Deciding to pay off house with retirement savings...

[Billy Goat]

As stated earlier, and something I was thinking because I'm in a bit of a similar boat, you are young now but be aware how much you are counting on your health to make money. One injury will be a major setback. I'm at the point that my body is starting to apply the breaks pretty good. In one sense you aren't halfway to retirement yet, but depending on what kind of welding you are doing, make sure you are looking around. See how many around you are doing your job at 60. I know there's plenty out there, but the field starts to thin around 45 and keeps weeding them out.

 

[Gutshotem]

The peace of mind with no mortgage payment is worth more than the interest IMO. The amount you can put away in the next couple years with no house payment will make it up so fast.

As far as the deduction, I’m with you on the math, paying 12k to save 3k is not saving money. Say you make the avg of 7% on 260k in a reasonably safe fund, that’s 18k. So you’d make a bit more than you pay in interest, but the peace of mind would make me happier than the extra few 1000’s.


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I dont understand this logic. If paying 12k to save 3k doesn't make sense, how does giving up 18k to save 9k make sense?

Further, he has the ability to keep some of his investment liquid for emergency purposes rather than have it tied up in the equity of the house.

 

[EastMT]

I dont understand this logic. If paying 12k to save 3k doesn't make sense, how does giving up 18k to save 9k make sense?

Further, he has the ability to keep some of his investment liquid for emergency purposes rather than have it tied up in the equity of the house.

There are plenty of reasons to go either way, I just hate debt like I hate cancer. 43 and debt free, I don’t need 2 million at 65 years old, I want financial freedom while I can enjoy it. I refuse to pay for cable/internet, cuss every time I pay the cell phone bill, it feels like debt to me. My wife read me the riot act when I said we should get flip phones ahahaha.

He’s going to be great either way, I’m just all for zero payments, enjoy adventures while you know you can. With a terrible back, I don’t see too many adventures in my mid to late 60’s, so I’ll enjoy them now, if I’m lucky enough to find a cure for arthritis/compressed discs, maybe I’ll be able to play in my 70’s, until then I don’t have a worry in the world, that’s pretty refreshing to me.

 

[KU_Geo]

I didn't actually withdraw it. I just transferred it (which does mean I sold it) into a non growth account (their version of a savings account) once I had enough to pay off my house. I don't believe I get taxed on it unless i've fully withdrawn it? I could definitely be mistaken. I hadn't looked into the refi at all up until this point, because I frankly wasn't interested in restarting my loan, or switching to a 15 year. But maintaining my same loan at a cheaper monthly, less interest and more going toward principle makes good sense. I've been consistently investing for 4 years, no matter what the market has done and no finger on the sell button lol. I would just prefer not to buy back in at the absolute peak, knowing it was down 15% just last month.

If this money is in a taxable brokerage account, selling one fund for another does indeed trigger capital gains, even if you don’t pull the money out of the account. If it’s in a tax deferred account like 401k, IRA, 403b, etc.. then it will not be taxed until you withdraw (or not at all if it’s an roth). I didn’t catch which type of account you have this money in but if it’s a broker account, expect 15-20% tax on any appreciation Unless you can offset with capital losses from somewhere else.

 

[VenaticOppidan]

10yrs experience Financial Advisor and CERTIFIED FINANCIAL PLANNER here. Many, many things to consider before taking a ton of liquid cash that has been earning a spilled rate of return and paying off an illiquid asset like a house that you will now have to pay to get money out of (home equity loan).

As said earlier, why not have your cake and eat it too? And index fund is all the risk of the market. You could be more conservative and move some so cash, some to a balanced account or similar, average over a 7% rate of return (for the last 30 years), keep your money growing greater than the rate of your loan, and stay liquid.

Real estate goes up and down, as stated earlier, you can’t get your money out quickly (illiquid), you have to pay to onetime it without selling your house, and that’s a process.

Normally, I’m talking people down that are significantly older than yourself, and also have significantly more assets. Mathematically, it’s not a smart move, generally.

Great gob on saving that money and investing it properly. You know the rule of 72? Take whatever your avg earnings are, divide by 72, and that’s how long till your money doubles. So, if you earned 6% a year (significantly more conservative than you are now), you would have 500k in 12yr, and than a million in 24 years, without ever adding another dollar. Why on earth would you ever wanna start over with people willing to loan real estate funds at all time lows?

Everyone’s situation is different and if you want to have a deeper convo feel free to shoot me a DM

Congrats! It’s a great conundrum to be in.



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[VenaticOppidan]

For the guys saying "talk to a financial advisor" - how do you recommend finding the right financial advisor?

Every person I can think of that could be considered a financial advisor really just wants to invest your $$ and take a cut rather than holistically creating a financial plan. Early in my career i got referred to the "finance guy" that a lot of people in my company use. He is the son and brother of others in the company. So I scheduled an appointment and learned that he works for Northwestern Mutual and 90% of his gig is pushing you to contribute aggressively to a whole life insurance plan.. He seemed downright slimey and still spams me 8 or so years later. I consulted google after leaving his office and ended up on bogleheads and read a book on index investing that has served me well.

So how would you go about finding someone who charges for their time and helps with strategy that you can execute on your own? I think lots of folks can do math. Can understand interest rates. Can understand how tax advantaged vehicles like 401k/IRA work, but tax strategy and more detailed risk analysis or mitigation beyond that would be helpful.

Example: I just got married - my wife and I each owned our own places prior to me buying one for us to move into together. We decided to keep her townhome as a rental property. We could benefit greatly from someone explaining the best way to leverage this new "business" as a means to reduce our tax burden, how different scenarios of filing jointly vs separately would benefit us, etc.

You need to do your research and speak to folks that are Fiduciaries, such as CFP’s. We are Financial Planners and have a legal obligation to always recommend the best investment/product for your stated goals regardless of compensation. People that aren’t Fiduciarys operate under what’s called the suitability standard, which allows people to potentially recommend something could work, but isn’t the best fit and pays them a higher commission.

Also make sure the person has all relevant Security licenses and can sell any investment product out there. Too many guys i have known calm themselves Financial Advisors, but can only sell insurance products and mutual funds.

If they can’t legally talk about or sell any product available, how can they advise you on what your best course of action is? They can’t. Everything’s a nail to a hammer, and you’ll end up with some sort of cash value life insurance policy and possibly an annuity (why they have gotten such bad wraps) regardless of what you tell the individual.

Also, use sights like Broker Check to see the experience and history of the perspective Financial Advisor, as well as any disciplinary or regulatory issues.


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[jwelch1103]

If you saved/invested that much money in 4 years you can pay the mortgage off in the next 4 years or so and leave your investment money alone to continue growing.

There is something to be said for the peace of mind owning your home brings.

 

[Kilboars]

Don’t forget about compounding interest. I wouldn’t cash out your $210K. Even at your young age, you’ll never be able to catch up or recoup the potential growth attributed on that 210K. It’ll be gone forever.

210K compounding for the next 30 years vs starting over compounding for the next 30 years.

Let the mortgage company pay for your house. Get a 15 year mortgage and make extra payments. Let that 210K grow.

What he said


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[mtsrunner]

Oh - and if someone has a link to "the idiots guide" on buying mixed ag/woodland/wetland property for hunting while also using it to minimize tax burden as an Ag or timber business - please send it my way That's what i really want a financial advisor for..

I could help you with that. But to better serve you, I really need to know that piece of land. I can probably set aside a week or two I turkey season and archery deer season to do my research. Errr, I mean this Spring and Fall. I would even be willing to waive my consultation fee while I learn the land.


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[30338]

My advice is free and worth as much lol. I paid off my home at age 40. Basically what I would suggest to the OP is to refinance the home to a 7 or 10 year note drastically reducing his interest owed. Put down something like $60,000 to $100,000 of his current savings to get the payments reduced. Leave the balance in the market and throw any extra income on paying down the mortgage and rebuilding savings.

 

[wind gypsy]

You need to do your research and speak to folks that are Fiduciaries, such as CFP’s. We are Financial Planners and have a legal obligation to always recommend the best investment/product for your stated goals regardless of compensation. People that aren’t Fiduciarys operate under what’s called the suitability standard, which allows people to potentially recommend something could work, but isn’t the best fit and pays them a higher commission.

Also make sure the person has all relevant Security licenses and can sell any investment product out there. Too many guys i have known calm themselves Financial Advisors, but can only sell insurance products and mutual funds.

If they can’t legally talk about or sell any product available, how can they advise you on what your best course of action is? They can’t. Everything’s a nail to a hammer, and you’ll end up with some sort of cash value life insurance policy and possibly an annuity (why they have gotten such bad wraps) regardless of what you tell the individual.

Also, use sights like Broker Check to see the experience and history of the perspective Financial Advisor, as well as any disciplinary or regulatory issues.


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The thing is I don't want to buy any investment product from a financial planner. How does that go over typically?

 

[Kimber7man]

The thing is I don't want to buy any investment product from a financial planner. How does that go over typically?

Open up a Vanguard brokerage account. You can invest in their index funds and individual stocks. I did that this year (and also opened minor accounts for my boys) and they haven’t bothered me at all.

 

[WhatToHunt]

Open up a Vanguard brokerage account. You can invest in their index funds and individual stocks. I did that this year (and also opened minor accounts for my boys) and they haven’t bothered me at all.

Another vote for Vanguard.

 

[VenaticOppidan]

The thing is I don't want to buy any investment product from a financial planner. How does that go over typically?

The thing is I don't want to buy any investment product from a financial planner. How does that go over typically?

You just need to find a fee only financial planner. You pay only for the formation of your plan and are responsible for all implementation.

Many CFPs charge clients a rate for all services rolled into one. Planning, trading, monitoring, etc. that’s what you see on commercials about aligning your interests with the clients. They make more money you make more money, they lose money you lose money.

Many people think they don’t need help, but cause themselves sometime irreparable damage when things go sideways and make emotional vs rational decisions. Part of my job is def being a therapist and talking people out of bad decisions.


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[wind gypsy]

Have had a vanguard account for about a decade.

 

[Hoot]

Example: I just got married - my wife and I each owned our own places prior to me buying one for us to move into together. We decided to keep her townhome as a rental property. We could benefit greatly from someone explaining the best way to leverage this new "business" as a means to reduce our tax burden, how different scenarios of filing jointly vs separately would benefit us, etc.

You need a tax professional not a financial planner. I was in the exact scenario as you and I made a lot of mistakes, 5 years ago, wish I would have known what I know now. (We ended up selling both our houses to fund a land/custom home purchase/build). Both those houses now as rentals would pay all 3 mortgages + cash flow.

Find a good CPA, call around and ask, find one that deals with Schedule E, and knows how to help. If the rental has good cash flow and you don't think that you'd ever sell it (long term capital gains if your wife did not live in it as primary residence 2 out of the last 5 years), it might be tax beneficial to depreciate the asset. If you think you would sell it at any time, it might not be wise to take depreciation.

Most expenses/maintenance can be deducted, helping to reduce your tax burden.

 

[Squincher]

I actually did recently start dating an awesome chick with 2 daughters though. I KNOW this will hinder my whole life retirement/saving plan of course. But it can’t be all about me forever, and they deserve a great life as well. We’ll see how it goes!!

If you let this get to marriage/adoption whether or not to pay off your house will seem like child's play.

 

[Rich M]

You been doing very well - keep it up. 30 yrs old and worth over $500K. Well done - very well indeed.

IMO - I don't see paying the house off as being the best solution, but it's what you want to do.

In order to reduce the house stress - stop investing the $ for a bit and put a year or two worth of mortgage payments into an account. That's your cushion/emergency house fund. Then go back to investing for retirement.

The stress of the current situation is gonna pass. If you pay off the house now in the moment, I fear that you ultimately have to work longer to get the same results.

 

[huntnful]

If this money is in a taxable brokerage account, selling one fund for another does indeed trigger capital gains, even if you don’t pull the money out of the account. If it’s in a tax deferred account like 401k, IRA, 403b, etc.. then it will not be taxed until you withdraw (or not at all if it’s an roth). I didn’t catch which type of account you have this money in but if it’s a broker account, expect 15-20% tax on any appreciation Unless you can offset with capital losses from somewhere else.

Thank you for the clarification! It was in a taxable brokerage account. That’s a bummer, I was only aware of how the 401k system worked. But I do already have the money set aside to pay the taxes on the gains. So I guess my money will just go back into the market already taxed now, and I learned a valuable lesson. I’ll have another 20 years to make better decisions haha.

 

[rayporter]

personally i can say it is one heck of a good feeling to be debt free. at 30 all i had was the house and i paid it off before i was 40. after that i put the house payments toward retirement------ and was out the door at 51.

but i would stay invested and work to pay off the house. the longer your invested the more it grows.