What would you do?

[skives]

So I’ve been on here lately asking a few questions but I have another one.

we currently pay $1,356 a month on our mortgage. The actual payment due is $557.84 on a 30 year payment plan with 282 monthly payments left. We currently are paying on a 10 year payment plan.

we have no other debt and our monthly bills are low.

we have a 20k EF and save $500 a month into online savings.

my question is would you continue to pay on 10 year plan or switch to 15 year plan and what would you do with any money over the $20k ef fund?

[disneysteve]

my question is would you continue to pay on 10 year plan or switch to 15 year plan and what would you do with any money over the $20k ef fund?

This is really just a variation of the "can we afford this truck?" thread. You have an adequate EF. You are saving 15% for retirement. You have money left over each month and want to know what to do with it.

Odds are your mortgage interest rate is low, probably in the 4% range. So the question is if you are happy "earning" 4% on your money or if you'd prefer investing it somewhere else where you have the potential to earn a lot more. Of course, investing it also has the potential to earn less or even lose money.

There isn't really a "right" answer to the question, and how I might answer it may differ from how you or others might answer it. The great thing about living below your means and being responsible with your money is that it gives you flexibility. The house is your only debt. If you want to throw extra money at it, that's certainly not a bad choice. If you would rather try to grow your portfolio faster, you could do better investing those dollars. Or you could do a little of both and pay some extra on the house and invest some.

I can tell you that we did put extra money toward our mortgage every month when we were able to do so. There were some months when something came up and we weren't able to pay more than the scheduled amount, but that was fine since we weren't locked into the higher amount. There's that flexibility I'm talking about.

[Jluke]

As I said in the other thread I would focus on retirement savings.

how close are you to maxing the 19k to 401k and 6k to IRA?

when I felt “rich” I started getting more aggressive with retirement savings (maxing out) and quickly used up excess cash.

Even disneysteve
commented on my revived thread recently that my income hadn’t changed. It did but I was directing more to retirement.

don’t be satisfied with 15% if you aren’t close to maxing. I forget your combined salary but I don’t think 15% maxes the accounts.

[skives]

Let me ask this. Would anyone do non retirement taxable mutual fund investing before completely maxing out 401k and Roth IRA?

[kork13]

Let me ask this. Would anyone do non retirement taxable mutual fund investing before completely maxing out 401k and Roth IRA?

Yes, I'm actually considering that exact choice right now. I'm trying to decide if we should back off from 20% of gross going into retirement to focus more on taxable, to ensure we have access to sufficient funds before 59½… we're 34/35, and by this summer should have $550k in retirement, $500k in our house & a rental, but less than $100k in taxable cash & investments. We've always maxed out retirement since we got married, but looking out, I want the flexibility to "retire" early if desired. With so much concentrated on retirement, that becomes difficult.

ETA: Speaking more to what I expect is the intent of your question.... In most cases, maxing out retirement should be prioritized above taxable investing, but not too the exclusion of everything else. A minimum of 10-15% of gross should be sent into retirement. If you're able to do that, and still meet your other financial goals, then go ahead & max out retirement.

[disneysteve]

Let me ask this. Would anyone do non retirement taxable mutual fund investing before completely maxing out 401k and Roth IRA?

I would max the Roth first for sure because your contributions can be withdrawn at any time without penalty. I wouldn't necessarily max the 401k, though, because that money is locked in for the duration. Yes you can take a loan but that's a really bad idea. That should never be the plan. Having some of your money in taxable accounts gives you added flexibility especially if early retirement might be a possibility for you.

I max my 401k because I can given my income. We can't contribute to Roths anymore unfortunately so the rest of our investing is in taxable accounts.

[Jluke]

I max my 401k because I can given my income. We can't contribute to Roths anymore unfortunately so the rest of our investing is in taxable accounts.

Backdoor Roth?

[disneysteve]

Backdoor Roth?

We have multiple traditional, rollover, and Roth accounts so it's kind of messy. I have to look into it more to see if it's worth the hassle. It's on my list of things to ask our CPA when we do our taxes next month.

[MonkeyMama]

don’t be satisfied with 15% if you aren’t close to maxing. I forget your combined salary but I don’t think 15% maxes the accounts.

I don't agree with this at all. Maxing out would be 67% of OP's income. The retirement max # is an arbitrary tax number that doesn't really mean anything. If you *can* put away 67% to retirement that's great, but is nothing I would say that someone *should* be doing.

[MonkeyMama]

Let me ask this. Would anyone do non retirement taxable mutual fund investing before completely maxing out 401k and Roth IRA?

I wouldn't put a penny in a taxable mutual fund unless our ROTHs were maxed out first. As others mentioned. Might as well lock in the "tax-free forever" benefit of the ROTH. & the money is pretty easy to tap if you do need it before full retirement age.

I would/have invest in a taxable mutual fund before maxing out a 401k, yes. One reason is if you want more control over your investments or more choice. Another reason might be if the tax differences are negligible. (We are personally in the 0% tax bracket for investments, for example). Another reason is if you might need the money sooner. We have done for all three of these reasons.

[Jluke]

I don't agree with this at all. Maxing out would be 67% of OP's income. The retirement max # is an arbitrary tax number that doesn't really mean anything. If you *can* put away 67% to retirement that's great, but is nothing I would say that someone *should* be doing.

I only meant that OP has more room to fill those buckets.

I know someone (it was you) here said the same to me when I joined (why aren’t you maxing Roth?) so was just paying it forward to be more aggressive with retirement savings.

we know OP has extra $800 from mortgage and $500 from regular savings.

Reality is that it is not possible to max 401ks based on salary.

[LivingAlmostLarge]

Actually you can max 401k on $75k but it's very Money Mustache living. But I think it works for many. I think as long as you are doing 15% and 5% to savings you are good. The question is what is important? Retiring early? Then you need to be saving 50%+. Enjoying life? Then you can do 15% to retirement. There is no wrong answer. There are "better" answers and ways maximize bang for your buck.

I'm an example. We carry the mortgage because bang for buck I don't plan on paying it off and between tax break plus inflation it makes sense for us to carry our mortgage. That isn't to say I won't change my mind or can't. It's just what makes sense for us now. We allows us maximum flexibility and our mortgage is large. Large enough that I'd be really uncomfortable paying it off and having not much in taxable accounts. Is it the wrong answer? Maybe but we are saving, we are living, and we are paying down the house It's the path we've chosen. What do I gain by paying off the mortgage? Well if we were to us all excess money we saved it'd still be another 5 years probably before we paid off the mortgage. So it's not an inconsequential amount of time. Less if we didn't do retirement or 15%. But I'm not willing to give on that. Nor am I willing to concede we shouln't just work longer to enjoy the freedo of not paying off the mortgage.