Question about refinancing and retirement

[kilapapipa]

I will try to make this short. I need to know what would be best. My wife and I both teach, we are 39yrs old. We owe 122k on our house (12.5 yrs left to payoff, 5%), 12K on a truck(2yrs to payoff, 7.5%), and 38K on a camper (10yrs. to payoff, 7.5%). We have no othere debt. We have 3 kids, 11,8,6, two vehicles that are paid for, and our house is plenty big so we plan on staying in it.

We put 500 a month into retirement and have 62k in the accounts. Our plan 2.5 yrs ago was to get a 15yr mortgage and pay off before retirement at age 56. We did that.

The question finally, should we get a new 30yr mortgage at 5.5% for 170k to roll over our truck and camper so we can save $1000 a month, put $500 more in the 403b's and have $500 more a month to have fun with the kids for the next 10-15yrs. or wait until the house is paid for to further invest in our retirement.

I have run the numbers on a retirement calculator and money compounds so this is why I ask the question above.

Thanks in advance,

[sweeps]

The refinancing would be a good deal if you continued to put the same payments that are currently going to the mortgage, truck and camper combined to the refinanced mortgage and/or to your retirement account. But the fact that you want to spend an extra $500/month kills the deal for me. Also you have to ask yourself if you have the discipline not to run up additional debts -- many people think they do, but a year later they're out buying another car.

P.S. Remember that most of the money you are "saving" is from lengthening the terms of your loans out to 30 years.

[jIM_Ohio]

NO.

Your emphasis on owning the house free and clear started years ago. I would not increase repayment period from 12.5 years to 30 years.

You are 39, goal is retirement at age 56. 17 years.

In 12.5 years will will be debt free. Each time you clear a debt, invest the payment for retirement. You need to keep a mid term time horizon on the decisions made, do not concentrate on short term cash flow and move the "debt repayment problem" to a long term problem. In 12.5 years the choices made now should make more sense.

You did not list the payments for the trucks. In 2 years (24 months), you will be adding at least $500 into the investment picture and have debt down around 12k from where it is now.

You did not list the payment for the camper, in 10 years you can add another $316 or so to investment pool. In 10 years the debt would be reduced another 38k.

In your situation, I would make sure to
a) not take on new debt
b) invest the money with moderate risk (to get a 8-10% return). Once you add more money to $500 per month, consider investing new money with less risk.

Did you project being debt free in 17 years if you consolidated the debt? The 17 year mark is more important than the amount invested (doubling the amount invested means little if you still have debt when you want to retire).

[sweeps]

doubling the amount invested means little if you still have debt when you want to retire

You lost me there, Jim. Doubling a monthly investment that earns 10% is a smarter move than aggressively paying down a mortgage that may earn the equivalent of 5% or less.

Not having a mortgage and other debts does not guarantee someone is ready to retire. Having a high enough net worth is what determines whether someone is ready to retire.

[disneysteve]

I agree with not doing this. Why take a truck loan that only has 2 more years left and turn it into a 30-year debt? Same for the 10-year camper loan and the 12.5-year home loan.

What you could possibly do to reduce your payments is get a home equity loan if the rates are favorable and use that money to pay off the car and camper. If the HEL rate is lower than what you are currently paying (or even the same since it is tax deductible), you could come out ahead that way.

[kilapapipa]

You lost me there, Jim. Doubling a monthly investment that earns 10% is a smarter move than aggressively paying down a mortgage that may earn the equivalent of 5% or less.

Not having a mortgage and other debts does not guarantee someone is ready to retire. Having a high enough net worth is what determines whether someone is ready to retire.

This is exactly our dilema. $500 more a month at 8-10% vs. trying to beef up retirement after the house is paid for in 12.5 yrs. It may be too late then for the money to grow.

2.5 yrs ago, the house appraised at 185k and now it is probably well over 200k with the market and our improvements. If I retire in 15yrs with the refinance, I will still have a lot of equity in the house if I sell and move somewhere else. Can't project that though.

Everyone is right that we started this 15yr loan to be debt free when we retire and we are on track to do so but is there value in adding more to the retiremement.

Thanks for all the input so far.

[sweeps]

Again, my concern wasn't that you were planning on directing an additional $500/mo to your retirement account. That's a good thing. But you said you wanted to spend another $500/mo on your kids. While that sounds noble, you could be derailing your plan to retire on time by doing that.

The other perennial problem we face here is that decisions usually come down to financial vs. psychological. The choice that would be the best financially is usually not the one that the person asking the question can/will actually follow through with.

[kilapapipa]

I can see now that I might be better off investing the truck payment of $558 into retirement when it is paid off. That way, I keep my current loan and still add a bunch to retirement. We will just have to find some cheaper fun to have with the kids. We would like not to short the family fun while still funding our future as well.

Thanks for the input, I have learned a lot on Diesel truck forums and today I thought why not see if there is a personal finance forum. I think there may be a forum for everything I will be visiting here often.

I like how those of you who responded gave me the pros and cons of my situation and the realities. Sometimes we need that.

[tripods68]

Everyone is right that we started this 15yr loan to be debt free when we retire and we are on track to do so but is there value in adding more to the retiremement..

Putting effort to increase your family resources make family sense. I have two kids myself so I know your dilemma. It's hard to put a dollar value on wanting to spend more time with the family, philosophically of course. But we try our best every by taking a week vacation and another week before school starts. We try to finds ways to cut back on expenses that we don't really need and reallocate that resource on the more important things (vacation funds, or taking family to fun short trips).

I would not fault you from choosing to have more resources with your family while trying to increase your retirement savings. So here's the real questions: What is preventing you from attaining your goal of "more fun with your kids" as you described that you're not able to do now? Have you reasses current family budget in finding ways to cut expenses that would allow you to splurge with family?


Good luck

[maat55]

I would be considering just how badly i wanted the camper. Staying with the plan to get debtfree and add heavily to your investing as things get paid for is going to payoff much better in the long run.

[scfr]

I can see now that I might be better off investing the truck payment of $558 into retirement when it is paid off.That way, I keep my current loan and still add a bunch to retirement. We will just have to find some cheaper fun to have with the kids. We would like not to short the family fun while still funding our future as well.

Fantastic plan!!! I'll bet you can have tons of fun with that camper of yours!
Who among us doesn't have fond memories of camping trips with our family?

[kilapapipa]

AHH, yeah the camper. We had a small camper and just traded up this past year. I did not mention that we own a lot on Padre Island, TX outright. We just finished paying it off before the camper upgrade. My in-laws have a 2nd house down there so we visit each summer. Someday, we would like to sell our house, buy or build a cabin in the Black Hills and/or on Padre Island. We debated buying land in the mountains and decided we could not build a cabin on it so why not buy a cabin on wheels. When we retire, we can sell the house and move to a cabin if we desire. We live in the mountains of Wyoming so camping is a big part of our life. Being teachers, we have all summer to camp. One of our biggest expenses is of course fuel and we have to take shorter trips now.

I do all of the upgrade stuff on our house myself so that helps as well.

As for our budget, we do pretty much what we want but I have concerns about putting our needs down the road ahead of family fun.

We have it better than a lot of folks and we are thankful for that. We have a great state retirement program and our health program is wonderful.

We also have a 529 going for the kids but I am afraid we don't put enough into it to make much difference. We only fund it at $100 a month.

Thanks for all the input, it is nice to hear from knowledgeable people and those that are in the same situation as us.

[snafu]

Just some thoughts...
Have you examined how amoritization tables work? You pay approx. 3 x the original loan figure. Some things to consider...How many years do you plan to retain your truck? What options do you have to earn more income during the summer which could accelerate pay-down of loans?

Would it be practical to loan [rent] your RV to colleagues for a few weekends when you have no plans? Do you have an investment plan for kids 529 which has moderate risk? This is a good time since the market is so low...it's like on-sale!
What no cost, low cost family activities are available in your community that interest your kids during the school year and holidays?

[jIM_Ohio]

You lost me there, Jim. Doubling a monthly investment that earns 10% is a smarter move than aggressively paying down a mortgage that may earn the equivalent of 5% or less.

Not having a mortgage and other debts does not guarantee someone is ready to retire. Having a high enough net worth is what determines whether someone is ready to retire.

Fair, the 1000 invested each month (12k per year) is better than investing 6k per year.

The cost of that 6k is that debt is not paid off in 12.5 years, it is paid off in 30 years (even though retirement is in 17 years).

If the change in payment was 6k invested to 18k or 24k invested, investing would win out. Doubling the investment amount in such a short period of time, IMO, is not the answer.

Because around $300 gets added in in 2.5 years anyway. The real issue is whether 6k per year now beats 9.6k per year in 2 years. In this case the 9.6 in 2 years is better, plus less debt.

And the OP is not "aggressively" paying down debt. OP is either going to maintain debt payments or extend them, not try to pay them down earlier (based on what I read).

I think there is more to retirement than high net worth. I'd like to see someone with 25X expenses in home equity retire effectively. Without selling the house, that would be tough.

[jIM_Ohio]

I can see now that I might be better off investing the truck payment of $558 into retirement when it is paid off. That way, I keep my current loan and still add a bunch to retirement. We will just have to find some cheaper fun to have with the kids. We would like not to short the family fun while still funding our future as well.

Thanks for the input, I have learned a lot on Diesel truck forums and today I thought why not see if there is a personal finance forum. I think there may be a forum for everything I will be visiting here often.

I like how those of you who responded gave me the pros and cons of my situation and the realities. Sometimes we need that.

Keep the mid term focus- two years is not a long time. Meaning the $500 or $1000 you put into retirement savings the next 24 months won't be worth much more than the deposits made. But in 24 months you will have much less debt and another $558 to invest. Do it this way. Because then 6-8 years later you will have the camper payment available to invest, then 2-4 years later the house payment too.

Within 24 months, you have the $1000 per month you wanted originally, and much less debt to show for it!

If you had more time (20-25 years), going with the 30 year fixed might be much better. So if age 56 vs 66 for retirement is not much to you, your original plan might blow this one away, but you need the extra 10 years of compounding for the investment to win out big time.