Retirement/Index Mutual funds or mortgage

[blueman]

Hello All,

I'm hoping some of you can ease some of my multiple sleepless nights with wisedom by assessing my situation. These 3 topics have been on my mind quite a bit lately and I just can't come to a conclusion of where I should be allocating my funds right now. This is my situation:

- Married @29yrs
- I make about 90,000K before taxes.
- Wife makes about 40,000K before taxes.
- Mortgage is 70K (10year loan just refinanced) @3.4%APR
- No additional outstanding loans besides a car loan with about 7K left

I'm trying to figure out if I should be aggressively paying off my mortgage loan in order to take interest in a new house for my future family

or

putting some of these funds into an IRA or 401K in addition to %matched

or

investing it into some index mutual fund account

I appreciate any advice you guys could give me. I've been persuing the former for a couple months now.

Thanks,

[kork13]

putting some of these funds into an IRA or 401K in addition to %matched

or

investing it into some index mutual fund account

These options are technically the same...

You haven't shared your account balances, but I suspect you're quite shy on your retirement savings if you have, to date, only contributed up to the match in your 401k. You should definitely open an IRA for both you and your wife. Whether you go with a Roth or Traditional IRA is up to you, based on whichever is better for your particular tax situation. Max out your IRAs with $5k/yr (each account, so $10k/yr total), then you can consider doing other stuff such as accelerating your home payoff or contributing more to your 401k. $10k/yr is an easy target to reach, and starting while you're still young will offer you huge benefits when you get to retirement age.

[disneysteve]

I'm trying to figure out if I should be aggressively paying off my mortgage loan in order to take interest in a new house for my future family

What does this mean? I'm not sure what you mean by "take interest in a new house".

That said, I wouldn't be prepaying the mortgage at this stage. First, you need a 6-month emergency fund, 15% of gross income being invested for retirement, 5% being saved for other needs and other debts paid off (like the car). Once all of that is in place, then you can think about prepaying the house which may or may not be the best choice but that's the time to consider it.

[jpg7n16]

15% of gross income being invested for retirement

Agreed.

To change the % to $$$, what that means is, each of you max a Roth IRA ($5k each) and contribute 7-8% to your 401k.

$130,000 * 15% = $19,500
$19,500 - $10,000(Roths) = $9,500

9,500 / 130,000 = 7.3% (to 401k)

Once all of that is in place, then you can think about prepaying the house which may or may not be the best choice but that's the time to consider it.

I 100% agree with DS's priorities.

Here's my thoughts on what to do after they're all checked off. The market is expected to earn somewhere 7-11% long-term. Your mortgage is only costing you 3.4%/year. So each dollar you invest long term is expected to earn at least double what you would save by paying down your mortgage.

IMO - once you've got your basics in place (EF, retirement savings, etc.) I'd up the amount you're contributing to the 401k.