Mortgage vs 401K Question

[BRH]

As a federal employee, my 401K plan is the Thrift Savings Plan (TSP).
Today, I read an article that, starting in 2006, the TSP contribution
limit will be increased to $20,000/year (for those of us over 50 years
old) no matter what your salary. In other words, no more percentage of
salary limit.

I have always maxed out my contributions to TSP. I have also made it a
habit to pay 2 extra months principal with every mortgage payment, in an
effort to reduce the overall length of the mortgage and the overall
interest costs. I've also maxed out my Roth IRA every year. Until now,
I've been able to do all three. But with the TSP contribution limit
increase, I have to make a choice -- continue making the extra mortgage
principal payments or continue to max out the TSP contribution. (I plan
to continue maxing out the Roth IRA).

I have 2 years to go before retirement (after which I can no longer
contribute to TSP). My mortgage is a 30 year, 6% fixed loan, and I have
a balance of about $75,000 on it currently. I plan to stay in my house
indefinitely.

I'm looking for recommendations on which course I should follow -- max
the TSP contribution or continue making the additional mortgage
principal payments?

Thanks!

[bo peep]

My mortgage/retirement situation is similar to yours, and I posed a
question here about it recently. A rather unique solution was suggested
that you might also consider. If you do not need to leave an estate
after you and your spouse are gone, consider this scenario:

1. Minimize mortgage payments
2. Maximize TSP and IRA payments
3. Upon reaching age 62, take out a reverse mortgage. You and your
spouse can then live in the house indefinitely without making any
mortgage payments at all. You also receive some extra income from it.

John Cowart

[HW \Skip\ Weldon]

On 21 Sep 2005 09:10:24 GMT, BRH > wrote:


>I'm looking for recommendations on which course I should follow -- max
>the TSP contribution or continue making the additional mortgage
>principal payments?

Since I don't know anything about you other than what you disclosed,
please consider the following merely thinking out loud.

The generation approaching retirement now promises to be the
longest-lived group ever. The significance of that longevity is that
they will face decades of inflation and big-ticket expenses (cars,
home upkeep, medical, etc.)

So the question is, considering all that, are you saving enough at the
current pace to cover the remainder of your life? If your answer is
"yes", then you should be comfortable continuing the current program
of saving and accelerating mortgage debt.

But if your answer is either "no" or "I don't know" - which from a
planning perspective is the same thing - that focuses us in a
different direction. At that point two other issues may be
involved... either we are operating with an overly-optimistic time
frame (retire in 2 years), or, there's too much house.


-HW "Skip" Weldon
Columbia, SC

[BRH]

bo peep wrote:

> My mortgage/retirement situation is similar to yours, and I posed a
> question here about it recently. A rather unique solution was suggested
> that you might also consider. If you do not need to leave an estate
> after you and your spouse are gone, consider this scenario:
>
> 1. Minimize mortgage payments
> 2. Maximize TSP and IRA payments
> 3. Upon reaching age 62, take out a reverse mortgage. You and your
> spouse can then live in the house indefinitely without making any
> mortgage payments at all. You also receive some extra income from it.
>
> John Cowart
>

Hmmm... Good thoughts. Thanks!

[BRH]

HW "Skip" Weldon wrote:

> On 21 Sep 2005 09:10:24 GMT, BRH > wrote:
>
>
>
>>I'm looking for recommendations on which course I should follow -- max
>>the TSP contribution or continue making the additional mortgage
>>principal payments?
>
>
> Since I don't know anything about you other than what you disclosed,
> please consider the following merely thinking out loud.
>
> The generation approaching retirement now promises to be the
> longest-lived group ever. The significance of that longevity is that
> they will face decades of inflation and big-ticket expenses (cars,
> home upkeep, medical, etc.)
>
> So the question is, considering all that, are you saving enough at the
> current pace to cover the remainder of your life? If your answer is
> "yes", then you should be comfortable continuing the current program
> of saving and accelerating mortgage debt.
>
> But if your answer is either "no" or "I don't know" - which from a
> planning perspective is the same thing - that focuses us in a
> different direction. At that point two other issues may be
> involved... either we are operating with an overly-optimistic time
> frame (retire in 2 years), or, there's too much house.
>
>
> -HW "Skip" Weldon
> Columbia, SC
>


I think I see your point -- Here's more info:

Am I saving enough at the current pace to cover the remainder of my
life? --- Well, I think that I am, but who really knows the answer to
that question with 100% confidence? I have maximized my IRA and TSP my
entire working life, and I have only myself to support. (I expect
things to stay that way...)

Re: the 2 other issues that may be involved --- You're correct that I'm
cautiously optimistic about my time frame to retirement. I'll be 55
years old in 2 years and have been saving with that goal in mind for as
long as I can remember. As I said, I'm confident that I am not being
overly-optimistic, but who really knows? I'd rather error on the side
of caution.

There definitely is not too much house, as I live in a 1300sf townhouse,
which is comfortable, but by no means extravagent.

Thanks for your input.