I am thinking I would like to pay off my mortgage and save the interset which now is at 4.875% interest portion is at $230 a month. I asked my financial advisor and she ran the numbers and said yes. Then she called me back and said not to pay it off and to invest it. I plan on only working two years or so before I retire. I am now 68. I still feel that paying off the mortgage would be better and I could continue to save.the extra 1000 a month. I am not sure what to do now… What is the best way to go?
I’d ask your financial adviser why he/she changed their minds. It may have to do with income taxes on the inheritance. If the inheritance funds can roll into a tax free investment account, like a standard IRA, you my not have to pay taxes unless you are also required to withdraw the required minimum distribution annually. However, if you liquidate any of the inheritance funds, you may be subject to income tax.
Those are some good points raised by MintJulep! At age 68 would it be advisable to start an IRA? How much interest would you make, would it be as much as the mortgage rate or more to balance that out? A roll over to avoid taxes is an idea to think about if available. Another way might be to start by paying extra on principal only of your mortgage, that would knock down the interest. That way your mortgage would be done sooner with less interest. Have you thought about refinancing your mortgage?
I think at age 70 and 1/2 you are required to start taking out a percentage of your retirement funds.
I would also keep in mind that a financial advisor is going to advise you financially. Peace of mind and lack of stress will not factor into the equation. I would ask her why and also ask if there are any changes to the tax law that you are not aware of.
There is a little thorn in inheriting funds from a standard IRA. It’s good it can be rolled over tax free, but the recipient must take annual RMDs even if they are not 70.5; there are some more details to know if you are under 59.5 Some information here https://www.schwab.com/ira/inh…ira/withdrawal-rules
(The new SECURE act just signed in December moved the RMD to 72 from 70.5, I just read about it a couple of days ago!)
Great info, I just looked it up. This applies to owners of retirement accounts and their beneficiaries for inherited accounts, it allows them to re-calculate their withdrawals.
This was done because people are living longer, with this it makes the RMD (required minimum distribution) smaller, which makes it better for wealth preservation and transfer. It lowers the taxes to be paid out because it is a lesser amount.
I’m still a few years from retirement, but decided to go for the mortgage payoff. I know from a financial perspective, investing would be financially beneficial, but my numbers tell me I’ll have enough to live on by maintaining my current path, and for me, the emotional aspect of retiring with zero debt is important.
It sounds like you have the same mindset as I do, but I think before you can decide, you should think about whether you will you have enough to live on, regardless of whether you invest the inheritance or pay off the house.