@Anonymous wrote:Here's my situation. I'm 41 with very little retirement savings (60k). I'm currently putting about 30k per year in my 401k and am planning to also start working on an emergency fund.
I bought a house in December. Preparing to buy the home prevented me from putting more in savings and retirement. But now I have bonuses, stock awards, annual raises that I don't need to use for anything.
My original plan was to increase my 401k every year by the amount of my annual raise (usually around 3%). Get 50k in an emergency fund and then start building investments.
But I have a large mortgage and I'm wondering if I should try to pay that off in 15 yrs while maintaining current retirement savings levels instead. I could still sock away a decent emergency fund too. Owning my home outright at 56 would open up a lot of options since I have in a very high COL area now.
What's the right move here?
I would opt for paying down the mortgage, since that's a healthy guaranteed return. The more you pay down the principal the less interest you will be paying each month.
@iced wrote:I vote for more retirement savings. The earlier it's in there, the longer it has to compound and grow. You probably already have a reasonable interest rate on the mortgage, and if you don't you can refinance to get around 3%.
The worst thing you can do is be house rich and cash poor. Too many people rely on home equity as their nest egg and it's neither liquid nor something that can just be sold if the cash is needed (where would you live?), and extracting it in the form of a HELOC or refi comes at a cost.
I do agree with @iced here.. , Also on the Interest rate on your house, I am pretty sure some of it is Tax deductible?, so what is the effective rate after taxes? ..this is always something I had considered. I am a firm believer on stashing away money for retirement.
This is not even the very cream of the crop "TOP" performing Mutaul Fund (One I do hold) ..
pretty hard to argue with the returns.
And if you happen to pick one that performs a little better?
If I had the ability to go back 20 years and change things, then I would be putting my extra $$ into retirement versus the mortgage.
My real world scenerio is that we put extra towards our mortgage. Everything was fine until the Great Recession happened about 10 years after we built our dream house on a large lake. My DW and I still had our jobs and we were doing fine until things started falling apart for us in 2010. She lost her job, and nobody was hiring. We started depleting our emergency funds, but had enough for a while. Next thing that happened was our area had a new flood plain map drawn up, and there was a misinterpretation made with the dam 200 yards away. They mistakenly put a 6 foot corner of our house in the new flood plain. We spent thousands of $$ fighting it (keep in my my wife was out of a job), but the final determination to remove the tiny corner of our house from the new flood plain meant we had to spend $20k to have a new base elevation surveyed for the entire area with no guarantee of removal.
By law, we were required to take out flood insurance which was quoted at $6000 from our insurance company, and it was due immediately... no payments allowed. We found cheaper insurance and paid, but now we were severely hurting for money. Only option was to leave our dream home; however, try to sell a home that also required flood insurance during a mortgage crisis... it ain't happening. Our bank refused to work with us... i'm guessing they thought they were sitting on a gold mine since it was half paid off and they could resell for a profit. We ended up losing our dream home and all the $$$ that we put into it when filing BK7.
Most of our extra money went into the house, and it went "poof" with nothing to show for it. Obviously, money can go "poof" in the stock market, too. But at least in the stock market / 401k you can diversify yourself. A mortgage is a single large egg in a tiny basket, and if that basket tips over your egg is gone. I'm not making that mistake again...
