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I just wanted to agree with everyone else that if you are planning to pay the mortgage off, do it with taxes in mind. That was part of my original plan, paying it off over 4-5 years, to keep from going into the next tax bracket.
If it were me, I'd get the lowest rate 30 year mortgage that I could, then withdraw enough money from the retirement account to make the payments. Have the mortgage payment deducted from your checking account automatically, have the retirement deposit go into your bank account automatically, and call it good. Buy sound blue chip companies with a history of raising dividends over time in your retirement account (or mutual funds that do this) and let them work.
Otherwise, you are giving a free gift to the government in terms of unnecessary taxes. If you insist on taking retirement account money out to pay off the mortgage, please talk to a tax expert first to see if you should do it over a three or five year period in order to stay out of ridiculous high tax brackets. After all, if you pull $200,000 out to pay off a mortgage, for that one year you would be one of those dirty rotten rich scoundrels who always keeps a boot on the necks of the poor--and some politicians think you just cannot pay enough if you are one of those people.
What Marcopolo said...... Maximize your tax advantage & use those lovely low mortgage rates we currently enjoy. We may never see them again. Always use other peoples money if you can. Save your own for your needs.
Ditto Dont pay it off in one lump sum. Tax burden of withdrawal will be huge. Pay it off with payments from 401k or any other source as normal. If your interest rate is high refi to a lower fixed rate and make higher payments than agreed to. Just be wise about your withdrawals.
On questions like this there isn't any right or wrong answer. It really depends on the individual.
My idea, and it is just my idea, of a perfect retirement is not having any money worries. I don't want to owe any money or be owed any as well. I want to live comfortably but most important to me is to having plenty of spending cash every month to do with what I want when I want.
I agree with those that say to keep any tax implications in mind. However, this isn't a cut and dry answer. Much just depends on your specific circumstances of what interest rate you can get locked into, how big your mortgage is, how big your 401K is, how well diversified you are, and a host of other issues.
This stock market like it has been going is NOT a normal market. So while it's going up like it has, you might think you can automatically make more money in the stock market but that isn't always the case. As well, I've seen people in retirement do foolish things with their money like horrible investments, loaning money to friends/family that never get paid back, too risky investments or other things.
For many people having a paid off house heading into retirement provides quite a bit of comfort but it's NOT for everyone. Me personally, one of my goals was to head into retirement with my house completely paid off. But I know that isn't automatically a good idea for everyone.
You say, "I'm upside down but that isn't really a problem". Well, how upside down are you? And after paying off your mortgage if you did, how much would you have left?
On questions like this there isn't any right or wrong answer. It really depends on the individual.
My idea, and it is just my idea, of a perfect retirement is not having any money worries. I don't want to owe any money or be owed any as well. I want to live comfortably but most important to me is to having plenty of spending cash every month to do with what I want when I want.
Quote:
Originally Posted by earlyretirement
I agree with those that say to keep any tax implications in mind. However, this isn't a cut and dry answer. Much just depends on your specific circumstances of what interest rate you can get locked into, how big your mortgage is, how big your 401K is, how well diversified you are, and a host of other issues.
This stock market like it has been going is NOT a normal market. So while it's going up like it has, you might think you can automatically make more money in the stock market but that isn't always the case. As well, I've seen people in retirement do foolish things with their money like horrible investments, loaning money to friends/family that never get paid back, too risky investments or other things.
For many people having a paid off house heading into retirement provides quite a bit of comfort but it's NOT for everyone. Me personally, one of my goals was to head into retirement with my house completely paid off. But I know that isn't automatically a good idea for everyone.
You say, "I'm upside down but that isn't really a problem". Well, how upside down are you? And after paying off your mortgage if you did, how much would you have left?
Both Nice and Early are right. I would pay it off with these two conditions in mind. First that your 401k and mortgage are about equal with a little more so to pay off the taxes and your 401k is not going to be your sole source of income in retirement. If that is the case then by all means pay off the home. Then taxes will be your only future home expense. It will also be your money in the mattress so to speak if you need it. Trouble there is when you need it you have two options mortgage and you are back to square one or sell out right. Just keep that in mind as well.
My plan is to take my government pension plus social security to live on and use the money in my IRA to continue to pay my mortgage when I retire. The principal and interest is about $1,000 a month and I have 26 years left. I plan to retire in 7-10 years. I will draw down $12k a year from the IRA.
My pension and social security will equal my net pay I make working. I most likely will look for some part time work also.
Other than the tax liabilities, (I'm 64, so no 10% penalty)
are there other reasons I shouldn't use part of my 401(K) to pay off the mortgage?
How large a part of?
If you can manage a home with UP TO 20% of your total asset portfolio... do so.
(Limiting yourself to 10% would be twice as good. Less is damned hard)
How many years remain at the current rate/term?
A few years (up to 10?) ride it out paying the mortgage from whatever source.
More than 10? Sell. Then buy what your net equity & assets actually justify.
i have always been someone who thinks outside the box and i usually have a different spin on things than the herd . paying off a house or not can be as much a lifes goal issue as it is a financial issue and they can be opposite each other.
one of my lifes goals was to have a payed off house, that was prior to having one and now prefering renting.. when i didn't have the money to do that i invested heavily to achieve that goal. once i had the money to do so i pulled that money out of the risk bucket and paid off the house.
the rest of the money i had was ear marked for other goals and so that money stayed in play and invested.
to often greed takes over and our goals end up just being a carrot on a stick without ever accomplishing the things we set out to do or losing the money ear marked for those goals..
with us it is never a financial issue of can we do better elsewhere, it is only an issue of what goals we set out to meet and doing it when we get there.
i am not a big believer in continuing to play after you won the game.
many folks do not even need the money produced by letting that money ride at risk yet they do it anyway.
sometimes you really have to step back , put greed aside and look at the situation and look at your goals and see if they are still goals..
interesting video with larry swedroe on the subject of continuing to play after you won the game.
while the details of this couple's investing skills leave alot to be questioned the message from the video brings up something to think about if you think in terms of your lifes goals you want to meet..
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Maximize your tax advantage & use those lovely low mortgage rates we currently enjoy. We may never see them again. Always use other peoples money if you can. Save your own for your needs.
