Would You Prioritize to Pay off Mortgage Early or Save More for Retirement

Five Reasons for Debating over Why Save for Retirement or Pay Down Your Mortgage

The perpetual debate over saving for retirement or paying off mortgage early may never end. However, you are getting on in years and now is the time to make the right decision! Limited resources over trading off between the two makes financial sense dominate over emotional attachment. Here are five reasons to convince you why considering should i pay off my mortgage early or save for retirement has become so important.

1) Don’t Put All Your Eggs in One Basket

• Investment Retirement Portfolio spreads out money, paying off mortgage early saves money only in one asset – your house. Save for retirement or pay off mortgage choice is yours.
• Prioritize diversifying investment and savings. Other asset classes usually outperform a house asset over long term
• Applying for new credit, however small, along with new mortgage waves a red flag to stop/delay mortgage application.
• Home equity is not liquid enough to borrow emergency funds between now and retirement. Another loan defeats paying off mortgage.



2) Maximize Time Value of Money through Retirement Savings

• Primary power of retirement savings is application of rate of return over many years – the time value of money.
• Average rate of return on the S&P 500 is 10%, you may consider 8% due to diversification inherent in a balanced retirement portfolio.
• Investing mortgage money of $10,000 in Roth 401(k) over 15 years gets you additional $133,148 earnings, which cannot be made up with even larger contributions later on



3) Take Advantage of Heavier Tax Benefits with Retirement Savings

• Consider two important tax factors,
  1) Retaining tax deductibility of your mortgage payments
  2) Tax deferral on retirement contributions
• No tax benefits for paying off mortgage earlier. A no-brainer for should i save for retirement or pay off my mortgage.
• Mortgage interest tax deductions diminish and disappear over loan term.



4) You Benefit Only If You are Planning to Live in Current Home Post Retirement

• People want to pay off mortgage early to be free of them for retirement.
• Paying off mortgage is unnecessary, built up equity not as significant as retirement investment savings.
• Spousal credit problems affect mortgage application
• Most people move and downsize their housing arrangement post retirement making debate over save more for retirement or pay off mortgage irrelevant.



5) Mortgage Loan Has Fixed Loan Term Ending Your Debt Eventually – Time Is The Best Healer!

• Stick to your regular and on time monthly payments without recasting.
• Make mortgage loan go away at end of loan term.
• Is it better to pay off mortgage early or save for retirement answers itself.
• Saving for retirement takes priority over making additional mortgage repayments

If you go over the arguments both ways repeatedly, you will eventually see why saving for retirement should get priority over paying off your mortgage early.

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