I'm new to the boards and I'm not sure if this belongs here or not.

What would be make more sense

2 Roth IRA's 8000.00/yr
1 403b 2000.00/yr
kids college money 1600.00/yr
mad money stock account 500.00/yr

total= 12100.00/yr


or


apply the above funds to my mortgage and pay it off in about 7 years.

My current mortgage (including principle, interest and escrow? is $1000.00/month and is fixed rate at 5.125%

Any and all input is welcome and appreciated.

Thanks

The market, long term, has returned 10% to 11% annually, before taxes. Your mortage will give you a fixed, guaranteed return of 5.125%, before taxes - after the tax advantage is taken out, in the 25% bracket, we're talking about 3.8%.

So, you can get yourself a guaranteed after-tax return of 3.8% by paying off your mortage. Not at all bad for an after-tax guaranteed return, but not great either. Or you can put it in the market and probably, on average, get a much better return, but who knows over the next 7 years. There's your choice, risk versus reward options. No one can answer that for sure but you.

One thing's for sure, it doesn't make much sense to invest in any 'safe' investments right now (CDs, etc), unless they're returning more than 5.125%.

One more thing to consider - those retirement vehicles often have maximum contributions. If you don't contribute to them now, you will never be able to make it up later. It's hard to quantify that scenario exactly (although it can be done), but it's not like when you pay off your mortage, you suddently can put all the extra in a Roth, because you will be exceeding the max.

Really, I would at least max a Roth and make sure to get any match your company may give in the 403(b). Absolute minimum. But housing debt, especially at a 3.8% post-tax rate, isn't bad debt. Inflation is typically 3 to 3.5%, so there's no need to feel rushed to pay it off. The money would probably serve you better elsewhere.

And if you do decide to pay off your mortage quicker, do it with the understanding that, in the *average* case, you will end up worse off for it.

Given the information I have, my opinion is to not pay off the mortgage early. Fixed at 5.125% sounds pretty good to me.

Jared

I'd go for the first option (Roth IRAs + 403B + college fund + stock account), or something very like it. It gives you much more diversification. The only tweak I'd make is that I probably wouldn't earmark the stock fund as "mad money" -- we make monthly automatic deposits to a stock index fund, and have done so for 12+ years, considering it a long-term investment.

The second option puts all your money in one asset. Right now, since you have a reasonable interest rate on your mortgage, I'd turn my attention to strengthening investment and savings in other areas.

2 Roth IRA's 8000.00/yr
1 403b 2000.00/yr
kids college money 1600.00/yr
mad money stock account 500.00/yr

This doesn't tell us what you invest in except for the $500/yr.

Are the expenses for the 403(b) and Roth IRA reasonable? Are they invested in stock-based (equity) investments, bond-based ("fixed income") investments, money markets? Same story for the college money. The expenses for some 403(b)'s are so high that they just don't make sense. (E.g., one 403(b) I was in that definitely was worse than taxable investments had a 1.05%/yr M&E fee plus 1.50% "investment advisory fee" for what was essentially domestic large caps, making the cost of investment 2.55%/yr, which is ridiculous, and a surrender charge that discouraged fixing this situation by transferring out to another 403(b) provider. Now my current 403(b) is providing roughly the same type of investment for only about 0.36%/yr.)

If you are investing predominantly in equities and following an investment strategy that would minimize the impact of emotions (so you aren't following the herd in buying high and selling low, or the other herd that is "performance chasing"), then you are likely to do better investing than in paying down the mortgage. (That is exactly what I am doing and my mortgage rate is higher: 5.25%.) However, when dealing with equities, one has no guarantees so, even though the odds are in favor of a prudent investment strategy doing better than paying down the mortgage, there is still a possibility you would have done better just paying off the mortgage.

On the other hand, if you are investing too conservatively (the majority of the investments are in bonds or CDs), or you are not disciplined in your investment approach (e.g., panic when the market goes down, want to jump on the band wagon when the stock market goes up, or always seeking the latest hot market segment), or each dip of the stock market gives you indigestion, you may be better off paying off your mortgage.

In either case, if there is any employer matching (which is unusual in a 403(b), but is possible), be sure to contribute enough to get the full match. Beyond that, you will find some people advocating paying off the house, others advocating maximizing investments, some saying that, since you really don't know, it may make sense to do some of both, and either choice or some of both is far superior than squandering the money away on frivolous purchases that are consumed in the usage.

One more thing to consider - those retirement vehicles often have maximum contributions.

That is key. Once the year is gone, you cannot contribute anymore and lose the compounding capability of the early years.

For instance, suppose you put $8000 per year (looking at the two IRAs only) into your investments for each of seven years and then no more. For the next seven years, you pay down the mortgage. Assuming 10% return per year, at the end of the 25th year, you will have about $422,000 from that initial investment.

Now, reverse it. Skip investing during the first seven years and pay down the mortgage instead. Then for the next seven years invest $8000 per year (out to year 14). By the end of the 25th year, same return, you would have $238,000 -- about $184,000 less.

The bottom line is that the longer you can have money compound, the larger the final pot bcomes.

gebin

One question is what is the matching on the 403b. This makes a difference.

Also, paying off a mortgage is intellectually simple. Making money in the stock market is more complicated. You need to develop a discipline for your trading. Lots of things work, including CANSLIM for instance.

In any case, avoid nonsense like the efficient market theory and index fund investing. Remember that the S&P 500 has had a 40% drawdown, and if you had bought VFINX 5 years ago, you would be down 7%, even with distributions reinvested.

In any case, avoid nonsense like the efficient market theory and index fund investing. Remember that the S&P 500 has had a 40% drawdown, and if you had bought VFINX 5 years ago, you would be down 7%, even with distributions reinvested.

And if you'd bought VFINX ten years ago (at the October 1995 high of $55.63) or fifteen years ago (at the October 1990 high of $30.22) you'd be pretty happy with its current price of $113.20.

If you've got a long timeline for your investing (i.e., more than 5 years) and not so much time to research and select individual stocks, index fund investing makes a lot of sense, especially if you reinvest dividends and dollar-cost-average.

Five years is a very long time. I have made a lot of money in the last 5 years. And I avoided losing a bunch by going to cash in March 2000.

And the research is really simple: subscribe to TimingCube and let them time the market for you. Or there are other things that you can do which are more complicated, if you want.

www.timingcube.com

There are other good timing services as well, or you can do the free stuff on my site if you want.

None of this stuff is really complicated. Buying an index fund is just plain dumb. The fact is that if you, as an individual investor, cannot beat the S&P500, then you are really making a number of mistakes.

Except didn't I recently prove that you would have made more, and paid less taxes, over the past 2 years with that service? ;)

You're entitle to your opinion joel, but I don't know why you seem to go around itching for a fight - you're gonna be in a significant minority on these boards.

Five years is five years -- a long time to some, not so long to others. It is quite possible to invest with a longer timeline in mind.

As for index funds being "just plain dumb" -- I disagree. So does the Fool. See http://www.fool.com/mutualfunds/indexfunds/indexfunds01.htm for more info. Index funds aren't our only investing choice, but they're a significant chunk of our total investments, and they've worked well for us.

You think spending nearly $300 annually for a timing service is a great idea? Go ahead and stick with that if you want. Me, I'd rather have the $300 to invest.

I'm new to the boards and I'm not sure if this belongs here or not.

What would be make more sense

2 Roth IRA's 8000.00/yr
1 403b 2000.00/yr
kids college money 1600.00/yr
mad money stock account 500.00/yr

total= 12100.00/yr

or

apply the above funds to my mortgage and pay it off in about 7 years.

My current mortgage (including principle, interest and escrow? is $1000.00/month and is fixed rate at 5.125%

The answer is not simple, and you don't give enough information for us to offer much guidance except about how to decide (as opposed to what to decide).

You don't mention any debt other than the mortgage. If you have, say, credit card debt, I'd favor doing the low-introductory-rate dance while building up enough cash that when the music stops it's the credit-card companies that are left with no chair.

Aside from that, it's a matter of first defining a set of buckets for your money. College fund, retirement, etc. For each bucket consider how much money you need in it, when, how secure the money needs to be in the short term, and what investing style you'd be comfortable with. Then look at the types of accounts available: Education Savings Accounts (probably good), those state-run college-prepayment plans (527s or something like that - almost invariably bad), annuities (almost invariably bad unless you lay down the entire lifetime deposit in one lump, and even then be careful), 401(k)s, Roth and conventional IRAs, and ordinary taxable accounts.

And you need an honest assessment of risk.

Over the short term, cash-like investments - including money-market funds and "inflation-protected" bonds* - are highly safe. Bonds are riskier and stocks (collectively, say in the form of a stock-index fund) can really soak you in a month.

Over the intermediate term, stocks start looking better. At about three years, stocks are as safe as bonds.

Over the long term, stocks are quite (but not absolutely) safe and highly profitable, bonds are less safe and less profitable, and cash is a guaranteed loss.

But stocks will get you into trouble in the long run, if you watch them in the short run and sell in a panic. Particularly if you then stay out of stocks until everyone again agrees that stocks are a good place to put money (because there is nothing quite so certain as the wrongness of any unanimous opinion in financial markets).

As to what kind of account to use...

The first rule is: don't leave free money laying on the table. If your employer is offering any sort of matching on 401(k) deposits, do what it takes to get that money. This overrides anything else I say on this subject. (The only exception: if you only get matching in the form of company stock on money you invest in company stock and leave there, and you're desperately trying to get out before the company collapses, then don't go for the matching.)

An ESA is a good place for money that will, most likely, be used for qualifying education expenses.

Those state-run education plans typically look a lot like high-fee bond funds.

For the rest, you get to guess about tax rates: will the rate you pay when it's time to take the money out, WITH any changes in tax laws that may occur in the intervening years, be higher or lower than your current tax rates? And will the currently-promised tax-exclusions remain in effect, or be changed? I'm going to ignore that, though, and assume that there will be no change in applicable tax rate and no change in what the tax does or doesn't apply to.

Roth: best use is for short-term trading, with the money staying in the account until at least age 59.5. Second is probably long-term interest-collecting (but not on tax-exempt bonds), with the same rule. Third is either of the above WITHOUT the age restriction; fourth is long-term equity positions (where the primary cause of growth is dividends and/or long-term capital gains) WITH the age restriction. The Roth IRA should not be used for long-term equity positions that you expect to sell and take as income before age 59.5 - the fact that it's a Roth will probably COST you money as compared to a taxable account.

Conventional IRA/401K: best use is for short-term trading or long-term interest-collecting (non-tax-exempt), where these accounts are about even with the Roth IRA. Long-term equity positions are second best.

Taxable account: best use is for long-term equity positions. Second best is anything else (including tax-exempt bonds). Also, this is definitely the easiest place to do investing of sorts that are outside the mainstream financial markets, such as specific pieces of real estate.

Annuities: DO NOT make periodic payments into an annuity plan. Think of it as a very-high-load, very-high-expense-ratio mutual fund that imposes a cap on YOUR profits. If you already have a large amount of money and want to convert it into a guaranteed income for life, you may be able to find an annuity plan at more reasonable terms. Look askance at using money currently in a tax-sheltered account to buy an annuity - make sure you aren't paying extra for the privilege of having two tax shelters, since only one of them counts.

I'd go for the first option (Roth IRAs + 403B + college fund + stock account), or something very like it. It gives you much more diversification.

Excuse me, but....

That plan, in and of itself, says ABSOLUTELY NOTHING about diversification.

I could easily see this plan ending up with every dime in one sector fund. Which is barely diversified at all. Even less diversification is possible if the 403B plan allows investing in individual stocks.

Or, it could be extremely well diversified.

For instance, suppose you put $8000 per year (looking at the two IRAs only) into your investments for each of seven years and then no more. For the next seven years, you pay down the mortgage. Assuming 10% return per year, at the end of the 25th year, you will have about $422,000 from that initial investment.

Now, reverse it. Skip investing during the first seven years and pay down the mortgage instead. Then for the next seven years invest $8000 per year (out to year 14). By the end of the 25th year, same return, you would have $238,000 -- about $184,000 less.


I see your point. However, paying off the mortgage early would allow the money that *had* gone to pay the mortgage + extra payments to then go to investments. Since you're living in the house anyway, you need to comapare a different scenario. I think that might be missing from your scenario 2.

What you give up by paying off the mortgage early are:
-Company 401k match that you might have given up in order to pay off the mortgage early,
-Tax advantage that you might have gotten in, say a Roth,
-Locked in investment "return" of whatever the mortgage rate was (6% mortgage means "guaranteed" return of 6%),
-Will you REALLY use the money freed up from mortgage payments to invest, or will you ratchet up your spending instead?

I agree that "good" investing is the way to go compared to paying off most mortgages. However, some people who might put their IRAs/401ks into cash or bonds might be better off geting rid of the mortgage.

However, paying off the mortgage early would allow the money that *had* gone to pay the mortgage + extra payments to then go to investments.

Not quite. In the two scenarios, the $8000 was for IRA contributions (two), so there would not be a way to make up for it at a later date. So giving up the first seven years and then being unable to go back to make up for the missed contributions would not have been possible.

It's a complicated problem. My point was the lost compounding of the earlier contributions has a huge impact.

gebin

You have a point -- the first plan doesn't necessarily indicate much diversification.

It stuck me as just a wee tad bit more diversified in terms of using different instruments than in throwing every bit of one's money at a mortgage. I guess it's possible that both IRAs, the 403B, and the college fund could all be invested in the same mutual fund. Dumb, but possible.

Obviously people have strong feelings about paying a home mortgage or not. I'll put my two cents in for what that is worth.

1)The argument that you can get a better return by investing in the stock market has a flaw in it that is often overlooked. The flaw is that unless you are very young, then you probably should not be investing 100% in stocks and part of your investments should be in bonds. At some point even if you buy the “invest instead” argument, the numbers will start to get shaky when you are putting 40% (or whatever) of your portfolio into bonds.

2)If your plan will be putting a high percentage of your net worth in the home equity, then that is not diversified enough. A red flag to me would be if over about a third of your net worth is in home equity.

3)The question about mortgages verses investing is usually stated in some variation of “should I pay off my mortgage?” It is also possible to ask the same question as; “I have my house paid off, should I mortgage it to invest in the stock market?” which sounds a lot riskier. Don't underestimate the risks of investing in the stock market. If there were not risks, with even well selected stocks, then no one would be willing to make mortgage loans.

4)To me at least, it isn't a question if you should pay off your home mortgage but when. Most people that are doing well should have a home paid off by the time they retire since that makes your annual cash requirement so much less. Other scenarios like perpetual renting are possible but for most people retiring in a paid off house will make sense.

5)A fixed rate home mortgage is a great hedge against inflation. With inflation and interest rates being relatively low right now a valid option would be to decide “not to decide” right now and invest the money somewhat flexibly then review the situation again in say 3 years or so to see if there is higher inflation and interst rates. You can always pay the loan off later, but once it is paid off you can't go back. If your numbers don't show you a slam dunk choice, then waiting might be best.

Greg

Obviously people have strong feelings about paying a home mortgage or not. I'll put my two cents in for what that is worth.

1)The argument that you can get a better return by investing in the stock market has a flaw in it that is often overlooked. The flaw is that unless you are very young, then you probably should not be investing 100% in stocks and part of your investments should be in bonds. At some point even if you buy the “invest instead” argument, the numbers will start to get shaky when you are putting 40% (or whatever) of your portfolio into bonds.

2)If your plan will be putting a high percentage of your net worth in the home equity, then that is not diversified enough. A red flag to me would be if over about a third of your net worth is in home equity.

3)To me at least, it isn't a question if you should pay off your home mortgage but when. Most people that are doing well should have a home paid off by the time they retire since that makes your annual cash requirement so much less. Other scenarios like perpetual renting are possible but for most people retiring in a paid off house will make sense.

4)A fixed rate home mortgage is a great hedge against inflation. With inflation and interest rates being relatively low right now a valid option would be to decide “not to decide” right now and invest the money somewhat flexibly then review the situation again in say 3 years or so to see if there is higher inflation and interst rates. You can always pay the loan off later, but once it is paid off you can't go back. If your numbers don't show you a slam dunk choice, then waiting might be best.

5)The question about mortgages verses investing is usually stated in some variation of “should I pay off my mortgage?” It is also possible to ask the same question as; “I have my house paid off, should I mortgage it to invest in the stock market?” which sounds a lot riskier. Don't underestimate the risks of investing in the stock market. If there were not risks, with even well selected stocks, then no one would be wiling to make mortgage loans.

Greg

Some may write off my advice as coming from the unenlightened but mine is a balancing act that fits my plans. I don't presently have a Roth IRA, but after listening to all the Fools, I'm researching them and will have one opened this year. I harbor no delusions about being able to max it out but the point is to open the account and contribute something now that I'm maxed out at 7% company matching 401-k.

Did a company relocation about five months ago, complete with a new mortgage. There is something I find disturbing that by making payments as agreed means it won't get paid off until I'm 75 years old. So I asked a co-worker if there was a way to calculate in Excel the effects of added principal payments on the mortgage balance. I had already started adding $100 to principal on top of regular $583 P&I. That little bit takes some serious bite out of when it will be paid in full.

I just need to bump it up by $6 a month to total of $106 added principal in order to pay it in full by age 65!! From 30 years to 20 without enrolling in any fancy "payment" schemes like bi-weekly payments.

So, you need to consider your goals. If you're in a 401-k, contribute up to employer match (I'm not familiar with 403-b plans). If you can do all the maxing out on Roth, etc. AND send some extra to principal, that's the "balancing" route I'd go. That advice goes against what I'm doing but again, I'd like to pay my mortgage off by the time I retire in about 20 years. My next plan is to get credit debt out of the way (another month or two) and figure out a way to max a Roth plan.

Regards,

Dave

However, paying off the mortgage early would allow the money that *had* gone to pay the mortgage + extra payments to then go to investments.

Not quite. In the two scenarios, the $8000 was for IRA contributions (two), so there would not be a way to make up for it at a later date. So giving up the first seven years and then being unable to go back to make up for the missed contributions would not have been possible.

OK, I see that point. However, it's not as if an IRA or 401k is the only vehicle in which to save. But you're absolutely correct that the tax efficient part is either used each year or lost.

Something that works opposite of that is tax deductions. Some people have deductions that are just at or below the level of the standard deduction, so they "lose" the deductability of that money. However, you can "bunch" them by pre-paying one property tax payment or a few house payments, so that you're above the standard deduction one year and well below it the next. But, of course, your point about the deductability on the tax advantaged savings accounts is still true--there's no way to claim them once you've let the period go by.

> However, it's not as if an IRA or 401k is the only vehicle in which to save.

However, they are tax sheltered. Returns you make in an IRA or Roth are not taxed, at least until you start drawing on them.

thanks for all who replied

heres some additional info if anyone is still listening or cares.



annual income 75,000K
wifes income 5000K

no credit card debt

no student debt

one car payment 275.00/mo

no matching in the 403b. FLPSX Fidelity low priced stock fund.

I invest the roths in stock and mutual funds as I see fit. Long term

3 kids: 9,7,3

> However, it's not as if an IRA or 401k is the only vehicle in which to save.

However, they are tax sheltered. Returns you make in an IRA or Roth are not taxed, at least until you start drawing on them.

No argument about that. However, if you're trying to make a comparison between doing A and B, you need to take into account the savings of both options, and not just neglect them in one option because there's not tax advantaged aspect. The comparison would need to take taxes into account to show the advantage of the tax sheltered portion.

> The comparison would need to take taxes into account to show the advantage of the tax sheltered portion.

This and the time limited nature of the contributions are what make comparisons difficult. I would put at least some money in a Roth; I don't see any advantage to paying off a 5% loan any time soon.

1)The argument that you can get a better return by investing in the stock market has a flaw in it that is often overlooked. The flaw is that unless you are very young, then you probably should not be investing 100% in stocks and part of your investments should be in bonds. At some point even if you buy the “invest instead” argument, the numbers will start to get shaky when you are putting 40% (or whatever) of your portfolio into bonds.

I don't buy the fear of stocks, even for older people.

A basically healthy 80-year-old in the US is looking at more than ten years of expected lifespan.

For a term of longer than three years, stocks are less likely to lose buying power (after taxes and inflation) than bonds. (Not to mention having a substantially better upside.)

So the 80-year-old should, for safety, have his investments primarily in the form of stocks (that is, excluding a cash reserve for the next 2-5 years).

> However, it's not as if an IRA or 401k is the only vehicle in which to save.

However, they are tax sheltered. Returns you make in an IRA or Roth are not taxed, at least until you start drawing on them.


The person who is likely to buy some shares in a mutual fund and then sit on them until it's time to spend the money on living expenses, needs to look somewhat more harshly on IRAs.

Given $3000 in pre-tax income which COULD be invested, assuming a 33% marginal tax bracket at both ends and no change in the tax laws, and assuming the value of the actual investment multiplies by 10:

Taxable account - pay $1000 in taxes, invest $2000 which grows to $20,000. The $2000 investment can be taken out tax-free and the balance will be LT capital gains taxed at 15%, so $2700 in taxes. Net retirement income, $17,300. It doesn't matter if you take early retirement and thus start withdrawing the money before any arbitrary age, or even if you need to take the money out in a lump for some emergency.

Roth IRA, waiting until age 59.5 or later for withdrawals - pay $1000 in taxes, invest $2000 which grows to $20,000. Take it all tax-free. Net retirement income, $20,000

Roth IRA, using an SEPP to fund early retirement - pay $1000 in taxes, invest $2000 which grows to $20,000. $2000 investment can be taken out tax-free, pay 33% taxes ($5940) on the remainder. Net retirement income, $14,060.

Roth IRA, non-qualifying early withdrawal without an SEPP: Knock another $1,800 off of that. Net retirement income, $12,260.

Conventional IRA, fully-deductible contributions, waiting until age 59.5 or later for withdrawals OR using an SEPP withdrawal plan - pay no tax, invest $3,000 which grows to $30,000. Pay $10,000 in taxes. Net retirement income, $20,000.

Conventional IRA, non-qualifying early withdrawal WITHOUT an SEPP: Also pay 10% penalty on the withdrawal. Net retirement income $17,000.

Now if you are expecting to pay taxes at a lower marginal rate in retirement, the conventional IRA starts looking better. (However, please note that I explicitly assumed no changes in tax laws. If that assumption proves false and the tax rates get jacked up to what they were before JFK cut taxes to increase tax revenues...)

But the Roth doesn't look very good for the future early retiree.

(401K and its relatives? When you leave the company, you can roll it over into a conventional IRA. And the tax treatment is the same.)

> The comparison would need to take taxes into account to show the advantage of the tax sheltered portion.

This and the time limited nature of the contributions are what make comparisons difficult. I would put at least some money in a Roth; I don't see any advantage to paying off a 5% loan any time soon.

I agree!

Still, if you're comparing putting $10,000 into a tax-advantaged investment, like an IRA or 401k, vs. not doing that, the comparison is not $10,000 vs. $0; you need to guess a tax rate, and compare $10,000 vs., say, $7200 (presuming 28% rate). Also, if the $7200 is invested in something like an S&P500 index fund, it will grow mostly as capital gains--low dividends and little "churn" of fund holdings--so when withdrawn, it'll be mostly capital gains taxed at 15%. Your IRA/401k withdrawals will be taxed at your regular rate, which might be 28% or more. Plus, you've already paid taxes on the $7200, so your additional taxes are only on the gains...you'll pay taxes on the IRA/401k's gains PLUS original $10K that you didn't pay taxes on when earned.

So, the comparison can be much closer than you'd guess at first blush. In fact, the assumed tax rates might be the factors that drive one to leave you with more money (after taxes) than the other. After all, $1M in the bank is more spendable money than $1M in an IRA that you haven't paid taxes on yet.

slam dunk choice

well put

thanks

shawn

Before I knew very much at all about investments, as I was leaving Honolulu, Hawaii as an Army Captain, I read an article about Maui Land & Pineapple(MLP) about how all of their land holdings were on the balance sheet at original cost, I bought 250 shares of the stock in March 1972. The stock had a 4 for 1 split, so I now own 1,000 shares. As this chart shows, the stock has done OK since I bought it.

http://quotes.fool.com/custom/fool/html-chart.asp?osymb=&...

Kahuna,CFA

I'm not about to read this whole post, so this might have been brought up.
What about quality of life? I feel strongly that depending how old one is and how prepared they are for retirement, paying off the house could be a great thing. OK, I agree that you can make more cake by investing the $$$, but how about the benefits of not having to make that payment every month. Reduced stress and a little extra money for spending (and saving) has never hurt anyone to date that I know of. Pottsch should be asking him/herself if their portfolio can withstand the 7 years of "neglect". I think the returns on that investment can't be measured by a chart. My HO...

I'd say keep the ROTH and the 403b. Put the money for the college fund and "mad money" towards the house, and encourage your kids to make excellent grades.

In fact, start looking into scholarships right now. There are all sorts of them out there, some for very weird things. If you start looking now, you might be able to tailor your kids' extra-curricular activities to fit. I've heard of a skate-boarding scholarship. Also don't discount the family legacy scholarships that are out there. If you do your genealogy, you might find that some great-great-great-great someone left behind a small fund for scholarships for his or her descendants. It happens, and lots of them go unclaimed every year.

Anyway, you'll pay off the house sooner, although not in 7 years. Still, 10 or 12 is better than 30, right? At that point, you can move that mortgage money into the "mad money" stock account. Or, if your kids are ready to start college at that time, $1000 a month ought to be able to cover it pretty well, with some student loans and such. Some student loans are interest-free, as long as the student is still attending full time. So if you get the loan to pay the initial tuition, and then start paying it back, monthly, while the kid is still in school, you may have no interest.

Do NOT, however, short your IRA or 403b, because they have those nasty limits on them, and you can't make it up later. Your kids might choose to take a year or two between high school and college, or skip college entirely, or go to a vocational school, or pay for it themselves.

There are no scholarships for retirement.

FlinkeFool

annual income 75,000K
wifes income 5000K

75,000K? That's 75 Million Dollars. I don't know what kind of house you have that would need a mortgage, but you should definitely be able to save more.

But really, we all know what you meant. I just couldn't help but imagine what I would do with so much money.

This is great stuff, but I have a philosophical question: While a home might be in investment, a mortgage is an expense. Is it appropriate to put the retirement of debt in the same terms as "investing" (which may be completely different from "generating income")?

Depends on your philosophy, your plan, your personal estimation of the future and tolerance for risk.

The analysis has been impresive, but still based on guesses about the future. One size doesn't fit all and we'd be foolish (lower-case "f") to assert one correct answer all the time.

RC

2)If your plan will be putting a high percentage of your net worth in the home equity, then that is not diversified enough. A red flag to me would be if over about a third of your net worth is in home equity.

Even if the 1/3rd was driven by a crazy run-up in real estate values?

A little dough just fell from the sky, and I'm wrestling with this issue. I've always planned on paying off the mortgage in this situation. However, as a long-time Fool fan, it's hard for me to ignore the analysis. Given that I have a long time horizon, a low-rate mortgage, and a generally aggressive investment style, the numbers direct me to equities. However:
- I'm not a stock market timer, so the thought of throwing a big pile of money into the market all at once is unpleasant.
- I would get a big psychological benefit from having $0 debt and owning the house my family loves.
- My retirement savings and college savings are in great shape.
- I'm an aggressive saver, and would invest the funds (from the eliminated mortgage payment) accordingly.

Will I be welcome back here if I defy the Foolish advice and make an emotional move!?

Well I wrestled with this same issue a couple of years ago. I decided to pay off my house even though I knew I would make more money if I invested it and kept the mortage. I feel great! No debt at all. I'm self employeed, and knowing if I can't find work, I have little needs is a wonderful feeling.

One other thing to consider (at least for me). If a financial disaster happens, they (courts) will take your investments, but they will sometimes leave you your home.