'I am maxing out my retirement accounts — IRA and 401(k) — and looking to retire in less than 10 years.'
Dear Quentin, I currently owe $300,000 on my house with a 2.5%, 30-year mortgage. I am maxing out my retirement accounts — IRA and 401 — and looking to retire in less than 10 years. I will receive an inheritance of at least $300,000, so I will be able to pay off the house.
As my colleague Aarthi Swaminathan put it: “While the price of their car, gas, electricity, and other expenses go up, that homeowner will also see their home value rise with inflation. Yet their mortgage rate remains the same as it is not inflation adjusted, which means they’re still paying the same rate that they were pre-inflation.”
Your tax-advantaged retirement savings at, say, 6% will be doing a lot of the heavy lifting for you, offsetting your 2.5% interest rate, assuming that you have a healthy 401 and IRA. Talk to a financial adviser, and make sure that you would still have enough to live comfortably and pay down your mortgage and/or downsize.
Continue to max out those accounts. “I assume you are over 50, so you can put $7,000 into an IRA and $26,000 into your 401. I have been doing this for 36 years and I have yet to meet someone who put away too much for retirement,” Pon added. “I strongly suggest you continue to max out your retirement plans so your retirement will be more secure.”
If it were me? I’d pay off the loan. I don’t like debt. We spend the first part of our lives desperate to get a mortgage, and then the rest worrying about paying it off. They are a necessary, if sometimes unhealthy, obsession. Mortgages give us something to focus on aside from the other “M” word: our mortality.Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas.
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