By Mike Miles
November 13th, 2012 | Uncategorized
Q. My husband (retired FERS) turned 70 in March and has more than $200,000 in the Thrift Savings Plan. Our understanding is that he must begin withdrawal by April 2013. We owe $100,000 on our home. Is it better to take out enough to pay off the house or schedule the minimum monthly withdrawal?
A. The smart move will depend upon your mortgage terms and how you manage the TSP money. If I were responsible for the outcome, I’d prefer to see you continue the mortgage, if it’s at a market fixed rate, and take the required minimum distribution from the TSP account.
November 12th, 2012 | Uncategorized
Q. I am a CSRS employee with 38 years of government service. So far, I have my funds spread over all of the funds: 45 percent in G and 30 percent in F. Is this wise considering I intend to retire in fiscal year 2013? Also, is it wise to take funds from my Thrift Savings Plan and just pay off one of my two mortgages? The mortgage rates are 4.5 percent and 5 percent. I’d like to pay off the 5 percent mortgage, which is about $150,000. Is this wise? If not, why not?
A. Your asset allocation makes no sense. It only lists two of the five funds and the percentages don’t add up to 100 percent, so I can’t help you there. I suggest that if you don’t know what to do, consider using the L Fund that most closely corresponds to your life expectancy.
As for the mortgage, if I were managing your financial plan, I would lean against paying off the mortgage since it will impair your portfolio’s liquidity and may tie up money you’ll need later for expenses. You’ll have to decide what makes sense to you. There is no universally “wise” choice.
November 5th, 2012 | Uncategorized
Q. I’m a 45-year-old reservist who has been recalled to active duty. I’m also an E-6 with more than 18 years of service.
I can afford to invest my entire pay, including incentive pays, and wondered if it would be better to pay off an existing mortgage, approximately $60,000, just refinanced last month at 3.5 percent and a 15-year term? Or would it be better to max out the Roth TSP and set up another deferred account or IRA of some sort?
My wife makes about $55,000 per year.
A. It’s impossible to say what’s best for you without the proper analysis and understanding of your particular goals, resources and constraints. In general, however, I prefer to see you retain the mortgage and invest the money prudently instead of using it to pay off the mortgage.
September 18th, 2012 | Uncategorized
Q. Can a TSP residential loan be taken out to pay off a mortgage on a primary residence?
May 22nd, 2012 | Uncategorized
Q. Do you happen to have any articles about the pros and cons of paying off the mortgage in retirement? We had paid off ours. But we moved to downsize before selling the bigger house. So we took on a VA mortgage at a relatively low interest rate last November.
When we sell the big house, we have two options: Keep the mortgage and invest all the money, or pay off the mortgage and invest the balance. I retire in January 2013, and our pension income will be half our current income. Is there a “calculator” to evaluate the choices?
A. You will find a column I wrote on the subject here: http://www.variplan.com/uploadedDocuments/1277733522Carrying_mortgage_into_retirement_can_pay_off.pdf.
There are calculators for everything, but they’ll give you whatever answer you want depending upon the assumptions put into them, so don’t rely too heavily on them in making your decisions.
May 9th, 2012 | Uncategorized
Q. You made the following statement in a recent column on common mistakes regarding retirement: “Think paying off your mortgage in retirement is important in achieving the highest standard of living possible? It’s probably not.”
Why? I’ve always thought the opposite — that you should have your mortgage paid before you retire. Can you share your thoughts on this subject?
A. You’ll find a transcript of a column I wrote on the subject here: http://www.variplan.com/uploadedDocuments/1277733522Carrying_mortgage_into_retirement_can_pay_off.pdf.
Basically, the reason is that paying off your mortgage can tie up funds that you may need later to pay your bills — the bills for your lifestyle. Particularly, when you can lock in historically low interest rates for 30 years, your money can do more good in supporting your standard of living if it is invested properly in a more liquid portfolio.
December 16th, 2010 | Uncategorized
Q: I wanted to have my house paid off by the time I retire in 2025. I am over 50, and the yearly payment needed to pay off my house would equal my Thrift Savings Plan catch-up contribution; I can’t do both. Would you recommend paying off the house or paying more into the TSP account?
A: It depends upon your assumptions about the future and your circumstances. With what little I know about you (virtually nothing), I can only recommend that you carefully consider keeping the mortgage and making the TSP contributions.