Save for Retirement or Pay Down Mortgage Fast

Hi Chris,

This kind of information is why I enjoy Marketplace so much. Everybody thinks I'm crazy because I am not interested in paying down my mortgage faster than absolutely necessary. But every April when I do my taxes, I look at the deductions I get on the interest payments on the mortgage, how much I save by deferring income to a 401K and for me, it has always made more sense to up the 401K contributions over pre-paying the mortgage. It is nice to see some research that shows my strategy really does have some merit.

Dennis

Dear Chris,

Just like Dennis above, I am glad to see research by professionals begin to justify some of the strategies many of us have begun to implement.

Anyone with a steady mind and half-an-hour can figure out that saving the difference in payment between a 30-yr mortgage and a 15-yr mortgage can earn you an extra nest egg. The mortgage payment on a 300K mortgage at 6.125% is $1,847.15; on a 15-year at 6% (a lower rate, mind you), the payment is $2,531.57. That's a difference of $684.42!
Well, if you give that to the bank, they're going to earn a greater reward on it. Assuming they can earn just 10% on that money, the bank's retirement has grown to $283,671.79 after only 15 years. If they don't add anything else to it and let it grow for another 15 years, the bank has earned 1.2 million.
If you took the 30-year mortgage and saved that $684.42, that would be your $283,671.79 after 15 years, your $1.2 million in 30-years. And we haven't even figured in the tax benefit of deducting that mortgage interest...

I love hearing Marketplace take a serious look at these real issues. I've been fortunate to find this strategy early enough that I haven't missed a fortune by sending extra principal to the bank. What's amazing is that the Chicago Federal Reserve is now pointing this out to the public.

I have found the question "Should I accelerate payments on my mortgage or save for my retirement?" to be a surprising quonundrum. Surprising, that is, in its solution. All things being equal, if you accelerate payments on your mortgage, where (and when) will you get the funds to save for your retirement? Conversely, if you save for retirement, you may find that you have actually achieved the ability to pay off your mortgage in one check. Said another way, I've found that if you try to accelerate payments, you'll achieve neither goal. If you save for retirement, you'll achieve both.

In February my mother died at age 96. Part of her estate contained 3 $50,000 Keyport fixed annuities that my parents opened in 1980. Each was based on the life of one of their three daughters. In 1980, these annuities were paying 10 plus percent, but of course today they pay much less - in the high 4 percent range which we can get at our bank. A few years ago ING took them over from Keyport.
In January, my sister died, so the first annuity should come due anyway (or at least that is my impression). I contacted ING and they have been totally unhelpful. They continue to send communication to my mother's old address even though her apartment was sold. Our lawyer has sent them documentation to confirm that they are handling the case, but still we hear nothing. Telephone calls aren't terribly productive either. There's always something else that they want out of us in order for them to even consider talking to us. Each of the different annuities has a different value, but they cannot confirm whether funds were ever withdrawn or not. In short I'm fed up with ING and would like to cash in all three annuities; however, I realize the tax burden will be quite hefty.

Our lawyer tells us what bad investments annuities are and how they (the lawyers) always raise their eyebrows at how easily duped people are by their financial advisors to invest in these things.

I've thought of transferring them into another annuity, but this really does not appeal. Do you all have any suggestions?

I enjoy your show and listen to it regularly by podcast as I spend a lot of my time in France.

Hi Chris!

What about adding the quality of life factor in to the equation - like the wonderful freedom of choice and investment opportunity that comes when we kiss that mortgage monkey off.

I once worked (not for long) for a government institution where most of the inmates slaved away at work they disliked so as to finally "retire (after 40 years) on a government super". How sad to so spend one's working life............

I assume how long until you retire would be a factor in the decision of saving vs. paying off your mortgage?