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Help Me Plan for Retirement

May 30th, 2019 at 02:45 pm

Tomorrow, I will pay my second mortgage payment ever.

$351.98 – Principal
$100 – Extra towards principal
$995.81 – Interest!!!!!!!!
$393.02 – Escrow and PMI
$1840.81 TOTAL

I think it’s horrifying that the interest alone is more than (Principal + Extra to Principal + Escrow + PMI). Why are mortgages so EVIL?!!!???

Anyway, this makes me think even more of a plan that I have forming in my mind. I don’t know if it is smart or foolhardy. Here it is – please give me some advice.

I will be done with all my consumer debt by the end of this year as well as have $10K in EF. I don’t really have much of any other savings. My employer adds a meager amount to retirement savings, but that will cease when I quit my job early next year. While I worked the last 10-ish years to pay off about $60K in high interest consumer debt, I didn’t really save anything for retirement. So, now I have $40K in a retirement account with my employer, and will get a very small pension. Everything else towards retirement needs to be saved going forward.

I want to pay my mortgage off as soon as I can. It’s a 30 year mortgage at 4.5%. I want to pay it off in 10 years on the outside. Hopefully within 8-9 years if I can. If I quit my job, what this will mean is, after EF, sinking funds for major house repairs/entertainment/travel, purchasing my own health insurance, and if I pay $6k/year into an IRA, if I throw everything else at the mortgage, I can pay it down in 10 years or less unless something horrible happens.

Part of the reason I am planning to leave my job and go into SE full time is that I have a greater earning potential that way compared to doing the same thing in a salaried position. The downside of course is that I can’t predict what will happen – I might have serious health issues, have other things come up that will get in the way of making a good income. This feels like all the more reason to work as hard as I can to pay off the mortgage as fast as I can. If I can have the house paid off, then I plan to purchase a rental property for passive income. Work at the same rate as I am now, use rental income and part of my income to pay off the rental property in the next 10-ish years while saving for retirement simultaneously. Then go semi-retired around 58-60-ish. Even if I don’t buy a rental property, I am pretty frugal, and if I don’t have a house payment, then even if I were not able to work, then I could easily live off very little. If I purchase and pay off the rental property, then I can definitely semi-retire at 60 and would be able to fully retire at 65 with two paid off houses, and a rental income in addition to anything I have saved for retirement by then.

However, I also think it makes fiscal sense to save money for retirement and not throw all my money at the mortgage. I am so torn. What do you all suggest?

6 Responses to “Help Me Plan for Retirement”

  1. crazyliblady Says:

    You need to do both. You also need to save money for emergency savings and also home maintenance expenses.

  2. fireandi Says:

    I am saving towards a larger EF. And I have sinking funds for home maintenance. I am trying to find a balance between investing and paying off the mortgage. How would you decide how much to invest if you want to aggressively pay down a mortgage?

  3. Amber Says:

    I’ve set up an emergency, home repair and car fund. I started late with my retirement. Thanks to this group, I’ve opened a Roth and a traditional IRA, in my situation it’s definitely best for me to contribute to the traditional account. My goal like yours is to have my house paid off in ten years. Unlike you I have consumer debt and a dreaded student loans. CCs will be paid off this year and next year I’ll be able to tackle the student loans

    Good luck

  4. Jenn Says:

    My opinion: I think retirement is a top priority at your age. Compound interest is like magic but it does require time. But I totally understand your feelings on mortgage interest - it pisses me off too. (I sometimes calculate my average daily interest to motivate me!)

    To decide on a balance between paying down the debt and investing for your future, I would calculate a rough amount that you need in your nest egg at 65 - your stated goal for retirement age. Don't use dumb formulas that base that number on your current income. Just imagine the lifestyle of future-you and make a rough budget of the cost. Will you still be frugal? Travel? Are you investing in your health now to maintain an active lifestyle? Should you plan for a chronic condition? Etc... Then use a free online calculator to determine how much you should put away each month. THEN give yourself permission to throw anything over that to the mortgage and make a game of knocking it out.

  5. CB in the City Says:

    All the experts say to put it all into retirement savings, and not to double up on mortgage payments. I don't know. It does feel good to bring down a mortgage, but retirement is ultra important.

  6. fireandi Says:

    You all bring up some good points. I'm still open to suggestions. As Jenn points out, perhaps it's a good idea to calculate how much I will need for retirement and start saving that and put the rest towards the mortgage. I will run numbers on that. The one thing that gives me pause is the fact that I will be self-employed starting next year and mine is the only income. Saving first for retirement and then for mortgage assumes that I will not have a major setback before 60-65. If something does happen and I am not able to work or something like that, I will lose my house. This is what makes me want to pay the mortgage down. From my amortization spreadsheet, it looks like I will save around $135,000 in interest over 9 years if I throw everything at the mortgage. I will do another spreadsheet with a conservative return rate and see if I can earn $135,000 in compound interest over the same period. If I can, then maybe that's the route I will take. Sometimes I wish I were not a grown up, that my parents or someone else made these decisions for me. My old age depends upon what I decide now, and that feels like such a major responsibility.

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