My wife and I have $1.8M saved and earn $400K. I want to pay off our 20-year mortgage before we retire. She says no

Dear Quentin,

My wife and I have done very well working in healthcare the past 25 years. We’ve always taken advantage of 401(k) and 403(b) to the max, and have additional savings in an IRA and almost no revolving credit debt. We currently have $1.8 million in these savings accounts.

However, at 52, we decided to move to Florida — now that our kids are both grown and on their own — rather than wait until retirement. We both still work and together make over $400,000 a year. We plan to work until 65 at minimum and have never had serious health problems.

At issue: We bought a house at the very top of our desired range and have a 20-year mortgage (2.5% interest) with a monthly payment of over $4,100. We have always paid extra on our mortgages, and my goal was to do the same with this house so that by the time we hit retirement at 65, it is paid off.

However, my wife says we will have plenty of money once we hit retirement age to maintain the house payment for the first five to six years of retirement, and that we shouldn’t “penny pinch” now that we have time to travel, even before we fully retire.

I understand that we are blessed to have such a nice nest egg, but I worry that stretching that house payment into our first five years of retirement will eat a huge chunk out of the retirement funds that could jeopardize longer-term planning. We also plan on this house being the bulk of the “inheritance” for our two children, so don’t plan on selling and moving once we finally make the retirement plunge.

Thoughts on how to approach this mortgage conundrum?

Two Pharmacists in Florida

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Dear Pharmacists,

This is a win-win. You’re charmed if you do, and you’re charmed if you don’t.

This column often leaves readers flabbergasted. “I can’t believe this crazy situation!” readers say as they try to process some letter writers’ misdeeds or familial shenanigans. “Who would do something like that?” It’s a pleasure to read a letter where people have actually done so much right. You’re in a financially secure position and, in a worst-case scenario, you could always downsize from your current home.

The answer to your dilemma is an extremely subjective one. There is an argument to be made that we don’t know whether any of us will be here by the time our mortgages are paid off, so why not fulfill our obligations and enjoy all that life has to offer.

Given the interest you will undoubtedly save by paying off your mortgage early, even at 2.5% interest, I agree with you. Overpay if you can, especially early on in the lifetime of the loan when the interest-rate payments are higher.

Depending on the terms of your mortgage, you may be limited on the amount in overpayments you can make (10% in some cases), and as frustrating and galling as it seems, there may also be a penalty for overpaying. 

For you and your wife, however, that could create a happy middle ground.

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