Thanks to the Best Boss Ever, I got another raise this year. I’ve decided to allocate an extra $100 a month to the house payment, and another $200 to the IRA each month.
Unfortunately, this means we’ll still only be putting $500 a month into retirement. I know that it’s not enough, but right now that’s what our budget can allow. At least, it’s all it can allow while we’re putting extra on the house. So the question becomes: house or retirement?
We’re pretty far behind on our IRA contributions. Starting at age 30 — after all, I’d been not working/on disability for years before that — I started putting $100 a month into a retirement fund. It was only last year that we were able to increase it to $300 a month. We got some help from a relative for three or four years. But life has recently become expensive for that person, so I doubt we’ll be getting any more of those.
Meanwhile, our mortgage is pretty low. The balance is around $76,500, and the interest rate is only 4.75%. As such, our payment is a ridiculous $591.97. But in order to pay it off early, we’re now paying $1,050. The plan is to increase the amount by $100/month each year. That puts us on track to pay off the house by the middle of 2020.
But is that the best use of our funds?
I’m guessing most people in the PF blogosphere would say no. Most folks are all in favor of early payoff, but I suspect they’d tell us to focus on IRAs. The most obvious argument is that we’re missing out on compound interest. I mean, eventually the investment returns will be better than our mortgage’s interest rate. Eventually. And we can still pay off the house about 12 years early, even if we took our house payment down to $800 a month.
All excellent points, but when I consider them all I hear in my head is “PAY OFF THE HOUSE! PAY OFF THE HOUSE! PAY OFF THE HOUSE!” Then again, knee-jerk reactions aren’t always the best ones. For example, we missed out on a lot of compound interest while we were paying off debt. I was just too scared of a credit card balance to put much toward an IRA.
That said, I think my anxiety is somewhat justified. I’m the only wage earner in the house and guest house. Tim’s dad will take early retirement this September, so if I weren’t drawing a paycheck the household income would be about $3,000 altogether. If anything happens to my job, we’d be in trouble. Our summer energy bills alone can run $400+. (Mental note: Get the insulation laid out before summer temps hit.)
On the other hand, my job is pretty stable. It’s a small company, but it’s been around (and growing) for over a decade. And it’s in a steady industry. People aren’t going to stop buying things online anytime soon. So the idea of unemployment is pretty unlikely. The only issue would be if I had to stop working for some reason. (Mental note: Get disability insurance.)
Then again, having a well-funded IRA shouldn’t really be that big a worry. I’ve been pretty clear about having no plans to retire. If old age causes problems with my typing for a living — and Dragon software no longer exists — then retirement funds would be a big deal. Otherwise, I guess it’ll pad our income and maybe let me work less.
So what do you guys think? Where should our focus be?