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I have $850,000 in retirement savings and a remaining mortgage of $380,000; should I stop contributing to my four retirement accounts and pay down my mortgage?

I am 48 years old. I have about $850,000 invested in a 401(k), IRA, Roth IRA, and a SEP IRA. I also have six rental building; four of them are paid off. The remaining mortgage payment on my house is $380,000. Should I stop contributing to my retirement accounts and start paying off my mortgage?

Retirement, Real Estate
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February 2018

Great question. There are several variables that, because of a lack of information, I am going to omitt so I may focus on the most important factor between investing and paying off debt. I cannot answer this in full because I do not know your interest rate, nor your rate of return on the investment accounts. But conceptually, if you are earning (or projecting to earn) a higher rate of return on equity, it does not make fiscal sense to pay off debt if the interest rate on debt is lower. For example, if your retirement account has averaged 8% over the past 10 years (Which the S&P has averaged, inculding the recession of '08) and your mortgage is only 4.25%, it does not make sense to pay off additional mortgage, as your time value of money has you losing out on a 3.75% opportunity cost. Inversely, if your investments comprise of only certificates of deposit at the bank, paying 2.75% for a 5 year, it would make more sense to pay off debt, as it is costing you 1.5% annually over the rate of return you would earn. To conculde, as you are only 48 years old, it would make more sense in my opinion to continue to contribute to your retirement accounts, and invest for long term diversification. If you get to the point where you have maxed out contribution limits, you may then look at paying off debt. 

I would advise you team up with a financial planner to discuss your situation in greater deatil. I hope this helped!

 

Regards, 

 

David Michael Howard

Financial Advisor 

TD Ameritrade 

February 2018
February 2018
February 2018
February 2018