My spouse and I’ve $1.8M saved and earn $400K. I need to repay our 20-year mortgage earlier than we retire. She says no

5 mins read

Expensive Quentin,

My spouse and I’ve carried out very nicely working in healthcare the previous 25 years. We’ve all the time taken benefit of 401(ok) and 403(b) to the max, and have further financial savings in an IRA and nearly no revolving credit score debt. We at present have $1.8 million in these financial savings accounts.

Nevertheless, at 52, we determined to maneuver to Florida — now that our children are each grown and on their very own — quite than wait till retirement. We each nonetheless work and collectively make over $400,000 a 12 months. We plan to work till 65 at minimal and have by no means had critical well being issues.

At challenge: We purchased a home on the very high of our desired vary and have a 20-year mortgage (2.5% curiosity) with a month-to-month fee of over $4,100. We’ve all the time paid additional on our mortgages, and my aim was to do the identical with this home in order that by the point we hit retirement at 65, it’s paid off.

Nevertheless, my spouse says we can have loads of cash as soon as we hit retirement age to keep up the home fee for the primary 5 to 6 years of retirement, and that we shouldn’t “penny pinch” now that we have now time to journey, even earlier than we absolutely retire.

I perceive that we’re blessed to have such a pleasant nest egg, however I fear that stretching that home fee into our first 5 years of retirement will eat an enormous chunk out of the retirement funds that might jeopardize longer-term planning. We additionally plan on this home being the majority of the “inheritance” for our two youngsters, so don’t plan on promoting and transferring as soon as we lastly make the retirement plunge.

Ideas on easy methods to method this mortgage conundrum?

Two Pharmacists in Florida

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Expensive Pharmacists,

It is a win-win. You’re charmed in the event you do, and also you’re charmed in the event you don’t.

This column usually leaves readers flabbergasted. “I can’t imagine this loopy state of affairs!” readers say as they attempt to course of some letter writers’ misdeeds or familial shenanigans. “Who would do one thing like that?” It’s a pleasure to learn a letter the place folks have really carried out a lot proper. You’re in a financially safe place and, in a worst-case state of affairs, you might all the time downsize out of your present house.

The reply to your dilemma is a particularly subjective one. There may be an argument to be made that we don’t know whether or not any of us can be right here by the point our mortgages are paid off, so why not fulfill our obligations and revel in all that life has to supply.

Given the curiosity you’ll undoubtedly save by paying off your mortgage early, even at 2.5% curiosity, I agree with you. Overpay in the event you can, particularly early on within the lifetime of the mortgage when the interest-rate funds are larger.

Relying on the phrases of your mortgage, you might be restricted on the quantity in overpayments you may make (10% in some circumstances), and as irritating and galling because it appears, there may be a penalty for overpaying. 

For you and your spouse, nonetheless, that might create a contented center floor.

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