing. The average "Personal Finance" forum poster on City-Data is significantly more informed about the subject.

Paying off the mortgage is the "feel good" option. The average Joe will typically go for that. Having an emergency fund and investing in something with decent returns for retirement is the better financial option for someone in your situation, so if "feeling good" isn't necessary, the 401k or IRA is the better financial choice.

I actually seriously considered paying down my mortgage early, as I was at 5.75%. One of my primary goals was to be mortgage free by 40. But then I started doing the math. Even after only 11 years, my mortgage is already around $300 less than surrounding houses are renting for, and that amount keeps going up every year.

That's irrelevant to a decision on whether to own with or without a mortgage - the value of rent only matters if you are considering renting.

Quote:
Originally Posted by Lacerta View Post

The purchase power of a dollar keeps going down, but my payment stays the same. So I refinanced instead to a 3.74% interest rate 12 year loan and I'll be debt free by 48 instead of 40, but be much better off financially.
Payment staying the same isn't the issue, it's one of if you can beat you interest rate without too much portfolio volatility.
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Old 01-12-2015, 06:48 PM
 
Location: Cary, NC
740 posts, read 3,867,972 times
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I think it depends on how much you already have saved for retirement. If you are already on track, and the money you are talking about is truly "extra", then in my opinion it makes sense to pay down the mortgage. The stock market is at an all-time high so you have to ask yourself whether you want to invest "extra" in this current environment, or if it makes more sense to get the guaranteed 3-4% return which comes with mortgage prepayment. I'm actually in this exact same situation and for me personally, it makes more sense to prepay the mortgage, for now. If the stock market takes a 20% dump this year, then I might re-evaluate things :-)
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