Dear Helaine: I'm 54 and divorced. I've been with the same company since 2004, and I also receive a small military pension. After taxes, I earn $4,900 a month, including the pension. I contribute to my employer's 401(k) and meet the employer match. In addition, I also save between $900 and $1,000 a month, and now have $32,000 in savings. I have no other debt besides my mortgage.
My question? I calculate that at my present rate of saving, I would be able to pay off my mortgage by the end of 2020. That's 8 1/2 years into a 30-year fixed mortgage. It would wipe out my savings, albeit without touching my 401(k). And I do have an aversion to paying interest. I also don't want to be paying a mortgage in my 60s. Is it foolish to use my entire savings to clear my mortgage?
My job is fairly secure, and I hope to remain with the company till retirement in 10 years. Even so, there is an undeniable appeal in not having a mortgage in case I am overly optimistic about my employment security. -- A Mortgage-Free Future
Dear Mortgage-Free Future: I totally understand where you are coming from. I'm not going to say you are right or wrong; each one of us has a different comfort level for mortgage debt and the interest owed on it.
What I would suggest is that you put this goal on a longer time line than a two-year period. Why? Simple: I don't think it would be a good idea to clean out your savings so you can achieve your goal of metaphorically burning your mortgage papers.
If something goes wrong -- say, your job isn't as secure as you think, or you suffer a health crisis -- you might face a situation where you need to turn to your retirement savings. That could leave you paying penalties, along with doing significant damage to your post-work finances. That's the opposite of the security you are hoping to achieve.
Real estate is an illiquid investment, and there is no guarantee you can sell the property when you need to for the amount you would like, or that a bank will give you a home equity line. On the other hand, the amount you have set aside is a nice emergency fund. I don't think you need to add to it.
I'd suggest taking the extra $1,000 a month and dividing it between increasing your retirement savings and paying down your mortgage. If you get a raise, you can put that money toward the mortgage, too. And keep up the good savings work!
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