Comments on: What Do You Think of This Reader’s Plan?

By: Chad

Chad — Sat, 17 May 2008 02:27:33 +0000

I’d say she’s right on track…. as long as shes doing 15% of her income in to retirement now and throwing whatever else she has left over at the house… get that payment gone.. that way the house is HERS and no one can come and take it away from her if for some reason she loses her income for a while, as long as she can make the taxes every year. and shes still putting something toward retirement… once the house payment is gone then she can just go nuts on retirement savings.

By: Ben

Ben — Wed, 14 May 2008 18:40:02 +0000

Start contributing to a Roth IRA since you can never catch-up from not participating for the next 3 years. A true lost oportunity there. This will only add maybe 6-8 more months on your mortgage.

Definitely don’t stop what you’re doing with the 401k/403b. Again, matching funds is money lost forever if you don’t earn it.

By: Independent George

Independent George — Wed, 14 May 2008 15:05:03 +0000

Usually, I’m fervently on the ‘don’t pay’ side of the mortgage, but we need to consider the fact that she’s 50 and plans to retire in 17 years. A 17-year time horizon for investing the difference is a lot different than the 30-year period we normally use for comparison; depending on the interest rate, it might actually be better to pay the mortgage off early. It’s still probably better to defer the payments, but I the risk assessments are very different.

By: Bozo

Bozo — Wed, 14 May 2008 03:32:05 +0000

Whew, this woman has a game plan! I would lean towards paying off the house first. If you do the math, if Toni works until she’s 68, she will have amassed enough in her retirement accounts to throw off (in addition to Social Security) more than what she is living off today. All in today’s dollars. Here’s how I came up with it.

We know she plans to pay off her $84K mortgage balance in three years, which means she is paying it down $28K/year. Subtract $28K from $68K (her take-home); she lives on $40K/year, including the debt service on the mortgage. Presumably, she can use that $28K/year to fund a “new” IRA and/or other investment vehicle(s) once she is 53. Assume she works until 68 at or about the same income level (in today’s dollars).

A $100,000 nest egg, added to in the amount of $28K/year, compounding at 5% (8% actual – 3% inflation erosion), for 15 years (age 68 – 53), yields approximately $842,000 (in today’s dollars).

When she turns 68, she starts to spend the income the fund throws off (at 5%, over $42K/year, which is more than what she now lives on). Of course, unless she has heirs she is particularly fond of, she could annuitize the fund (say for a 40 year period) and it would pay out roughly $47K/year (again in today’s dollars).

And if she ever needs assisted-living or whatever, there’s always that paid-off home.

As I said, Toni has a game plan. Good for her.

Yours,

Bozo

PS: I yield to other, wiser posters (and the moderator) as to Roth IRA versus other types of vehicles.

By: Nobody Important

Nobody Important — Tue, 13 May 2008 23:06:24 +0000

it’s easy for us twenty and thirty somethings to tell someone to not pay down the mortgage but I can only imagine what it feels like to be heading into retirement age and still not own your dwelling outright. Security is a big motivator.

By: muddlehead

muddlehead — Tue, 13 May 2008 21:34:21 +0000

would not pay off house early. max out to the match in 401k’s. any leftover, open roth to the max investing no load market index funds – equity and or bond, depending on your stock market risk tolerance . any leftover, start a taxable investment account in same investments.

By: Baba Ghanoush

Baba Ghanoush — Tue, 13 May 2008 21:12:35 +0000

I’d agree with DMA #3 and max out the tax-advantaged savings before paying the mortgage early, unless she has a particularly bad mortgage (adjustable or high fixed rate). If not maxing out all tax-advantaged, then whether to contribute more than required for match in 401(k)/403b or to put some dollars in an IRA probably depends most on your plan options.

By: DMA

DMA — Tue, 13 May 2008 20:51:07 +0000

Sounds like she has done a great job with the debt! If it were me, I would max out the retirement accounts and then apply the remaining amounts towards retiring the mortgage early. That way she gets the full time benefit of having the funds invested for the next 17 or so years.

By: Amy

Amy — Tue, 13 May 2008 20:04:28 +0000

I understand the argument against paying off a home early and won’t get into except to say – she’s got the Dave Ramsey bug (as do I) so don’t expect to sway her against paying it off! )

By: Thrifty Femme

Thrifty Femme — Tue, 13 May 2008 20:01:33 +0000

I would take the 15% she currently contributes to the 401k and open a Roth IRA to try to contribute the maximum $6000. If that is easily doable then I would begin contributing to that 401k again. I would rather have more tax free money than taxable money if at all possible.