Thread: Pay off Mortgage or Max TSP?

I agree that maxing out the TSP is a good idea. That's what I did and the 30 year mortgage did get paid off in 14 by scraping together a few hundred bucks when possible to throw at the principal. I think the interest was 5.25, which was refinanced a couple of times. It got to the point where it was not worth refinancing for a lower rate. Tax wise, once the interest deduction got to the point of being less than the standard deduction, we got serious about paying it off.

A caveat about my situation v yours is that I retired from the military and once I found a job, made a rule that the military annuity was only for mortgage payments and other housing expenses. Both my kids are grown and gone. It is about the same as having two incomes. My spouse does not work. In case you are thinking that military annuity is a fortune, I retired as an E-7. No 40k O-5 annuity here. Just enough to make a house payment.

Sounds like you have a good plan. I vote for maxing the TSP while the market is going up and paying off what you can in the mean time.

Other thoughts after reading Boghie's reply are

-real estate is going up right now in most areas but your house's value may not continue to increase, a house is a place to live, not an investment tool

-if you are planning on living in the house for a while, what used to go to the mortgage payment needs to go to updating the infrastructure

Now Judy has replied. The market does not always give you 10, 20 or 30%. YMMV

MHO. Remember about opinions.

PO

Originally Posted by jpcavin

Let me simplify the math if I may....

You're passing up a possible 10, 20 or even 30% gains in TSP in order to eliminate 3.75% interest fees a year as well as pass up the tax write off of your mortgage(resulting in higher taxes)
Also, lets not forget that your tsp contribution lowers your taxable income so more money in your pocket and less money to Uncle Sam.

Please consider the glowing:
1. Get rid of the credit card and car debt.
2. Keep the good debt (mortgage).
3. Increase TSP contribution
4. Start Roth IRA (not TSP Roth)
5. If you get bored watching your money multiply, you could try passing up Birch just for fun. That should get some bull tinky flying.

The last few responses are the exact reason why I asked this here. I don't have it all figured out, yet it seemed like a bit of a mistake paying the mortgage off quickly. It is just so tempting to see that part of the output of money staying in the bank. I'm going to rerun the numbers. Hell... I suppose I could just pay the mortgage off with military retirement paycheck. Thanks for the responses. I appreciate it all!

Should read "Please consider the following" not "Please consider the glowing" I was replying from my phone.

Originally Posted by PessOptimist

Now Judy has replied. The market does not always give you 10, 20 or 30%. YMMV

MHO. Remember about opinions.

PO

What is YMMV??? I agree with you PO, but you gotta be positioned to take advantage of the markets when it wants to be generous and giving.

Originally Posted by jpcavin

Should read "Please consider the following" not "Please consider the glowing" I was replying from my phone.

dang, i liked it better when you were glowing not following. stupid phone.

JP,
You are the most right IMO.

J,
CC debt is the worst. Unsecured debt like CC and auto notes MUST be paid off first.
One life lesson I've lived by. If you can't afford it, don't buy it unless you NEED it. Something tells me the CC debt and auto notes weren't needs. But hey, live and learn right?

Secured debt is ok. Looks like a refi on the house worked out well. My wife and I own 3 houses. 2 of these are rentals. Refi on 2 this last winter and spring and bought the last rental a year ago. Cash leveraging is the name of the game. You have a great rate on that house. It's time to max out retirement. I do the same thing by looking at the interest liability on the houses and think, "wow, look at all that interest". But really you are only paying about 20 - 40% of that interest in the long run because of the tax write off.

That is great that you came here looking for advice. I'm sort of new here but a long time invested and saver. I'm prior military and retire after 24 years. Maxed out my TSP and Roth IRA . I'm 44 but retired almost 2 years ago and will never have to work another day of my life. My wife works but every cent she brings in is just extra. We are sitting on $456k in retirement and $160k in investments. That is freedom my friend.

JP has it right. Follow that checklist and you'll be just fine.

Take care,
GB

J = Eric

Sorry about that.

Strategy to keep itemizing as long as possible: Once the mortgage interest plus property taxes get below standard deduction or your deductions with interest and real estate taxes, etc get too low to itemize, you can try paying two years of taxes in one year (January and in December) to pull it back up above standard deduction to enable you to itemize one year and then use standard deduction the next year. Just keep alternating years until you can no longer itemize.

Originally Posted by jpcavin

What is YMMV??? I agree with you PO, but you gotta be positioned to take advantage of the markets when it wants to be generous and giving.

YMMV = your mileage may vary

Originally Posted by EricDeLee

Another thing I was looking at: paying off a 30 year mortgage in 5 years saves me nearly $60k in interest.

That is likely misleading though because of inflation. Its very likely $60k will not be the same as $60k in 30 years from now.

Originally Posted by DreamboatAnnie

Strategy to keep itemizing as long as possible: Once the mortgage interest plus property taxes get below standard deduction or your deductions with interest and real estate taxes, etc get too low to itemize, you can try paying two years of taxes in one year (January and in December) to pull it back up above standard deduction to enable you to itemize one year and then use standard deduction the next year. Just keep alternating years until you can no longer itemize.

Pay 2 years of taxes in 1 year? Can you explain that a little further for me? My ability to itemize may be gone by this year, but certainly next.

JP,
I am very new at all of this. May I ask acouple of questions?
First, What is the difference between a Roth IRA and a TSP Roth? How would one go about getting into a "Roth IRA"?
I am getting ready to max out my TSP contributions and add the $5000 catch up but would also like to get involved in a Roth of some sort. I don't want to sit here everyday pulling my hair out about where to move my money, (TSP is enough already)
My knowledge is too limited to trade with the big dogs as of now.
Any suggestions, comments?
Thanks in advance.

Lori (Bazinga)

Originally Posted by jpcavin

Let me simplify the math if I may....

You're passing up a possible 10, 20 or even 30% gains in TSP in order to eliminate 3.75% interest fees a year as well as pass up the tax write off of your mortgage(resulting in higher taxes)
Also, lets not forget that your tsp contribution lowers your taxable income so more money in your pocket and less money to Uncle Sam.

Please consider the glowing:
1. Get rid of the credit card and car debt.
2. Keep the good debt (mortgage).
3. Increase TSP contribution
4. Start Roth IRA (not TSP Roth)
5. If you get bored watching your money multiply, you could try passing up Birch just for fun. That should get some bull tinky flying.