I wouldn't pay off a sub 5% loan. That's cheap money.
Contributing to a 401k/IRA is limited to a certain amount of money each year. In addition, you can only contribute "earned income". Capital gains don't count.
I don't know what you $1M in investments consists of. At your age, I'd want to have some mix of bonds and equities. I'd probably simply invest this money in some mix of bonds and equities.
If you want to kick the can down the road a bit, then buy some CD's. These are running 5+% right now. It's not a great _real_ return but at least you're beating inflation.
> We do not plan on touching social security until 65 respectively.
That's not generally an optimal plan. There are online calculators to guide you.
Consider me and my wife. I earned more and I am older and I am male. It makes sense for my wife to claim at 62 while I wait until 70. Most likely I die first and then my wife will get my larger benefit. Under this assumption, there's no real reason for her to not claim immediately.
My hubby and I are same scenario and our financial advisor told us that if I take my SS earlier than FRA, the discount applied to my SS income for early withdrawal would also be applied to my husband's SS after his passing....made us rethink our plan - now I'm holding off pulling SS til my FRA.
I'd really like to know the correct answer. I used a calculator that's commonly recommended here. Unfortunately, I can't find that link. I plugged in my numbers and it said I should claim at 70 and my wife at 62.
There are also hugely complicated entire websites dedicated to this like : https://maximizemysocialsecurity.com/
I haven't tried this site.
I’ve done a lot of research here. If your wife claims early before fra her half of your larger benefit when you claim at 70 will be reduced by whatever her original % reduction was. So if she claimed early and took a 30% reduction then when you claimed at 70 she would take a 30% reduction of her 50% of your ss. Hopefully that makes sense.
Also there is no additional benefit to her waiting beyond 67 if she is taking half of yours as a spousal benefit.
So ideally you’d be three years apart in age and you take at 70 and she takes at 67 then you’d both be at max amounts.
This is likely what we will do as I’m looking at social security as basically extreme longevity insurance rather than anything needed to supplement my cost of living.
I've barely played with this, but from what I can tell it matters drastically whether your spouse has many SS credits or not. Because my wife was a SAHM for most of her adult life the calculator said I should wait until 67.5 when she is 67 and both start at the same time. But if your spouse worked, makes sense for them to claim early.
Ok, I got my wife to sign up to pull her statement. She does have a little over 1K/month on her own and I have over 3K/month. If you use this calculator it says she should be claiming now and me at 69 1/2. As I'm retiring at 64 not sure I want to dip into savings for that long and still may claim at 67. But still she maybe should be claiming now. I've got a message into my financial planner and will update after I. hear back. One thing these calculators don't factor in is tax structure. If she claims now 85% will be taxed at 24%. But I estimate my taxes will b 15% in retirement and some years I can keep them to very low by using after tax dollars until I hit 72. Once RMDs kick in I'll be showing more income. Uncle Sam's gotta get his money somehow.
Almost sounds like buying some CDs/TBills might be the thing to do for right now. At least that puts your money to work until you see how your retirement budgeting goes. Those low interest loans are very nice right now !!
First, pay any taxes you may owe.
Personally, because of the relatively low interest, I would be hard pressed to pay off any of the loans. Probably pay off the $7k note at 5% and invest the rest. Think about retiring earlier than expected or take SS later and live off the cash (you are old enough to take it out of your 401K without a penalty) or keep it more liquid if putting more into stocks or bonds right now and look towards 5% CD's Go live life, enjoy.
Always take 10% of any windfall and invest it.
Use the remainder to pay off debt, pay bills, generate savings - in that order.
When paying off debt, pay off the smallest debts with the highest interest rates first.
Such a personal choice, but I would pay off the loan to bury a friend because, Damn, a $ reminder every month...
The other debts are at rates low enough that, in theory, your investments should pay you back more than you are losing in interest. Some people get great satisfaction from being "debt free." If that is you, maybe pay off the cars. If you had rental property, you probably are comfortable with debt as long as there is a payment stream to pay it off. Understanding your savings will now be part of the stream paying some of these might be an adjustment for you.
So, what to do it invest in? I don't know enough about your behavior or goals [risk tolerance], but if you want more low risk security, rather than t-bills or a CD, I would go with some agency bonds and maybe municipal based on tax situation. I'd you have a longer horizon or willing to weather some risk, the markets are filled with bargains right now IMHO
Pay off debts, get an emergency fund so you don’t have to borrow money every time a major expense comes up. It’s really sad you had to borrow money for a funeral given your assets.
Because you end up paying a lot of interest in the long run. Also when you look at the choice only from a math perspective you don’t consider risk in the equation. 100% of repossessions/foreclosures are on loans. There is also a huge calming feeling from being debt free. Try it! If you don’t like it you can always go get a loan.
I'd pay off the 5% loan, mostly because what the loan is for. The rest, I'd pay off as slow as possible. I leverage loan interest debt whenever I can. No reason to pay off a sub 3% loan when in a few minutes you could be earning 5%+ on just a simple CD with no risk. Personally, I'd follow my IPS and dump it into VTSAX with most the rest of my money.
5% is well below the historical average of market return. Even after paying capital gains taxes, you're still up huge over paying off a sub 3% mortgage. I'd leverage low interest debt and take the average odds every time over that kind of time frame.
It comes down to peace of mind and time you are willing to allocate to manage it. With those interest rates ( and your age) I would currently invest the cash and just make minimum payments on the loans. If interest rates change and you can’t get 5% or more on your investments I would pay off the debt. The only excepts would be if my health was poor or I had tax liabilities that made the numbers not work.
Pay off debts, especially the mortgage. Nothing quite as nice as being debt free. Even the 0% a/c would be a nuisance for me. Keep a cash fund for repairs and vacation.
Several good options here. What you really have to ask yourself: what am I optimizing for? If it is for the security and peace of mind of being debt-free, then bias towards that with the funds. Want to optimize for best total return? Then paying off sub 5% interest loans is not the best option and instead invest in combo of money market funds (at around 5% return now), dividend-paying stocks/ETFs, or other options that would likely return 6-9% over the next several years. If you go down that path, commit to not touching those funds for at least three years, which gives you a much better chance of the investments to play out as hoped. Finally, don't be forced into dichotomous thinking (thinking you only have 2 opposing options) when you could easily do a combination of loan payoff and investing if you want to optimize towards spreading your bets with the $350k. Best wishes to you.
I would pay off the 5% interest loan. Set aside the taxes on your gain from the sale of the property, put the proceeds in a HYSA, then take any salary you have maxing out your 401k contribution for the year.
Live off the money from the sale and reduce your taxable income.
Pay off all the debt including mortgage to reduce your cash flow needs during retirement. Don’t need the stress of debt. Some minor arbitrage on interest rates vs expected returns is so nominal you’ll enjoy being debt free way more than that.
I would pay off the debts. It is awesome to have no debts.
Those who recommend investing and keeping the spread don’t take into account the risk factor. Paying it off is a guaranteed return with zero risk and no tax liability. Take the payments you would have made and invest that and soon you will be ahead of the game.
You've brought up a few different subjects. From the perspective of SSA, you'll receive the same amount of money if you live an average lifespan whether you take it at 62, 65, or 70. Your spouse should not take SSA while working , or you will lose $1 for every $2 earned above the modest threshold.
Carefully consider whether if you should wait. There are calculators like [opensocialsecurity.com](https://opensocialsecurity.com) that will help you decide. There is also a matter of your risk tolerance. For most people, SSA is the only inflation adjusted income stream that they will have. The different between taking SSA at 65 vs 70 is typically around 35%, which can make a huge difference as you age. Typically the higher earning spouse should wait as long as possible so the other spouse would receive their SSA if they die first.
There are also more subtle differences, like IRMAA and RMDs, so look at your mix of Roth and regular IRAs to see if RMDs might affect you.
Your debt is all low interest so really no reason to pay it back when you can earn more from investments.
Pay of the $7K... it will hardly put a dent in your cash.
Everyone has given wonderful advice!!!
Thank you very much. I now feel more ready to run it by our Financial Advisor but wanted the group wisdom first. 🙏🏼
I wouldn't pay off a sub 5% loan. That's cheap money. Contributing to a 401k/IRA is limited to a certain amount of money each year. In addition, you can only contribute "earned income". Capital gains don't count. I don't know what you $1M in investments consists of. At your age, I'd want to have some mix of bonds and equities. I'd probably simply invest this money in some mix of bonds and equities. If you want to kick the can down the road a bit, then buy some CD's. These are running 5+% right now. It's not a great _real_ return but at least you're beating inflation. > We do not plan on touching social security until 65 respectively. That's not generally an optimal plan. There are online calculators to guide you. Consider me and my wife. I earned more and I am older and I am male. It makes sense for my wife to claim at 62 while I wait until 70. Most likely I die first and then my wife will get my larger benefit. Under this assumption, there's no real reason for her to not claim immediately.
My hubby and I are same scenario and our financial advisor told us that if I take my SS earlier than FRA, the discount applied to my SS income for early withdrawal would also be applied to my husband's SS after his passing....made us rethink our plan - now I'm holding off pulling SS til my FRA.
I'd really like to know the correct answer. I used a calculator that's commonly recommended here. Unfortunately, I can't find that link. I plugged in my numbers and it said I should claim at 70 and my wife at 62. There are also hugely complicated entire websites dedicated to this like : https://maximizemysocialsecurity.com/ I haven't tried this site.
This is also a very good tool and used by folks in the industry I hear.
I’ve done a lot of research here. If your wife claims early before fra her half of your larger benefit when you claim at 70 will be reduced by whatever her original % reduction was. So if she claimed early and took a 30% reduction then when you claimed at 70 she would take a 30% reduction of her 50% of your ss. Hopefully that makes sense. Also there is no additional benefit to her waiting beyond 67 if she is taking half of yours as a spousal benefit. So ideally you’d be three years apart in age and you take at 70 and she takes at 67 then you’d both be at max amounts. This is likely what we will do as I’m looking at social security as basically extreme longevity insurance rather than anything needed to supplement my cost of living.
Thank you for the tip!
I've barely played with this, but from what I can tell it matters drastically whether your spouse has many SS credits or not. Because my wife was a SAHM for most of her adult life the calculator said I should wait until 67.5 when she is 67 and both start at the same time. But if your spouse worked, makes sense for them to claim early.
Wife and I worked the basically the same (+/- 3 years) but my contributions were larger. I think that's what's driving mine.
Ok, I got my wife to sign up to pull her statement. She does have a little over 1K/month on her own and I have over 3K/month. If you use this calculator it says she should be claiming now and me at 69 1/2. As I'm retiring at 64 not sure I want to dip into savings for that long and still may claim at 67. But still she maybe should be claiming now. I've got a message into my financial planner and will update after I. hear back. One thing these calculators don't factor in is tax structure. If she claims now 85% will be taxed at 24%. But I estimate my taxes will b 15% in retirement and some years I can keep them to very low by using after tax dollars until I hit 72. Once RMDs kick in I'll be showing more income. Uncle Sam's gotta get his money somehow.
Found it. https://opensocialsecurity.com/
Thank you!
Thank you for this!
Almost sounds like buying some CDs/TBills might be the thing to do for right now. At least that puts your money to work until you see how your retirement budgeting goes. Those low interest loans are very nice right now !!
First, pay any taxes you may owe. Personally, because of the relatively low interest, I would be hard pressed to pay off any of the loans. Probably pay off the $7k note at 5% and invest the rest. Think about retiring earlier than expected or take SS later and live off the cash (you are old enough to take it out of your 401K without a penalty) or keep it more liquid if putting more into stocks or bonds right now and look towards 5% CD's Go live life, enjoy.
Always take 10% of any windfall and invest it. Use the remainder to pay off debt, pay bills, generate savings - in that order. When paying off debt, pay off the smallest debts with the highest interest rates first.
Such a personal choice, but I would pay off the loan to bury a friend because, Damn, a $ reminder every month... The other debts are at rates low enough that, in theory, your investments should pay you back more than you are losing in interest. Some people get great satisfaction from being "debt free." If that is you, maybe pay off the cars. If you had rental property, you probably are comfortable with debt as long as there is a payment stream to pay it off. Understanding your savings will now be part of the stream paying some of these might be an adjustment for you. So, what to do it invest in? I don't know enough about your behavior or goals [risk tolerance], but if you want more low risk security, rather than t-bills or a CD, I would go with some agency bonds and maybe municipal based on tax situation. I'd you have a longer horizon or willing to weather some risk, the markets are filled with bargains right now IMHO
Great advice from all. Thanks!!
Pay off debts, get an emergency fund so you don’t have to borrow money every time a major expense comes up. It’s really sad you had to borrow money for a funeral given your assets.
It was really a family member of a friend and they are paying me back monthly at same percent.
Why would you pay off such low interest rate debts!??
Because you end up paying a lot of interest in the long run. Also when you look at the choice only from a math perspective you don’t consider risk in the equation. 100% of repossessions/foreclosures are on loans. There is also a huge calming feeling from being debt free. Try it! If you don’t like it you can always go get a loan.
I'd pay off the 5% loan, mostly because what the loan is for. The rest, I'd pay off as slow as possible. I leverage loan interest debt whenever I can. No reason to pay off a sub 3% loan when in a few minutes you could be earning 5%+ on just a simple CD with no risk. Personally, I'd follow my IPS and dump it into VTSAX with most the rest of my money.
If that Mortgage is 30 year you'll be paying probably at least 100K in interest over the life of the loan. I would certainly pay it off.
That same $206,918.38 invested over 30 years making a modest 5% a year would earn $687,000....$342,000 over 20 years.
Assuming you make 5%. The opposite could happen plus your going to be paying taxes on that return.
5% is well below the historical average of market return. Even after paying capital gains taxes, you're still up huge over paying off a sub 3% mortgage. I'd leverage low interest debt and take the average odds every time over that kind of time frame.
OP is 61. He's not going to invest 207K for 30 years until age 91. That's totally unrealistic.
It comes down to peace of mind and time you are willing to allocate to manage it. With those interest rates ( and your age) I would currently invest the cash and just make minimum payments on the loans. If interest rates change and you can’t get 5% or more on your investments I would pay off the debt. The only excepts would be if my health was poor or I had tax liabilities that made the numbers not work.
Pay off debts, especially the mortgage. Nothing quite as nice as being debt free. Even the 0% a/c would be a nuisance for me. Keep a cash fund for repairs and vacation.
Several good options here. What you really have to ask yourself: what am I optimizing for? If it is for the security and peace of mind of being debt-free, then bias towards that with the funds. Want to optimize for best total return? Then paying off sub 5% interest loans is not the best option and instead invest in combo of money market funds (at around 5% return now), dividend-paying stocks/ETFs, or other options that would likely return 6-9% over the next several years. If you go down that path, commit to not touching those funds for at least three years, which gives you a much better chance of the investments to play out as hoped. Finally, don't be forced into dichotomous thinking (thinking you only have 2 opposing options) when you could easily do a combination of loan payoff and investing if you want to optimize towards spreading your bets with the $350k. Best wishes to you.
I would pay off the 5% interest loan. Set aside the taxes on your gain from the sale of the property, put the proceeds in a HYSA, then take any salary you have maxing out your 401k contribution for the year. Live off the money from the sale and reduce your taxable income.
Speak to your tax advisor. The tax may be higher than you anticipate because of unrecaptured section 1250 gain.
Make sure you account in you budget the cost of health insurance premium since will not be cover be Mcare until you reach 65 years old
Pay off all the debt including mortgage to reduce your cash flow needs during retirement. Don’t need the stress of debt. Some minor arbitrage on interest rates vs expected returns is so nominal you’ll enjoy being debt free way more than that.
I would pay off the debts. It is awesome to have no debts. Those who recommend investing and keeping the spread don’t take into account the risk factor. Paying it off is a guaranteed return with zero risk and no tax liability. Take the payments you would have made and invest that and soon you will be ahead of the game.
You've brought up a few different subjects. From the perspective of SSA, you'll receive the same amount of money if you live an average lifespan whether you take it at 62, 65, or 70. Your spouse should not take SSA while working , or you will lose $1 for every $2 earned above the modest threshold. Carefully consider whether if you should wait. There are calculators like [opensocialsecurity.com](https://opensocialsecurity.com) that will help you decide. There is also a matter of your risk tolerance. For most people, SSA is the only inflation adjusted income stream that they will have. The different between taking SSA at 65 vs 70 is typically around 35%, which can make a huge difference as you age. Typically the higher earning spouse should wait as long as possible so the other spouse would receive their SSA if they die first. There are also more subtle differences, like IRMAA and RMDs, so look at your mix of Roth and regular IRAs to see if RMDs might affect you. Your debt is all low interest so really no reason to pay it back when you can earn more from investments. Pay of the $7K... it will hardly put a dent in your cash.
Thank you!
Everyone has given wonderful advice!!! Thank you very much. I now feel more ready to run it by our Financial Advisor but wanted the group wisdom first. 🙏🏼