Save More or Pay Off Your Mortgage?

Save More or Pay Off Your Mortgage?

As you get closer to retirement, should you save more or pay off your mortgage?  This was a question we received from a listener.  Let’s look at the key factors of your decision.

Watch Now: Save More or Pay Off Your Mortgage?

Blog Post Alt Tag

Listen Now:
3 Things to Know About Bear Markets

Subscribe Where You Find Your Podcasts

Blog Post Alt Tag

Today we have a question from Laura. She writes, “My husband and I will be 52 years old this year. Should we focus on saving more for retirement or paying off our mortgage?”

Why Pay Off Your Mortgage Before You Retire?

Your mortgage payments are typically one of your biggest expenses. Not having that expense frees up money for other things or reduces the stress on your savings. We like to see people not have a mortgage when they go into retirement.

An Example:

Laura and her husband need $2,000 per month from savings to cover their expenses—including their mortgage. Using the 4% rule as a basic guideline, they would need about $600,000 in savings.

save more or pay off mortgage

Their mortgage payment is $800 per month. If they pay off the note before retirement, they would only need about $1,200 per month from savings. Using the 4% rule, this means they only need about $360,000 in savings. It is a significant difference.

Save More Pay Off Mortgage

What Factors In Your Decision?

If you are trying to determine whether you should pay more on your mortgage or save more, ask these questions:

If you keep your mortgage payment the same, will your mortgage be paid off by the time you retire?

If the answer is yes, consider adding extra funds to your retirement savings. You may want to think about using a Roth IRA, Roth 401k, or other types of after-tax savings? If the answer is no, you may want to dig a little deeper.

Will paying more on your loan eliminate your mortgage by the time you retire?

If the answer is yes, consider paying extra on your note.

How much have you already saved and how much are you saving towards retirement?

If you have been a good saver and have a good foundation, it’s easier to favor paying extra on your loan. But if you have not been a good saver, you may want to place a higher priority on your savings.

Talk to a Certified Financial Planner™ Professional

There are a lot of moving parts to this and it is a great thing to discuss with a financial planner. They can help you build a strategy that makes sense for you and helps you achieve the best possible outcome.

 


insert here

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

Our Most Recent Videos And Posts

Can I Max My Roth and My 401k?

Can I Max My Roth IRA and My 401k?

Sandy wants to know if she can max her Roth IRA and her 401k contributions.  Let’s dig into the rules.

Listen Now: Can I Max My Roth IRA and My 401k

can i max my roth ira and my 401k

Subscribe Where You Find Your Podcasts

Blog Post Alt Tag

Do you want to hear the full show?

The full episode is over 25 minutes long.  And we’ve found that not everyone wants to spend that much time listening to things.  But if you want to listen to the entire episode, it is below.

We answer:

Transcript: Can I Max My Roth IRA and My 401k?

This question is from Sandy. She asks, “Can you contribute the maximum amount to a Roth IRA and the Roth account in the government’s Thrift Savings Plan?”

The answer is yes—if you qualify to make a Roth IRA contribution.

Here are the contribution limits for 2020. For retirement plans whether it’s the Thrift Savings Plan, a 403b plan at the hospital or a school, or a 401k plan, you can contribute $19,500. If you’re over 50, there’s a catch-up contribution. That amount is $6,500. You can contribute $6,000 to a Roth IRA. If you’re 50 or older, you can contribute an additional $1,000.

If you wanted to maximize both, and you’re under age 50, that’s $25,500. If you’re 50 or older, that’s $33,000 total per person. If you’re married, you can do both, and your spouse can do both. If you have that much extra income, that’s phenomenal!

There are income limits for Roth IRA contributions. You can make the maximium Roth IRA contribution if your modified adjusted gross income (MAGI) is below these limits. For married couples filing a joint return, the limit is $196,000. If you’re single, that limit is $124,000. If you’re married and you file separate returns, the income limit is $10,000.

If your MAGI is over those limits, your eligibility to make those Roth IRA contributions changes. You may be able to do a partial contribution or none at all.

The Married Filing Separately Tax Trap

The married filing separately thing is an interesting little trap. A lot of people will file separate returns to try to save on state income taxes. But it has a hidden impact on things like your IRA contributions. It impacts deductions for traditional IRAs, Roth IRA contributions and Roth conversions.

If you’re married filing a separate return and your income is over $10,000, a lot of those things disappear. You want to be very careful with that. You don’t want to get a surprise later on.

Can I max my roth IRA and my 401k
Can I max my Roth IRA and my IRA
max roth ira and 401k

 

Don’t Miss An Episode

Get every episode of Monday Morning Money in your inbox.  Join our mailing list.

Subscribe Where You Find Your Podcasts

Check out our other posts.

How Does Retiring at 55 Impact Your Social Security?

How does retiring at age 55 impact your Social Security benefits? Today we have an example created using Social Security's detailed calculator.
Read More

4 Things to Help You Plan for The Worst

4 Things to Help You Plan For the Worst Today we are going to talk about 4 things everybody should do to help you plan for the worst. These steps
Read More

How Can a 100-Year Flood Help You Plan for A Better Retirement?

How can a 100-year flood help you prepare for a better retirement? We will show the impact a generational event can have on a retirement account.
Read More

5 Lessons From the Bear Market

5 Lessons From The Bear Market One year ago, on March 23, the S&P 500 closed at its bear market low. Today, we are going to talk about 5  lessons
Read More

10 Percent Doesn’t Mean 10 Percent

10 Percent Doesn’t Necessarily Mean 10 Percent When it comes to stocks, 10 percent doesn’t necessarily mean 10 percent. We will explain this and how setting reasonable expectations can make
Read More

Retirement Anxiety

Retirement anxiety. It is the nervous feeling you get in the pit of your stomach when you start to think about your retirement. We'll talk about one of the best ways to ease that stress.
Read More
Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

Our Most Recent Videos And Posts