Are you that worried about paying off your house before retirement?

[dullard]

Makes me wonder if doing 529 is really worth it.

A 529 is one of the last things you should invest in. But it isn't as bad as you make it out to be.

The people hit hardest are those with low to mid income and a high 529 balance. I'd wager a bet that there are not that many people that fit that category. If you have a high 529 balance, that probably came with a high income (probably high enough to disqualify you from financial aid anyways).

Median income of 529 plan investors is $142,400: http://www.cnbc.com/2015/01/28/
This isn't the group getting a lot of need-based financial aid.

The 529 value can reduce financial aid by up to 5.64%. So, if I put away $10000 in a 529, then the child can get his/her financial aid reduced by up to $564. That really isn't that much of a problem. Especially considering that I'm in a state that gives a tax deduction of about 7% for investing in the 529. Meaning I save $700 in taxes, and the child (if I had one) would lose up to $564.

 

[BurnItDwn]

That would be why I said it is generally an emotional decision. Most people say they "like the feeling of having no debt" or "I like not having a payment" -- there are certainly exceptions, but I stand by my original statement.

The main exception for a lot of people is that the market is very unstable. "secure" jobs, are often not very secure. There is often the risk of an H1B replacing you, your job being shipped overseas, the company laying off workers, or some other thing.

Lots of people have been hit hard with these things over the last 30+ years. Many of them quickly found gainful employment, many others took new jobs that pay a LOT less.

Paying off the mortgage is a good way to hedge your bets, its insurance against a market collapse. The interest in a savings account is a lot less than the mortgage interest rate. Bonds usually have lower returns than mortgage interest rates too. The stock market is volatile. If you lose your income, and the market crashes, you will lose money on stocks.

In a perfect economy where labor needs perfectly match the labor market, then investing is always the correct choice, but in the complex economy where we currently live, reducing your exposure is one of the best ways to provide financial security.

 

[ponyo]

To be fair, it is really easy to be a good investor. Buy index funds and don't sell them. 😛

That is a good point, though - someone who makes decisions based on how they "feel" will probably be more likely to sell stocks when they're plummeting and buy when they're going up, which is not a good plan.

Nothing is guaranteed and a sure thing. Time will come when index fund investors learn that hard lesson. And I think that time is approaching.

 

[dullard]

To be fair, it is really easy to be a good investor. Buy index funds and don't sell them. 😛

That is a good point, though - someone who makes decisions based on how they "feel" will probably be more likely to sell stocks when they're plummeting and buy when they're going up, which is not a good plan.

Yes, it is quite easy to buy and hold index funds. That is what I do.

The problem is that it can be so tempting to sell index funds. It is very hard to sell that $50 extra you put into your mortgage. It is just a way to provide stability.

I choose to do both. I maximize the tax-advantaged accounts. Whatever is left went to the mortgage. Whatever was left after that went to taxable investments. I can honestly say the best comfort in the world is knowing that I only need to keep the kitchen cupboards full and I'll be fine. Having an extra unused $100k (randomly chosen number, not realistic for me) in the stock market wouldn't provide that same comfort.

 

[Tweak155]

I paid off my current house however if everything goes smoothly, this Friday I will have a nice new 15yr mortgage.

I personally like to aggressively pay off loans as it is a guaranteed return on my money, and I'm not naturally a risk taker. I'm also "buying" peace of mind, so while I might be losing possible future income, I've "spent" it on something now that I am receiving value from.

I am ok with this.

 

[vi edit]

I think you misunderstood his point:



he's saying that instead of in the future charging things and then paying it off over the course of several months (new furnace, new washer/dryer, vacation, hospital bills... whatever), they have the cash on hand due to know house payment. He wasn't saying paying off EXISTING high interest consumer debt.

I am in that exact same situation. It sucked not having cash on hand when I needed it (or wanted it) so things would get charged and it might take me 2, 3... even more... months to pay it off.

Now that I have no mortgage, I can pay it off immediately, or at worst within a couple of months.

Exactly, thank you for making that clearer. :thumbsup:

Plus if I have a $1000 or $1500 payment gone, it's a A LOT easier to justify plowing a couple grand back into a personal Roth or Traditional IRA at the end of the year in addition to my employer's 401k plan.

This argument reminds me a lot of the good old tax refund one and how worked up people get that "you are giving the government free money!". But really sit down and do the math on that. If you get $2000 back at the end of the year how much would you *really* earn on that if you put it in a savings account over the course of a year? Or even tried to guess what what it was worth if you put it into a Roth (if you even did with the extra monthy income).

When on the other hand I can get a lump sum cash back at the end of the year to put down directly on a loan or a credit card bill or right back into a IRA for the next year? I find lump sum payments much more useful than a hundred or two hundred bucks more a check each month. I just flip it around and put it down on a car loan or my mortgage.

Logic is more complicated than plugging something into a spreadsheet with an assumed return rate and saying something is more financially responsible. There are a ton of other factors involved (that are money related) that have to be accounted for as well as for personal risk adversity and fiscal discipline.

Personal tax income tax rates, retirement tax rates, hell even the states you live in can all widely affect financial decisions that are not typically represented in a basic investment calculator. If you are self employed or have seasonally fluctuating income that can make a big difference in monthly budgets if you are mortgage free. Just a lot of stuff that a simple calculation can't account for.

I don't know what else to say other than it's not just some feel good emotional decision.

 

[jlee]

Yes, it is quite easy to buy and hold index funds. That is what I do.

The problem is that it can be so tempting to sell index funds. It is very hard to sell that $50 extra you put into your mortgage. It is just a way to provide stability.

I choose to do both. I maximize the tax-advantaged accounts. Whatever is left went to the mortgage. Whatever was left after that went to taxable investments. I can honestly say the best comfort in the world is knowing that I only need to keep the kitchen cupboards full and I'll be fine. Having an extra unused $100k (randomly chosen number, not realistic for me) in the stock market wouldn't provide that same comfort.

That's a solid plan. Once the retirement account baseline is covered, it's a great way to diversify.

 

[thegimp03]

We're looking to upgrade and get into a larger place so we've been on a house search for the last few months. We're both aged low 30s so a 30 year mortgage would be paid off right around the time we aim to retire (not really sure when that will happen yet). The search has been somewhat fun and painful at the same time - fun in the way that we've seen what people have done with upgrades and things that we'd like to do and painful from losing in multiple offer scenarios.

The housing market around here is pretty crazy. Houses are put on the market and sold within a few days at a price per square foot of between $600-800, and often above list price. We've talked about moving but there really isn't another place with a job market that is similar to Silicon Valley and our families are close. I guess the silver lining for now is that we're not renters.

 

[overst33r]

I guess the silver lining for now is that we're not renters

D: How much is rent on a similar place in silicon valley?

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

 

[Jumpem]

Correct me if I'm wrong, but I thought they can take stafford loans by themselves. Anything else would be a private loan, and basically require a co-signer.

Maybe it was only my private loans that my Gramma co-signed. The Federal loans by themselves certainly weren't enough.