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This assumes there is income to defer and that the deferral exceeds the difference in nominal tax paid, which could be more or less at retirement. But yes, under most reasonable assumptions, you come out ahead.
Why would I be in the lowest tax bracket? And what will that tax bracket be? At least put it in an IRA so you can control it.
This post was edited by BH Spartan 19 months ago
You got a 30 year mortgage at your age?
The problem is with the 30 year mortgage, after 15 years you still owe 80% of the principal, so you are almost renting it for the first half of your mortgage. Pay off your mortgage
I went through the same thing a year ago. I hear you loud and clear. Most stressful time in my life hands down.
"People don't care how much you know until they know how much you care." - Mark Dantonio.
You have had a good life, friend.
My attitude on this has changed in the last few years. I'm 40ish with three kids; oldest is 12. I have always lived a bit below my means and maxed out 401(k) and fully funded IRA /Roth IRA investments since I started working; mostly had 15 yr mortgages rather than 30 yr and made the minimum payments. But in the last few years, I have started thinking about milestones coming up in the next 5-15 years including kids going to college and the possibility of retiring early.
At this stage in life, I am now leaning more toward trying to pay down the mortgage with a goal to pay it off in the next 7 years (of course I still contribute enough to 401k to get the match). I figure that as long as i have a large mortgage payment and a desire to help fund kids' college costs, I would have no option of retiring early. But if I get the house paid off and a decent nest egg built up then I can work on my own terms rather than being bound to a job that I may or may not be happy with at that time.
This is prudent. As you can tell by the last 5 pages there is no one concrete answer. I'm in the same boat, although a little older than you. I have 2 kids in college and a freshman in high school so I have minimum 8 years of tuition to pay and possibly medical school. I will have the homes paid off in 4 years minimum. After the kids are gone and the mortgages are paid off I'll have zero debt. Will be able to cut back on my hours at work and only need to cover taxes and living expenses if necessary. I had also purchased our primary home about 23 years ago so even with the housing market collapse it's still worth a lot more than I paid for it. As I mentioned in another post I feel like it's an additional insurance policy. If I'm gone the family cannot lose the homes and the life insurance policy would keep them comfortable and without worry.
I save 20% of my gross for retirement, am currently 35 and hope to retire by the time I'm 60 - hopefully a couple years earlier. My wife doesn't currently work but when she does resume (teaching) we will put 100% of her salary toward retirent. Long term, I'm planning on having any mortgages I have paid off by the time I'm 50 - as I prep for retirement. I see no reason to do it now though.
It's very generous of you to pay for your kids medical school. No way in hell am I deferring retirement by five years so I can give my soon to be rich kid over a quarter million dollars. Frankly, same goes for undergrad.
Hard to be rich when you graduate with that much debt.
If you are not going to provide for your children what exactly are you going to do with your money and why did you have children to begin with?
I'm the opposite - I plan on having a mortgage as long a I live (assuming current tax treatment, interest rates, etc.)
They might not be rich, but this is the 21st century so it's not like they'll be out on the streets.
I can tell you endless stories of people I knew in college who had everything given to them - tuition, books, housing, food, cars, bowl money, spring breaks in Mexico/Hawaii/etc., and grew old not having any financial restraint or responsibility whatsoever and are now screwed. Mom & dad are no longer around or in the position to finance the lifestyle they've created for little Johnny which has ultimately resulted in everything from fore closures, divorce, piss poor credit ratings, & in the more extreme case - suicide.
My parents could have pinched pennies & helped me a little more, but in the long run it was a crash course in economics/personal finance and survival. And today I couldn't be more thankful for them not making it easy for me.
My spouse and I put her through medical school and with a mortgage and other expenses there were Friday's when we opted to stay home and eat, but we never accepted help and are much better off for it financially.
To each their own, but my kids will be raised in the same manner.
Maybe you should be thanking all of your teachers who made $50k or less per year for your education & putting you in the position to make such an "educated" statement.
Studies suggest otherwise. Retirement income is typically 80-85% of what you made while working. And that's really all you need.
I was damn near homeless. Had paid the early exit fee on my lease, the apartment was already re leased to someone else and the mortgage company had all but given up trying to get the loan to go through. Thankfully, the seller was understanding and patient. But I agree, if that's the worst thing that happens to me, I'll be happy.
This post was edited by JMSparty08 19 months ago
There are always outliers. That dude is clearly one of them. Duh.
Most financial advisors agree. Your kids can take a loan out for college. You can't take a loan out for retirement. It's admirable to pay for your child's education. However, if that means that you aren't saving for your own future and taking out non dischargable loans in the process, there's a problem.
With the cost of tuition skyrocketing and loans for it easily attainable, parents financing their children's education is just about over. Not only that, but it really makes junior think about his goals early and working for them himself. Part time job instead of living off of loans and parents' money may be good.
There is something to be said for this. My parents paid my MSU tuition, but I was responsible for all living expenses. I worked my ass off in the summers to make enough to cover that and not need to take loans.
I knew I was on my own for medical school and was frugal with the way that I saved. Obviously, I needed to take loans in med school, but I was able to get by with about 70K of debt which was much lower than most of my peers.
I live very comfortably now, but not to the level most of my partners live at. I have and am able to do far more than my parents ever could and I believe a solid foundation of needing to work and save when I was younger helped this to develop.
I fear that my kids will not have the same drive.
I am very conservative financially and have done very well by "paying myself first". Max'd IRAs and 401Ks and deferred income plans for years and lived well below my means. Bought my first house with 20% down and much higher down thereafter on subsequent houses. After about 7 years, the investment results from the above began to exceed the payroll deductions. Kept going and after 30 years easily retired, paid for all kids undergrad, and have a wonderful house that is only about 30% debt and 70% equity at 2.76% interest.
At those interest rates, someone is basically providing me with an outstanding opportunity to arbitrage. At 2.75% before tax (about 1.8% AT), I can create wealth by buying stocks that pay good dividends as dividends are taxed at 15% (dividend yields of 3.5% are not uncommon, and at 15%, are 3% after tax). So, I am paying 1.8% to get 3% after tax with whatever money would have been spent to pay down the mortgage. In addiion, I get all the potential upside of the stock (and the risk of downside). But at age 58, the worst that can happen is this money that would have paid down the mortgage disappears if market tanks. But do not have to sell so can ride it out.
That is the key...can you sleep at night if you lose the money. If not, pay down the house or hold the cash. But remember, the paydown is not necessarily a risk-free investment either. If you have plowed it into the house, and you have to sell (relo, financial issues), you may never get it back if housing market is desperate. Your money will be all tied up in one asset in one location...not very diverse. So may not be any riskier than a bundle of blue chip stocks that pay high dividends.
Also consider where you are at in your mortgage schedule. Remember, you pay interest early and principal later with your mortgage payments. What many people overlook is that the AMOUNT of interest (not %) that remains on a mortgage gets very small in the latter years of a mortgage. So that your effective interest rate later in the mortgage is very small...you essentially begin paying much more in principal and much less in interest payments in the latter years. So about 1/2 way thru a 30 year mort, you are likely only paying about 60% of the original interest rate going forward. This means going forward, if your original mort was 3%, you are now effectively paying only 2% before tax, or only 1.5% or so after tax. Pretty cheap loan and one I would not pay off quickly. So consider where you are at in your mortgage before paying down...you may only be paying faster princiipal vs eliminating much interest expense, and why pay back principal any faster than the minimum required?? Hell, hold the cash vs pre-paying in that instance.
I'll just keep borrowing - don't expect my Loan balance to ever decrease much. I have a very safe job with pretty well known income (bonuses and such) so I'm not worried about the cashflow to service the debt and by investing aggressively (aggressive amount, not aggressive investments) including funds from mortgage debt, I hope to have assets that well outpace my loan balance in a few years. That's my theory and I'm sticking to it.
Most (all) financial advisers make ZERO commission if parents put money toward children education instead of retirement.
Just sayin. I have tremendous disdain for the financial services industry.
Great thread. I go back and forth. Lately I am in the have a mortgage camp and keep as much free cash flow as possible. Its different for everybody.
just refied our 30 yr 4.875% to a 15 year at 2.75%,
our monthly payment only went up about $250.
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