Should you be saving for retirement or paying off your mortgage sooner?

After buying your forever home and feeling confident about your career, you may be wondering if it’s worth earmarking your extra income in retirement or using it to pay off your mortgage.

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We asked financial experts from across the country how to get the most out of your money. Most agree that the answer depends on where you are in your life, how much you have saved, and your long-term financial goals.

Find out how our experts answered the question: “Should I pay off my mortgage or save for my retirement?”

savings account

Most of our experts agree that if you have enough disposable income to choose between paying off your mortgage or saving for retirement, you’re in a pretty good position. A sound financial situation is essential before you can even consider investing extra money in anything other than your needs.

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You want to make sure you have enough money to cover any unexpected expenses. Generally, you should have about three to six months of savings. It means cash that is readily available to you in an emergency. If you’ve been building up savings, now is the time to think about how to make the most of the rest of your income.

Good debt

Most financially savvy people know that going into heavy debt is not good, but it can depend on the type of debt you have. While credit cards and other types of consumer debt are generally considered “bad debt” and should be paid off as soon as possible, a mortgage is considered “good debt” – one that can help create debt. wealth or increase income over time.

Kevin Roche, CEO of Pouldrew LLC and Managing Director of Leo Wealth, said: “There are also tax advantages for most homeowners by holding a mortgage; interest may be tax deductible. He strongly advocates saving for retirement under most circumstances.

Compound effect

Roche said the main reason individuals should choose to save for retirement is the “cumulative effect.” Compounding is the accumulation of interest on interest. While there are some benefits to paying off your mortgage, he said, when you “compare long-term returns (for investments) versus the interest rate you pay on a mortgage, the difference promotes investment.

He also said there are “tax benefits to saving for retirement through a company-sponsored plan in addition to IRAs, in addition to generating tax-deferred returns.” He warned that worried investors shouldn’t worry about the stock market’s decline this year as “markets are recovering”.

“Currently, an investor can earn 4% on a 10-year Treasury note,” he said. “If they got a mortgage in the last few years, chances are their mortgage interest rate will be lower than that. Thus, borrowing “at a low price” and generating returns greater than this amount [mortgage rate] will create a positive spread between the two rates, putting them on the path to wealth.

age matters

Adam Pippington, Chief Financial Officer of Freedom Dividend, said: “When it comes to saving money for retirement or paying off your mortgage, there is no one answer. It depends on your unique financial situation.

“If you’re nearing retirement and have a large mortgage balance, it may make more sense to focus on paying off your mortgage,” he said. “It will free up more money each month to live on, and you won’t have to worry about monthly mortgage payments.”

Final considerations

Pippington also said, “There are a few things to keep in mind when making [the] decision. First, make sure you contribute the maximum amount to your retirement account each year. This will help you save for your retirement faster.

“Second, if you have a high-interest mortgage, consider refinancing it at a lower rate. This will save you money on your monthly payments and allow you to spend more money on your retirement or to other goals.

“Ultimately, the decision to focus on retirement or mortgage payments depends on your particular situation. Speak to a financial advisor for more specific advice tailored to your needs.

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This article originally appeared on Should You Save for Retirement or Pay Off Your Mortgage Earlier?

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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