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July 21, 2014


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Stock market is probably your best bet for the 10-15 year time horizon. I'm curious how you plan to retire in 15 years though...I guess that would be a post for another day.

I suggest you pay off your primary residence.

I have a 10 year mortgage at 3.25% with a balance of about $90,000. This year we'll pay $3000 in interest. Yes, I know that 3% is a great rate, but I'd rather spend that $3000 somewhere else and free up my cash flow.

First, I think the OP should better educate himself about the various rules and regulations regarding retirement accounts. It's a red flag to me when he says they're not interested in increasing retirement contributions since they want to retire early. There are numerous ways to access retirement funds early without penalty.

That said, I wouldn't pay off the mortgage the interest puts them above the standard deduction amount. If they want to retire early, they're going to need a lot more than $90K saved so the best bet is to invest those funds. I would immediately fund IRAs for both of them ($11k). After that, it depends on the options available to them. I don't see any mention of the wife's retirement accounts. Does she have access to 401k? If so, consider that option as well as increasing his 401k to the maximum contribution if he isn't already.

Let's take your options in reverse order. It doesn't sound like you enjoyed being a landlord, so number 4 is out. P2P lending is a good, but risky investment. It could be part of the solution, but if you're risk averse, and it sounds like you are, then it's not for all your money. A local business is, by far, the riskiest thing on the list. Tough to predict profits and expenses, highly illiquid and potentially a lot of work. I'm not sure why this is even on the list. That leaves the good ol' stock market as really the only viable option. You can tailor the portfolio to your level of risk tolerance.

I also think it's a mistake to not max out all available tax-advantaged (401k, IRA,...) space. There are ways around the age 59-1/2 rule so that you can get your money penalty free. There are several exceptions to the rule relating to medical expenses, buying a "first" home and others. You can also take Substantially Equal Periodic Payments ( to access the money penalty free. The benefits of tax-advantaged accounts are just too great to pass up.

You should also make a Roth contribution for you and your wife every year ($11k for 2014). If your income is too high, make a contribution to a traditional IRA and then convert it to a Roth. Look up backdoor Roth IRA for more info. Roth contributions can be withdrawn anytime with no penalty or tax due (it's already been taxed). You should also max out your 401k and any other tax-advantaged accounts and use the left over funds to supplement the reduction in take home pay, if needed. If you don't need to supplement, then open up an after-tax brokerage account and invest in a portfolio of diversified, low cost mutual funds/ETFs that match your risk tolerance.

Ultimately it all comes down to cash flow. Higher assets mean nothing if there is corresponding debt and debt servicing to go along with it.

So pay OFF the mortgage and elimate the risk and the payment. That means dump the full $80K into the mortgage, then race to pay off the other $10K.

THEN, once the house loan is paid off, save up 20K and do the renovations with cash flow, instead of backwards financing them as you are doing now.

By eliminating the payment, you increase cash flow that can be directed to savings You also reduce the monthly amount needed to "retire" on while increasing the amount going to saving to fulfill it.

Just pay off the home and cash flow the renos

I am with @Adam G. Planning to retire at 45 is a very lofty goal and requires a tremendous amount of savings. If you aren't sure what to do with 60k that means you don't have much saved so far or this money would follow the plan that money.

I personally invest all of my retirement in stocks and non-retirement in real estate. I agree with previous posts to fund retirement at max and then pay off your home mortgage.

I agree with everything JC said. As for specific funds, I'll recommend picking one of the same boring, but good performing balanced/moderate allocation funds I always do:

Vanguard Wellington
Dodge & Cox Balanced
Oakmark Equity & Income
Mairs & Power Balanced

All of the above funds have beaten the S&P 500 stock index over the last 20 years with less volatility. The only exception is the Oakmark fund because it's only been around for ~18 years, but it also beaten the S&P 500 since its inception in 1995.

I agree with JC as well- investing in stocks may be your best bet, in spite of the fact that we are sitting at record highs in the stock market.


I don't know why a young couple of your age would want to retire at 45 even if it were financially possible.

What are you planning to do with your life if you retire that early. If it is travelling all over the world that takes a boatload of money which you don't appear to have.

You didn't provide any detals of your educational qualifications or skill levels so it's impossible to give you any advice other than to keep working until you feel that you have a large enough investment portfolio to accomplish your desires. Retirement may sound great at the age of 30 but to enjoy a happy and productive retirement requires a lot of capital, generating a very good return, without it retirement will prove very unsatisfying, especially if either of you start having serious health problems downstream.

We have been very happily retired since 1992 and neither of us have held a job since then, we also have no investment real estate properties. What we do have are two pensions, two social security checks, zero debt, a gorgeous home in a great location in Silicon Valley, great healthcare, and a very high income from bond investments.

Listen to this advice a bit carefully......Based on the "pareto" principle, of 80-20 or 90-10, majority plan to retire early, but minority actually does. The swing of money coming in based on putting your 'mind' to use at an employer are called the golden shackles.

Appreciation of one's mind and work gets people to thinking about the good life, good living, plans of a 'newly defined future' at age 35, 40, 44.5, and that proverbial 40 or 45 or 50, then shifts into the future.

I am happy to say that I am part of the 'majority' and 'glad to be so'. My kids are going to school without any debt, they have a free condo to live in at the University that I bought for them, and we have enough to retire, but have NOT pulled the trigger.

Don't get me wrong.....I am NOT motivated to work for too long, but the income is good enough to pay for a LOT of THINGS. In fact, my newest goal is to pay for my kids Graduate School if I can pull off a few more years. I work from home 80% of the time and have a comfortable living.

Granted ALL of the above does not just happen, but I asked you to listen, cause who knows, which camp you will fall into.

Net-Net: Keep the money flowing into the 401(k). Remember if you retire at 45, pick a few years to pull it off slowly. You will have deferred more tax from now to then, that the 10% penalty in years when you do not have any income will NOT matter. In fact, it will feel like an annuity where you slowly withdraw from the 401(k).

Recommendation of Cash: Real Estate and NOTHING Else. I have a six figure income coming in from real estate today, and I still have not quite working. But, that is the idea behind doing this 'right' and 'keep on doing it right'.

Remember, it will not about the loaf of bread at some point in time, but a new car after the beater gives up, education for kids, vacation to Tahiti, a 25th anniversary celebration, and new roof on the house. Where will all of these One Time Hits come from? Sure, it can come from future part time retirement income, but then, it may not be Tahiti, but a driving vacation to Atlanta, and those kinds of compromises will hurt. So, go overboard, enjoy life in the meantime, build up your wealth beyond the need (and a bit more), and make your family happy.

I am a believer in the above, and will continue this quest of learning, searching, working, building businesses, and teaching my kids through example of working-hard.

Please discard what you do not like, since none of the above is directed at anyone. Just sharing the thoughts that flow through my mind of my situation with no intention of any negative thoughts. I still learn from FMF, GRS and other blogs today, since these guys make you 'think'.


If there's only 90k in retirement accounts I'd keep pouring it in there for now into basic equities...this money will grow the longest so savings from tax advantaged accounts will be the greatest. So even not venturing into the early withdrawl possibilities (which they should definitely do), it makes more sense to think of the current money being for after 60 until thats pretty large...and then working on the pre-60 retirement money.

I've basically done this in stages (wanting to retire very early but knowing so much re: returns is unpredictable) after 60 accounts look to be 'full' and sustainable now with their own growth so now I'm working on the 50-60 money...which hopefully will then lead to the 45-50 money...but either way I'll be fine and get there when I get there.

This doesn't mean I don't keep puttin money into retirement accounts, but just make sure I'm doing so with a basic plan for early withdrawal strategies.

And this kind of bucket thinking does also lead to a basic tax diversity so when you do retire you can have a lot of control over taxable income by picking which types of accounts to liquidate for spending.

I and my husband retired at 50. I had a mortgage and regretted I did not pay if off when I retired. I did have a higher interest rate I owed, however. After retirement my husband died, then came 9-11, the stock market crashed, I sold my rental property because it also was costing me more to upkeep (it was a former house out of state not sold when I moved as well.) I got bored went back to work part time reopened my husbands corporation but with my own consulting business and worked part time as executive director for my local chamber of commerce. I fully retired again at age 61. After the crash and loosing $200,000 over night, I paid off my house since I could not afford to chance another crash. I would either pay off the house or invest very safely the money for an emergency fund. That could mean creating residual income stream which could last forever. When the banks are not paying even 1% interest on savings, and most safe investments currently are earning 3 % or less, that 3% interest is expensive. Since I paid off my house I have more flexibility, less worry, and at least if another crash happened I will have a roof over my head. The money saved by paying off the house is now adding to my savings and since I am now moving toward minimalism life style, my frugal life is happier, healthier, and relatively worry free.

In today's environment, I'd take the guaranteed, risk-free return from investing in your mortgage.

I find a lot of wisdom in the advice here from everyone, but specifically JC, Old Limey and Kenny. My take away would be as follows:

1) Always max out your 401ks while you are working and forget it about it. No matter how early or late you hope to retire or how much of a hardship it might be today, don't over think it, just do it. Only after you've got this first step taken care of can you start thinking about other uses for your money. You can't afford to invest in the "in between period" if you don't have the retirement period covered.

2) If you are real estate savvy, I would not pay down your low interest (tax deductible) mortgage and I would not put your money into house projects (unless your house is driving you crazy). I would buy a cash flow rental property. If you are not real estate savvy, I'd invest the money in low cost ETFs. It seems that your net worth serves you best in retirement if it's in income producing assets, and second best if it's in the market but at least appreciating.

Congrats to the reader for having a goal of retiring by 45! Since there are minimal details provided regarding the author's income, it's hard to provide concrete advice, but here are a few thoughts....

1. Retiring is merely reaching an amount of assets that can sustain your lifestyle. This will vary for each person. Some will need 50k, some 5 million - as in life, "it depends"
2. Current net worth is 70k (assets of 170k for 401k and cash less the mortgage).
3. If using the 4% withdrawal rate, the reader's nest egg would spin off about $2,800 annually right now - or $233 per month.
4. With a 15 year horizon to plan for retirement, I don't think you need to worry too much about risk of placing the cash in the market. Of course, with the market at record levels currently, you might consider injecting the money into the market on a schedule if you go that route - such as 5k per month for a period of time.
5. Just guessing based on the info provided, but your mortgage payment is around $1,000 monthly??? I think this is ultimately a matter of preference. Invest the 80k versus retiring your mortgage to free up $1,000 each month to save or use as you see fit? Everyone and their dog will tell you what to do, but it's your choice. I elected to pay off my mortgage in 2013 and have had no regrets even if the total return could have been higher with the $ invested (to each his own!).
6. Final thought on the 401k. There are early retirement options to access the money prior to 59.5. However, there are some strings attached by doing so even if there are no penalties. This drives some people who want to retire early to stop investing in their 401k and save in other ways. Who knows what the best option is? Does your wife also have a 401k? Are you getting good employer matches? All of these things are important elements in making a decision. You're really just building a cash flow bridge until you qualify for Medicare and Social Security, when those programs will begin to subsidize a portion of your retirement.
7. Enjoy your journey and good luck!

Theoretically, investing in the stock market will out-perform the 3% mortgage or investing anywhere else.

In practice, the banks have gotten very good at taking away houses from people recently. There's something to be said for taking them out of the equation.

Imagine that the stock market dropped by 40% (again) and you lost your job at the same time (the black swan). Wouldn't it be nice to not worry about your bank taking your house? This is a difference between Return on Investment (ROI) vs Risk Adjusted Return on Capital (RAROC).

I learn so much from the comments here every time I visit- A BIG THANK YOU to FMF commenters for sharing your own experiences and wisdom with those of us struggling to make these decisions in our 20s and 30s without good parental guidance! THANK YOU :)

First, nice job having $80K available to invest, not everyone does at 30. I will assume that you are getting something into retirement, hopefully based on a match, and your statement means you don't want to add more of the $80K versus not adding at all.

Two main areas of advice, stocks and mortgage elimination. My take is as follows:

If you are saving 50% of your current take home on top of the retirement input so that you are planning on retiring in 15 years based on your expenses (see Early Retirement Extreme blog or Mr. Money Mustache blog for the charts) and your mortgage will be paid by then, then I'd be inclined to recommmend investing the $80K in a spread of index funds even if you take a hit at some point and need the money, the investment should make a lot of mortgage payments until you can get back on your feet plus you've been saving a ton anyway.

If you are saving less than that, say only 10-15% above what you might be saving to get a match in retirement, well, we might have more risk in being able to retire at 45 via the math (again I'd refer you to the blogs already mentioned) and I'd be more likely to recommend paying off the mortgage now and save the increase in your monthly cash flow for retirement.

But really either option isn't necessarily bad and really depends on your personal circumstances, e.g. your savings discipline, your job marketability and stability, the local real estate market, etc. all things you may want to consider.

I would most definitely pay off any debt that has an interest rate, which you state is your mortgage only. Get that monkey straight off your back as that reduces your debt with no risk and can only free up your income.
Use the capital you release each month from not having a mortgage payment to play with in investment and go from there.

"The IRS allows IRA holders to withdraw money penalty-free from their account at any time if they set up a withdrawal schedule that allows for substantially equal payments over the course of their lifetime. This is called annuitizing the withdrawals. The formula for figuring out substantially equal payments is spelled out in IRS Publication 590 (pages 20 and 23)."

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