Retirement Advice Payoff Mortgage

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Topic Author
Timo325
Posts: 3
Joined: Mon May 17, 2021 5:48 pm

Retirement Advice Payoff Mortgage

Post by Timo325 »

Hello Everyone!

I've come to the site from time to time to learn, and grow.

My current situation is this-

35, plan to retire at 55. Married, filing joint. Dependents (14,7,2) Separate GI Bill/tuition covered for them.

Retired from the military drawing a pension of 55K that changes with the CPI.

Currently a teacher making 62K a year, in Texas under the TRS (Teacher Retirement System). If I retire at age 55, I will earn 36K a year from this.

I've done the paperwork for Social Security Estimates: Due to GPO (TRS) and not paying anymore in, I'm estimated to get 8500 a year withdrawing at 62.

2 Roths, each only having 255K by 2040 (under the 4% rule this is something like 17.K per year)

Total looks something like this:

55K Military (Tax Free)
36K TRS
17.6K Roth
8.5K SS (delayed until 62)

117K Total

Work 403b's are pretty trashy with high fees/fees for everything. It's almost criminal.. Also no matching.

I've looked at calculators for my Roth if I wait 5 years, (retire at 60 instead of 55), or use a self-funded 401K or 403b. Looks great, but I don't know if I will last to 60.

I also have a mortgage that I refinanced a year ago. I still owe 369K on the house 2.25% for 29 more years. I have been paying an extra 500 to get debt free by the time I retire.

My question is this-

1. Should I pay off the mortgage early or would the money be better spent at investing in a 401k/403b?

2. The consensus online looks like always max our Roth IRA's first, but If I stop funding one IRA to put 12K a year into a Roth 401/403, would this be better than 6000 separately in a IRA, and 6000 into a 401/403 due to the larger amount?

I hope I made sense, I'm looking forward to any advice you have!

Thank you!
Last edited by Timo325 on Mon May 17, 2021 10:50 pm, edited 2 times in total.
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FiveK
Posts: 11571
Joined: Sun Mar 16, 2014 2:43 pm

Re: Retirement Advice Payoff Mortgage

Post by FiveK »

Timo325, welcome to (participating in) the forum.

Yes, too many 403b plans are terrible. See the Expensive or mediocre choices section of the 401k wiki for some thoughts that apply equally well to your 403b choice.

For your general questions, see Investment Order and Prioritizing investments for suggestions that will work for many.
Topic Author
Timo325
Posts: 3
Joined: Mon May 17, 2021 5:48 pm

Re: Retirement Advice Payoff Mortgage

Post by Timo325 »

Thanks for your reply!

Yes, I had read the investment order. I'm at 401k/403b options.

House is under 3%, so it looks like don't pay down early, invest in nontaxable accounts? 401/403?

Thank you!
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Metsfan91
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Re: Retirement Advice Payoff Mortgage

Post by Metsfan91 »

Timo325 - 2.25% is a very low interest rate. You got a very good interest rate on a 30 year mortgage. The rate is so low that inflation rate will be higher than your mortgage rate on most years. It is almost like 0% interest rate. If it were me, I won't pre-pay a 2.25% mortgage. One can expect the market to return more than 2.25% in a long run.

Even with higher fees, pre-tax retirement accounts could be better option.
“Time is your friend; impulse is your enemy.” — John C. Bogle
placeholder
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Re: Retirement Advice Payoff Mortgage

Post by placeholder »

I wouldn't pay it off unless it's psychological stress for you and I always just viewed the mortgage payment as a bill no more stressful than the electric or any other.
lakpr
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Re: Retirement Advice Payoff Mortgage

Post by lakpr »

Contrary opinion here : $369k mortgage on a $62k year income, that is six times the annual income.

I don’t know about you, but regardless of the interest rate, a debt load six times my annual income would cause me stomach ulcers and sleepless nights. I would payoff the mortgage, or at least create a “sinking fund” that I invest in with the aim to payoff the mortgage when the balances in both accounts become roughly equal.

You have at least $500k in life insurance to protect your spouse and dependents, if not higher, I hope?
reader79
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Re: Retirement Advice Payoff Mortgage

Post by reader79 »

He is currently drawing a military pension of 55k + 62k teacher salary = 117k total annual income with a 369k mortgage: 3.17 times annual income. Well within range, though a bit high for my taste.

I would invest as much as you possibly can now and put the minimum toward your mortgage.
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dknightd
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Re: Retirement Advice Payoff Mortgage

Post by dknightd »

It looks like you are in pretty good shape. Projected retirement income is about the same as you make now. You will have a gap between 55 and 62. Are you sure you want to claim at 62? Does the wife have SS benefits coming as well? You still have 20+ years to decide that ;)

1) I would not be in a rush to pay off 2.25% mortgage. You can afford the payments now, and your future income is about the same, and should be fairly stable, so you will likely be able to make the payments when you retire. You are still 20 years away. Likely you can earn more than 2.25% by investing the funds. And in 20 years your current mortgage payment might seem small since it will not increase with inflation.

2) Some 403b plans are not very good, but they do still provide tax deferral. If there is even one decent option in your plan I'd consider using that. I'd probably continue to use IRA (Roth or normal) for you and your spouse. Consider using 403b space as well. I think you can do both, but I would confirm that before you did it.

While I was working I paid the normal scheduled mortgage payment. Essentially leveraging my retirement account savings. When I retired I started paying off the mortgage as fast as I could without kicking me up a tax bracket, using those tax deferred savings. It worked for me. YMMV (Your Mileage Might Vary)

edit: When planning for retirement you have to think about the possibility that one of you will die first. You want to make sure the survivor will be OK. Same thing while you are still working. Somebody above mention life insurance. With young kids you might consider a policy on both parents if you do not already have them.Term life insurance is pretty cheap at your ages.
Last edited by dknightd on Tue May 18, 2021 6:49 am, edited 1 time in total.
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds from the market, invest the funds. Retired 9/19. Mortgage payed off 5/21.
Jack FFR1846
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Re: Retirement Advice Payoff Mortgage

Post by Jack FFR1846 »

There are two views on this with big names behind each.

Dave Ramsey: A mortgage is debt, just like any other debt. You'd be an idiot not to pay it off.

Ric Edelman: A mortgage allows you to invest money for a cost less than the average return. You'd be an idiot to pay it off.

You need to make your decision. Paying off the mortgage is the low risk way to go. Not paying it off is risking the money in the market, which is not guaranteed to go up.

Neither decision is wrong. The simple fact that you have extra money to go in the market or in your mortgage puts you above 95% of Americans. You can do either or do both, putting some in the market and some in your mortgage.

All that said, I paid off my mortgage almost 20 years ago. I had been burned in the market and was very averse to the stock market. I've since come around and invested in the market....with no mortgage. I've been able to invest well over $3M with no mortgage on one income. I'm not a doctor.
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JoeRetire
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Re: Retirement Advice Payoff Mortgage

Post by JoeRetire »

Timo325 wrote: Mon May 17, 2021 6:52 pm 1. Should I pay off the mortgage early
No. Don't pay down or pay off a mortgage with a rate of 2.25%.
Just remember: it's not a lie if you believe it.
dknightd
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Re: Retirement Advice Payoff Mortgage

Post by dknightd »

JoeRetire wrote: Tue May 18, 2021 6:33 am
Timo325 wrote: Mon May 17, 2021 6:52 pm 1. Should I pay off the mortgage early
No. Don't pay down or pay off a mortgage with a rate of 2.25%.
I agree! My mortgage was at 3.25%. And I had to think twice about paying it off. If it had been 2.25% I'd still owe money on my house. And been happy about it. You can always change your mind, until the deed is done.

Edit: I'm happy to have my home loan paid off. Just this month. For me it was partially financial, and partially just getting it done. It took 33 years, but it is done :) I like walking around in my crappy old house. Knowing it needs work. And I'll have to keep paying property taxes. I thought my spouse would share the joy. But alas, the costs of owning a home do not disappear when the mortgage is paid. Still, I can be happy it done!!!!!
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds from the market, invest the funds. Retired 9/19. Mortgage payed off 5/21.
Topic Author
Timo325
Posts: 3
Joined: Mon May 17, 2021 5:48 pm

Re: Retirement Advice Payoff Mortgage

Post by Timo325 »

I just wanted to thank everyone for their sage advice.

I will move that 500 a month from mortgage principal payments to a 403b option.

Life insurance is with various companies 1.2m total at the moment, but I'd like to get a better deal. Costco was the best. I'd love recommendations on others, but I'm willing to bet it's all over..

Thank you!
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