At retirement I get a lumpsum plus a monthly pension.
2007-01-22 06:51:21 · 6 answers · asked by dave r 1 in Business & Finance ➔ Personal Finance
There are two basic issues (and many smaller ones).
1.) What is the best financial use of the money in terms of return on investment, and 2) What option allows you the most flexibility to deal with the unknown.
When I retired 6 years ago, we opted not to pay of the mortgage, but to invest the money instead. With a 5.25% fixed mortgage, and enough deductions to allow deduction of mortgage interest, the net cost of the money is about 4%. We have earned about 12% annually having that sum invested. Therefore, investing is a better idea.
What happens if you need a considerable sum in a short time? If you pay off the mortgage, then either you have to refinance the house or sell it. If you have the finds invested, all you need do is liquidate however much you need.
If you have a variable rate mortgage, and are going to be retired on a fixed income, you should seriously consider refinancing to a fixed rate mortgage so you won't have any interest rate surprises.
2007-01-22 07:22:57 · answer #1 · answered by Michael H 2 · 0⤊ 0⤋
If you plan to invest the lump sum in something that will pay a better return that your mortgage payments then do that. If there is a good chance you will fritter it away on nothing much pay off the mortgage. Being debt free give you much more financial freedom and will make you monthly income go much further. Enjoy your retirement.
2007-01-22 07:17:37 · answer #2 · answered by gerrifriend 6 · 0⤊ 0⤋
There is only one way to correctly answer this. First, you must know the REAL cost of your mortgage, after any tax writeoff. Many financial "gurus" get this calculation wrong, but it is not hard to do if you have your tax return. Here is a fantastic calculator that does this for you:
http://www.crystalbull.com/mortgage_calculator.php
In the box at the bottom, it will tell you the real cost of your mortgage, and the return rate you must obtain on your investments to make the mortgage worth keeping.
enjoy!
2007-01-24 04:32:00 · answer #3 · answered by Ken S 1 · 0⤊ 0⤋
It depends. Basically, by paying off your mortgage you are saying you have no investments that would earning better than the X% you are paying on your mortgage plus whatever tax deductions generated. If you are parking the cash in low-return money markets or interest rates, then it would make perfect sense to pay it early. Worst case you can always tap your home equity to borrow if you needed cash.
2007-01-22 07:00:30 · answer #4 · answered by gls_merch 5 · 0⤊ 0⤋
I would continue paying cause if you use your retirment money how are you gonna retire
2007-01-22 06:59:36 · answer #5 · answered by Mysterious 4 · 0⤊ 0⤋
keep paying and you can deduct that from your income tax, and then you can invest your lump sum, but be very careful what and who you use we invested $93,000. with a investor friend and he lost it all in a matter of a few years.so be care full.
2007-01-22 07:05:51 · answer #6 · answered by sandyjean 4 · 0⤊ 0⤋