Mortgage or Retirement Savings?

Mortgage or Retirement Savings

Should I pay off a mortgage? Should I save for retirement? The thoughts in your mind never seem to die down. Therefore, we have taken the initiative to put the fears to rest. We shall conclude which is the best use of your money by eliminating debt foremost than classifying cash reserves between mortgage and savings. 

How Much Do You Owe?

The start to the discussion of whether mortgage or retirement starts off with debt analysis. It is time to take a detailed look at your debts. Time to analyze how much is paid regarding education loans, credit card payments, or a second mortgage. There are also interest payments to consider, which is a separate account in itself.

Regardless of where you stand, you need to pay off debts. Otherwise, your interest will accumulate, and before you know it, the majority of the retirement savings or regular savings are consumed by heavy payments. Arrange the debts from high interest incurring to low-interest debts.

Should You Save for Emergency Situations?

The next argument to make is building a nest egg for emergency events. Life can be very uncertain, and you could face a medical emergency or a financial slump. Your rent could be increased, or you may be terminated from your job. There is no guarantee how long the emergency situation will last.

Assuming the tough times are here to stay either in repayment of a loan or credit card, one or two years of savings can disappear in seconds. Therefore, it is vital to have a backup plan in retirement savings or an emergency fund to make mortgage payments. Please check the independent financial planner.

Which Debt to Repay First?

If you find yourself in a debt crisis, it is time to create a plan that eliminates the debt as quickly as possible. A debt repayment plan is usually constructed after the remaining expenses such as mortgage and retirement savings. Consider the discretionary income becoming part of a debt plan.

Factors to Consider

Regardless of the mortgage payments or retirement savings, you must first pay off the debts incurring high amounts of interest. We do not wish for you to repay debts from the retirement savings when it is time to rest and enjoy the peaceful golden years of life.

The following factors will significantly impact your end decision to choose between the two:

  • The more you can save, the longer you are away from retirement. The basic rule of thumb and math! You can continue to save until the moment you retire. The retirement account does not come into use until you officially retire, so up until that point, save and save some more.

Most retirement accounts offer an interest rate of 5 percent. It means for every single unit of currency you save; you will earn an interest income of .05. The interest income will grow or decrease the more you invest into the retirement savings.

  • The second factor to consider is the duration of the mortgage. If it has just started out, we propose you pay the mortgage before you begin saving for retirement. It is simply because of the incurring interest. You may be tempted to save for retirement early on but reducing the mortgage liability is in your best interest. You can begin to save after a significant portion of the mortgage has been repaid when the interest payments do not supersede the principal amount. You may want to consider a mortgage as an investment since the title will shift to you upon completion.

Time to Decide

If you have trouble deciding whether to save or pay off the mortgage, visit fee only financial planner, Merrick Financial Inc. will provide you with the necessary information to make an educated decision regarding your future.