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Old 04-22-2015, 08:52 AM
 
4,539 posts, read 4,838,757 times
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Unless you are willing to take on risk via stocks and bonds. pay off all debt. I know lots of folks who have money at near zero in a bank and pay a mortgage at 4%.

Yep 4% is a low rate but not if you leave money at zero.
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Old 04-22-2015, 09:25 AM
 
Location: Jollyville, TX
3,851 posts, read 9,445,905 times
Reputation: 4407
Well I certainly have gotten a lot of good information from this thread. Seems like there are 2 camps - one that says invest the money and maximize the returns and the other that says pay off the mortgage if you are risk averse and wouldn't be investing that money anyway and you want the peace of mind of a debt free existence.

We just closed on our former home that we had rented out for the last 2.5 years. The cash from the sale of that house is more than enough to pay our current mortgage that is 3 years into a 30 year loan at 3.99%.

I never really considered paying off the mortgage before now because I would have rather had the cash in hand than money in the bricks so to speak - but it was a tempting thought when we received a large cash payout.

Our retirement portfolio is right at 11X our retirement income now. DH is already retired and I plan to retire in 2 years when I turn 59.5 and DH will turn 65 making him eligible for Medicare.

So, based on this wonderful discussion, here's what I am going to do:

I'll keep a little bit of the money liquid to supplement my income so I can divert pre-tax money while I am working for the next 2 years-

1) Max out my 401K
2) Make the maximum Roth contribution
3) Max out my HSA

The rest will go into our portfolio - we already have an appointment with our financial planner next week.

We could always liquidate investment to pay off the mortgage in the future if we choose, but it seems like right now the best course is the investment route.

Thanks everyone for your thoughts and insights - it was very helpful!
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Old 04-22-2015, 11:45 AM
 
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Reputation: 12902
Moonlady, sounds like an excellent plan. You will have to let us know if your advisor thinks otherwise.
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Old 04-22-2015, 03:57 PM
 
Location: Wisconsin
21,542 posts, read 44,039,638 times
Reputation: 15150
Quote:
Originally Posted by Moonlady View Post
So, based on this wonderful discussion, here's what I am going to do:

I'll keep a little bit of the money liquid to supplement my income so I can divert pre-tax money while I am working for the next 2 years-

1) Max out my 401K
2) Make the maximum Roth contribution
3) Max out my HSA

The rest will go into our portfolio - we already have an appointment with our financial planner next week.

We could always liquidate investment to pay off the mortgage in the future if we choose, but it seems like right now the best course is the investment route.
Keep in mind, any money drawn from tax-deferred accounts to pay off mortgage will increase your tax liability and expose more of hubby's SS benefits to tax, possibly even kick you into a higher tax bracket in retirement than you are now.

Assume proceeds from sale of that home will be tax-free b/c you meet the residency requirements. If you indirectly convert this money into tax-deferred per above, future withdrawals will be taxed.

Instead of maxing out tax-deferred accounts, you might want to consider setting up a separate Roth account with what remains of proceeds from that sale, instead. Gains withdrawn within five years would be taxed, but not principal withdrawals. After five years, you're home free.

In other words, keep that money tax-free - in the event you need it.

I am right now, in retirement, converting tax-deferred accounts to Roths incrementally - both to avoid higher RMDs down the road and to leave money tax-free to son/dil. As a single, I could never afford to pay one more dime in taxes than necessary, so saved only in tax-deferred accounts.

In retirement, so far, my tax bracket is lower than when I worked. But the day wlll come, without Roth conversions, I'll be paying taxes on those retirement funds at a higher rate not to mention exposing more of my SS benefits to tax - both of which I want to avoid.

In short, there is value to having both taxable and nontaxable accounts. If I were you, without knowing your complete financial picture or income, I'd put that money into a Roth to grow tax-free (and provide tax-free withdrawals) and leave the tax-deferred deposits unchanged.

Last edited by Ariadne22; 04-22-2015 at 04:11 PM..
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Old 04-22-2015, 04:08 PM
 
29,784 posts, read 34,880,403 times
Reputation: 11710
^^^^^^^ good real time advice. Having fixed retirement income that exceeds your budget and a 200k nest egg regardless how invested priceless! Congrats OP
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Old 04-22-2015, 04:11 PM
 
12,708 posts, read 9,981,349 times
Reputation: 9515
Quote:
Originally Posted by mathjak107 View Post
nothing like liquidity in retirement . being house rich and cash poor in retirement can make for a pretty stressful miserable retirement.

you can't always get enough from a reverse mortgage because of the power of compounding reverse interest working against you.
The issue is if the reverse mortgage charges a higher interest rate than a forward mortgage.
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Old 04-22-2015, 04:13 PM
 
12,708 posts, read 9,981,349 times
Reputation: 9515
Quote:
Originally Posted by Moonlady View Post
Well I certainly have gotten a lot of good information from this thread. Seems like there are 2 camps - one that says invest the money and maximize the returns and the other that says pay off the mortgage if you are risk averse and wouldn't be investing that money anyway and you want the peace of mind of a debt free existence.

We just closed on our former home that we had rented out for the last 2.5 years. The cash from the sale of that house is more than enough to pay our current mortgage that is 3 years into a 30 year loan at 3.99%.

I never really considered paying off the mortgage before now because I would have rather had the cash in hand than money in the bricks so to speak - but it was a tempting thought when we received a large cash payout.

Our retirement portfolio is right at 11X our retirement income now. DH is already retired and I plan to retire in 2 years when I turn 59.5 and DH will turn 65 making him eligible for Medicare.

So, based on this wonderful discussion, here's what I am going to do:

I'll keep a little bit of the money liquid to supplement my income so I can divert pre-tax money while I am working for the next 2 years-

1) Max out my 401K
2) Make the maximum Roth contribution
3) Max out my HSA

The rest will go into our portfolio - we already have an appointment with our financial planner next week.

We could always liquidate investment to pay off the mortgage in the future if we choose, but it seems like right now the best course is the investment route.

Thanks everyone for your thoughts and insights - it was very helpful!
Unless you expect long term rates to continue to fall despite being at historical lows, it would make sense to dump most of your bonds into the mortgage. When long-term rates rise, bonds don't do well. Keep some for rebalancing though.
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Old 04-22-2015, 04:26 PM
 
Location: Wisconsin
21,542 posts, read 44,039,638 times
Reputation: 15150
Quote:
Originally Posted by ncole1 View Post
Unless you expect long term rates to continue to fall despite being at historical lows, it would make sense to dump most of your bonds into the mortgage. When long-term rates rise, bonds don't do well. Keep some for rebalancing though.
Moonlady has 200k cash - not bonds - and is wondering how to deploy this cash. She doesn't mention bonds anywhere that I can see in either of her two posts (unless I missed something) - but does talk about increased deposits to tax-deferred vehicles - no mention of bonds. Gotta be careful of withdrawals from tax-deferred vehicles - all kinds of tax consequences.
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Old 04-22-2015, 04:31 PM
 
Location: Jollyville, TX
3,851 posts, read 9,445,905 times
Reputation: 4407
Thanks for the feedback - I have considered both the tax implications of the sale (we do meet the 2 of the last 5 years rule) and also having taxable income which will cause SSI earnings to be taxed.

One question though - Aren't there limits to what we can contribute to Roth since hubby isn't working?

BTW - I'm not the OP, just a tailgater!
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Old 04-22-2015, 04:35 PM
 
Location: Great State of Texas
86,093 posts, read 72,534,315 times
Reputation: 27566
Quote:
Originally Posted by Moonlady View Post
Thanks for the feedback - I have considered both the tax implications of the sale (we do meet the 2 of the last 5 years rule) and also having taxable income which will cause SSI earnings to be taxed.

One question though - Aren't there limits to what we can contribute to Roth since hubby isn't working?
Yes there are limits for both not working and over 50 and working.

(both IRA and Roth in this link)
Retirement Topics - IRA Contribution Limits
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