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 > Investment Gurus-thoughts?

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Crowe

Merrimack, NH

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Posted: 03/06/20 06:33pm Link  |  Quote  |  Print  |  Notify Moderator

If you had the choice of paying off a 401(k) loan on which you were earning 5% interest or would you pay down on your mortgage? Mortgage is a 15 year note at 3.75% that we are just over a year into. Both of us are 59. Paying off the 401(k) loan would allow more current investment but paying down on the mortgage would lessen long-term debt. Thoughts?


I may not have gone where I intended to go, but I think I have ended up where I needed to be Douglas Adams

RV-less for now but our spirits are still on the open road.

SARGUY

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Posted: 03/06/20 09:55pm Link  |  Quote  |  Print  |  Notify Moderator

I am not a financial expert by any means but at the advanced age of 77 years I have always believed that anytime you can pay down debt that you should do so.This gives you a certain amount of financial flexibility and security from changing government policies.I am sure that there are plenty of different opinions on this, but I am just stating what has allowed me to live a comfortable retirement.

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Posted: 03/07/20 02:44am Link  |  Quote  |  Print  |  Notify Moderator

I personally prefer to live a cash life except when I see debt as an advantage.
I am comfortable with no mortgage or car payments to bother with other than credit cards which I attempt to use for everything and which I pay in full every month to take advantage of the premiums they provide I make no payments.
Just my personal preference its not for everyone but it works for me.


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way2roll

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Posted: 03/07/20 05:51am Link  |  Quote  |  Print  |  Notify Moderator

A loan on a 401k you are paying to yourself with interest. You can't draw on it until the loan is satisfied. It's an investment into your retirement. It earns you money. Your mortgage is money you are paying back to the bank for buying a home for you. I don't care what anyone says, by the time you pay off a mortgage, despite an appreciating asset, you lose money, lots of it. Typically you pay 2x what your home is worth with a standard mortgage. The sooner you pay that off, the less you are actually paying in the long run. And mortgages are front loaded, so you pay most of the interest in the beginning of the loan.

Most people need mortgages, it's an unfortunate fact of life. Not sure why you had to take a loan on a 401k, but that's money you borrowed from yourself- money that could be making you money.

You'd have to do the math to see what you are losing on your 401 by not having that money work for you, vs the money spent in interest on a mortgage for the length of time you are talking about. My guess it's it's close to a wash. It all depends on the amount of your mortgage and interest and how long you are along in the note, against how much money is in your 401 and what it's earning.

Personally I think it's a bad idea to borrow against a 401. That's your money working for you tax free usually with employer contributions. That's free money.

troubledwaters

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Posted: 03/07/20 05:53am Link  |  Quote  |  Print  |  Notify Moderator

Pay off the 401k loan. My 401k made over 20% last year, your's made 5% (at least the portion tied up in the loan).
It sure ain't a wash when your long term investments make 7 - 8% and your long term debt is costing 3.75%.

* This post was edited 03/07/20 06:06am by troubledwaters *

Crowe

Merrimack, NH

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Posted: 03/07/20 07:18am Link  |  Quote  |  Print  |  Notify Moderator

Not sure why you had to take a loan on a 401k,

In order to put down a deposit on our current home as we had not sold our other house when we started the build.

Personally I think it's a bad idea to borrow against a 401. That's your money working for you tax free usually with employer contributions. That's free money.

See above. The loan payments are also pre-tax dollars. Sometimes it's the better choice.

Pay off the 401k loan. My 401k made over 20% last year, your's made 5% (at least the portion tied up in the loan).

One question is how fast will the market bounce back after the COVID-19 issue. If we pay off the loan then those payments now go back into the 401(k) pot. Buy low, sell high comes to mind. At this age, though, does it make more sense to reduce the life of the mortgage to not have the debt upon retirement?

troubledwaters

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Posted: 03/07/20 07:45am Link  |  Quote  |  Print  |  Notify Moderator

I presume at 59 your not planning on living another 5 years and cashing all your chips in. Your looking at living 20 years plus down road. Long term, your 401k at 7 - 8% average annualized return beats the money you save on a 3.75% motgage by a lot. Buy low, sell high. What better time to buy low? Even if you lose money the next 3 years, you're looking at what happens the next 17 years. If your mortgage was 6%, different story.

Your money, your choice. For myself, I'm buying low right now. And if next month the market is lower, i' m going to double down and buy more, and every month after that also. And i'm 66. I figure I got 20 - 30 years (or more) to live off my money

Do whatever you think is best.

PS - loan payments on your residence aren't pre tax dollars. Even the interest isn't unless your beating the Standard Deduction. And in that case, you are overdue to spend a few hundred dollars and talk to a finacial planner with all the facts on the table.

* This post was last edited 03/07/20 07:57am by troubledwaters *   View edit history

troubledwaters

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Posted: 03/07/20 07:48am Link  |  Quote  |  Print  |  Notify Moderator

Fat fingers wrong button

way2roll

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Posted: 03/07/20 08:52am Link  |  Quote  |  Print  |  Notify Moderator

troubledwaters wrote:

Pay off the 401k loan. My 401k made over 20% last year, your's made 5% (at least the portion tied up in the loan).
It sure ain't a wash when your long term investments make 7 - 8% and your long term debt is costing 3.75%.


20% ??!!, where can I get on that gravy train? Is that the Bernie Madoff 401?

Crowe

Merrimack, NH

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Posted: 03/07/20 09:52am Link  |  Quote  |  Print  |  Notify Moderator

PS - loan payments on your residence aren't pre tax dollars

I know. Loan payments on the 401(k) note are though.

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