But the dip or pay off debt?

Submitted by mildewey t3_yh66ke in personalfinance

I don't have a 401k match and I'm trying to decide whether I should be investing in the stock market now, while stocks are cheap and long term gains could be great, or pay off certain loans that are not too be mentioned in this forum (6% interest). We are 40, making good money (firmly middle class), but also have a lot of outflows including daycare, child support, mortgage, etc.

Lately I've been doing a little of everything, putting a little more in the mortgage, a little more into the debt, a little into the Roth 401k, and a little into a more liquid investment account. I've been wondering if I should be focusing more on one of those things. Wdyt?

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CelticsWin7 t1_iucffzi wrote

Stock market returns an average annual return of 8-10% with dividends reinvested. This is over the long term.

That said, I would want to pay off debt at 6%. It's not 20% debt, but still debt nonetheless.

I don't think you need to make extra payments on your mortgage assuming you refinanced around 3%. Take the extra money you were putting on your mortgage payments and put it on the 6% debt. Keep investing in your Roth 401k and investment account.

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ChiSquare1963 t1_iudnfns wrote

Yes, focus would be a good idea. With the limited information you gave, I’d prioritize 15% of income into investment accounts and non-mortgage debt. I’m assuming your mortgage rate is less than 6%.

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mildewey OP t1_iueqefs wrote

Yes, mortgage is sub 3%. Why 15%? It sounds like a good number, but what drives that being the number? Or is that just a minimum number that I should hold firm with myself on?

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ChiSquare1963 t1_iuf5a1m wrote

15% is a frequently recommended guideline for retirement investment, assuming you start in your 20s and plan to retire in your 60s with the same standard of living. Example

If you want to retire early, you need to invest much more. If you got a late start, you need to invest a bit more. If you have defined benefit pension plan, you may be able to invest less. If your employer matches, that match can be part of the 15%.

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wolff_james t1_iuciib8 wrote

Is your 401k currently on track to meet your retirement need with your current savings rate?

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mildewey OP t1_iudj5ji wrote

I'm not completely off track, but I lost ground in the divorce. I'm contributing 10% of gross right now.

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wolff_james t1_iuel5vd wrote

Okay, then I’m going to assume you have your emergency fund in place also (if not, that is the priority).

With that said, you should focus on getting back on track with your retirement savings & paying off the debt. Stop the extra mortgage payments & extra liquid investments. Make sure you max out your Roth IRA (you can withdraw the contributions tax & penalty free at any, so that will give you both the ability to increase retirement savings & give you liquidity in the most extreme circumstances). Then, compounding interest is working against you with that debt, so that taken care of that next before returning to your 401k.

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mildewey OP t1_iueru72 wrote

Does this include Roth 401k? Or just a Roth IRA?

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wolff_james t1_iuesjls wrote

Just IRA. 401k cannot be withdrawn without penalty, but once you leave the employer, then you can roll your Roth 401k over into your IRA. However, that does nothing for your liquidity in the short-term.

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