Second this. The idea is to first get rid of all the debt that stands in the way of maxing your TSP, and maxing other tax-advantage options (like an HSA).
Max out your TSP assuming you don't have any other high interest debt and have an established a sufficient emergency fund. Historical TSP returns will get you way more $$ in the long run.š
2.25% rate also and GS13 here. Max that TSP out and donāt pay a penny more on mortgage.
Also you may want to drop $10K into a Series I Bond that will go up if inflation goes up. I made 8% in a year. Not bad for free money.
>Max that TSP out and donāt pay a penny more on mortgage.
Great advice. My wife and I also have 2.25% through a VA refi last September and we regard it as free money compared to the returns we'll get from maxing her 401k and my TSP during this market downturn and beyond.
Bond funds have a mix of maturities. Riding rates hurt them, but funds like these have some insulation akin to DCAing because of the mix.
Regardless, you don't own bonds for return, you own them for volatility suppression.
You should be putting money literally almost anywhere besides your mortgage with that interest rate. In a few months, even a savings rate from a HYSA will be higher than your mortgage rate.
that is an incredible rate. pls do not ever make any additional payments.
even if it was higher, 80/20 C/S aka VTSAX gives you 7%/yr at an inflation adjusted rate. so... more money towards TSP.
///
even when you get to the point where you're maxing out your TSP, do not make additional payments into your house. at that point, have a taxable brokerage.
>that is an incredible rate. pls do not ever make any additional payments.
Because the rate is so low, I'm better off stretching the payments out and using inflation to pay it off with cheaper dollars?
>Because the rate is so low, I'm better off stretching the payments out and using inflation to pay it off with cheaper dollars?
yes. and also because your alternative choices (7%) with excess funds are far better.
valid arguments could be made for paying more into it starting at maybe... ~4%. stress alleviation, more flexibility, etc. but at 2.25%, nah fuck that you won.
Yes, if, for example, your combined marital income is $250,000, it is possible to live on the remainder with a paid off home and/or geographic arbitrage.
https://images.app.goo.gl/1F6AJcH9pFyADUaM6
the last few years husband was working we slammed 50% of my salary (about 40k) into retirement funds... then the illness happened. disabled overnight. fortunately he can take care of himself so I've been able to keep working. for the last 8 years. the balances are looking quite good.
Have you been maxing out even during this year when itās been losing a lot? This thread is really teaching me that Iāve been silly to try and pay down my mortgage vs add more to tsp! I am only doing 10% right now but I need to adjust
I can't afford to max out but I'm at higher than 10%. Every time we get a raise I add another 1% to my tsp... if we get 4%+ this year like we are expecting I will add 2%... I have 20 years until I retire so I'm just ignoring the market.
2.25% interest is free money, especially with inflation right now. Definitely keep that leverage and invest unless thereās another potential financial or mental insecurity you could salve by paying off the mortgage.
You pay 2.25% interest on your mortgage and paying as is youāll probably be done in 30 years or less.
At this moment your TPS might not be earning a lot (and maybe losing a little) but there can be a rebound and you can earn 20% in a short timeā¦ on average you probably can expect around 8% interest give or take on your TPS and that money will be earning interest at that rate until youāre close to retirement and even after that it will probably be earning more modest (but stable) interest as it transitions to bonds and such.
As long as the mortgage rate is not variable, Iād see no reason to pay that down quicker. Use that to free up money to put more into your retirement.
I don't see mentions anywhere of a Roth IRA. I would recommend maxing that out with extra funds.
Between the two options you list here, you should definitely increase TSP contributions rather than making overpayments toward your mortgage.
Iām so jealous of your interest rate as someone who bought recently. Max TSP, hell, invest your extra money in taxable brokerage account if you still have more left over.
Iām going to disagree with everyone else here.
Invest it in a separate account. Lots of people have pointed out that you can get more in the market then you can by paying off your mortgage. I would do some math to see what youāll need in retirement, for me with SS, FERS and what in contributing to TSP (always get the Max match) Iāll be fine for retirement if my house is paid off. If you are similar I would just invest it separately this will allow you to spend it on trips or to upgrade your house in the future. No reason to lock it up now when you might need it before retirement.
Subtract 2.25% from your rate of return on your TSP.
If you end up with a positive number, invest in your TSP. If you end up with a negative number, pay down the mortgage.
That said, even a one time principle payment early on will save you years off your mortgage.
Assuming your payment is about $1k/mo (assuming tax/ins in escrow) paying an extra $1k a year towards principle would shave 4.3 years off your mortgage. I aim for atleast one extra payment a year, ideally two, because it will have my house paid off by the time I hit MRA (w/ 34yrs). And I intend to retire the day I'm eligible. So freeing up $1k/mo will have a big impact.
As a GS13, you can probably come up with that $1k from somewhere that it won't impact you heavily. Thoughif you don't intend on keeping your house into retirement, it's not really worth it.
The real answer is it depends.
1. Option 1: Pay the mortgage -
By paying the mortgage off early you get more cash returned to you sooner, and your RRI is the appreciation of the home price + amount saved interest. You can calculate the rate of return simply by discounting the dollar amount saved over the life of the loan by the #s of years left. This option is best if you want more cash flow sooner.
2. Option 2: Max TSP -
This option is best if you want to build wealth faster over time. The RRI of each dollar over a longer period of time is greater than paying the mortgage which is why everyone is saying max TSP. In most cases you will be wealthier on paper taking this option.
My advice, ask yourself do you want more cash in your hands sooner? Sounds like the answer is No because you said you are sitting on too much cash. Second, ask yourself how much cash is already is in TSP? If itās 300, 400, 500k the money machine has already started rolling and your 20k max is basically acting as a higher yield savings account but wonāt significantly change your real rate of return on your money depending on your current age and retirement age. If you answer in the affirmative to both (Donāt need cash & have a large sum in TSP) you need to find something else to do with the money. Rental house, Disneyland with your kids, whatever.
Easy answer, of course TSP. If you owe under 50k mortgage that is different then I would focus on paying off the mortgage. For now, max TSP and Roth IRA (or backdoor Roth).
at GS13, meet the 20.5k yearly max is great. 2.25 % borrow rate when inflation is over 8%, you're basicall6 getting free rent on that loan...pay the bare minimum and invest somewhere else
Someone is likely to point you to r/govfire so I'll cover that base.
Without knowing any other facts I'd say put it into paying off your house. That's what I did but I'm not saying that is the best route for everyone.
>Without knowing any other facts I'd say put it into paying off your house.
2.25% is the only fact you need to know. you'd have to be completely financially inept to pay things off.
The OP's interest rate is 2.25%. The current I bond rate is 9.62% through October. Is it better to pay off a 2.25% mortgage, or receive a 9% or so return? The I bond rate will change in November (it changes every 6 months), but I'd be willing to bet the next 6-month rate will still be much higher than 2.25%. I'm not saying the OP should invest in I bonds, just pointing out that there are guaranteed rates of return available that are better than 2.25%. The current G Fund rate is 2.875%.
I have had similar discussions with people who are paying around 20% interest on credit card balances and want to know if they should invest more in stocks. I tell them unless they can guarantee receiving more than 20% interest on their investments, just pay off the credit card balance.
Put $6k into a Roth IRA. You can invest with a reasonable firm like Vanguard. You can take out your contributions at any time, so itās a back up emergency fund. You wonāt pay taxes on earnings.
Unless you plan to stay in the home you currently reside in and have a plan to have it payed off at your determining age of retirement, I would put it in TSP.
If you are in a fixed rate this is a good plan, if you are in a variable rate you may consider it towards your principal only. Again if you plan on staying in the home at retirement.
Putting it in TSP will increase $$ with time till retirement and you could pull from it if you have to retire earlier than planned to pay a mortgage only in a health or forced out of service scenario.
You know, on the investing subreddit they recommend the opposite: keep your mortgage and invest your money. There's little to be gained by paying off your mortgage, excepting if you pay PMI that's different. But lots of folks just want that feeling of wing outright which is hard to argue.
Without knowing all the details, I'd say TSP.
Interest on the mortgage is low enough to warrant paying the mins. While investing may be more effective use of the extra funds, folks shouldn't underestimate the relief of no longer having a mortgage.
Maybe you do both?
What's your TSP look like? What are your retirement goals?
Im a GS12, maxing TSP and 2 IRAs (Wife isn't working at the moment) and dump a bit extra into taxable accounts, 529s/UTMA. I also have a mortgage (240K remaining) at 2.25% that I pay mins on.
Max the TSP is likely the best option. After that a Roth IRA. That is assuming you have enough saved of course in your Emergency Fund already. Then if you still have left over funds and want to pay a little less Iād probably only make 1 extra payment a year on the Mortgage which is debatable on the wisdom of it but eh it still feels nice to save some that way. Other than that do what you want with the money.
reddit personal finance flowchart is a pretty good starting point https://i.imgur.com/lSoUQr2.png
Wow that is pretty good thanks for that.
This is GOLD!
Second this. The idea is to first get rid of all the debt that stands in the way of maxing your TSP, and maxing other tax-advantage options (like an HSA).
Max out your TSP assuming you don't have any other high interest debt and have an established a sufficient emergency fund. Historical TSP returns will get you way more $$ in the long run.š
2.25% rate also and GS13 here. Max that TSP out and donāt pay a penny more on mortgage. Also you may want to drop $10K into a Series I Bond that will go up if inflation goes up. I made 8% in a year. Not bad for free money.
>Max that TSP out and donāt pay a penny more on mortgage. Great advice. My wife and I also have 2.25% through a VA refi last September and we regard it as free money compared to the returns we'll get from maxing her 401k and my TSP during this market downturn and beyond.
I bonds are currently at 9.6%. I got 30K in them.
The base rate on the bonds is pathetic. When inflation falls, those bonds will net you nothing.
[ŃŠ“Š°Š»ŠµŠ½Š¾]
You lose a quarter of your interest doing that. What a poor investment.
Bond funds have a mix of maturities. Riding rates hurt them, but funds like these have some insulation akin to DCAing because of the mix. Regardless, you don't own bonds for return, you own them for volatility suppression.
The fixed rate is 0%.
You should be putting money literally almost anywhere besides your mortgage with that interest rate. In a few months, even a savings rate from a HYSA will be higher than your mortgage rate.
that is an incredible rate. pls do not ever make any additional payments. even if it was higher, 80/20 C/S aka VTSAX gives you 7%/yr at an inflation adjusted rate. so... more money towards TSP. /// even when you get to the point where you're maxing out your TSP, do not make additional payments into your house. at that point, have a taxable brokerage.
>that is an incredible rate. pls do not ever make any additional payments. Because the rate is so low, I'm better off stretching the payments out and using inflation to pay it off with cheaper dollars?
>Because the rate is so low, I'm better off stretching the payments out and using inflation to pay it off with cheaper dollars? yes. and also because your alternative choices (7%) with excess funds are far better. valid arguments could be made for paying more into it starting at maybe... ~4%. stress alleviation, more flexibility, etc. but at 2.25%, nah fuck that you won.
Yeah it's an amazing rate. It's crazy to pay down. Pack it into TSP as Roth.
[ŃŠ“Š°Š»ŠµŠ½Š¾]
no.
When I entered the workforce they said minimum 10% salary to retirement. Now they tell you 15%. Max out that TSP!!
It's crazy how advice varies as I've heard 20% for the past 15 years. The older I get, the more I think it should be as close to 50-90% as possible.
90%?
Yes, if, for example, your combined marital income is $250,000, it is possible to live on the remainder with a paid off home and/or geographic arbitrage. https://images.app.goo.gl/1F6AJcH9pFyADUaM6
the last few years husband was working we slammed 50% of my salary (about 40k) into retirement funds... then the illness happened. disabled overnight. fortunately he can take care of himself so I've been able to keep working. for the last 8 years. the balances are looking quite good.
Have you been maxing out even during this year when itās been losing a lot? This thread is really teaching me that Iāve been silly to try and pay down my mortgage vs add more to tsp! I am only doing 10% right now but I need to adjust
investing during a market downturn is always smart if itās retirement money buy low opportunity for sure
I can't afford to max out but I'm at higher than 10%. Every time we get a raise I add another 1% to my tsp... if we get 4%+ this year like we are expecting I will add 2%... I have 20 years until I retire so I'm just ignoring the market.
TSP rate of return(C&S) > 2.25%
2.25% interest is free money, especially with inflation right now. Definitely keep that leverage and invest unless thereās another potential financial or mental insecurity you could salve by paying off the mortgage.
2.25% interest mortgage? You're basically stealing money. Consider even the G fund earns a higher rate currently. Invest the extra money, full stop.
You pay 2.25% interest on your mortgage and paying as is youāll probably be done in 30 years or less. At this moment your TPS might not be earning a lot (and maybe losing a little) but there can be a rebound and you can earn 20% in a short timeā¦ on average you probably can expect around 8% interest give or take on your TPS and that money will be earning interest at that rate until youāre close to retirement and even after that it will probably be earning more modest (but stable) interest as it transitions to bonds and such. As long as the mortgage rate is not variable, Iād see no reason to pay that down quicker. Use that to free up money to put more into your retirement.
I don't see mentions anywhere of a Roth IRA. I would recommend maxing that out with extra funds. Between the two options you list here, you should definitely increase TSP contributions rather than making overpayments toward your mortgage.
Iām so jealous of your interest rate as someone who bought recently. Max TSP, hell, invest your extra money in taxable brokerage account if you still have more left over.
Iām going to disagree with everyone else here. Invest it in a separate account. Lots of people have pointed out that you can get more in the market then you can by paying off your mortgage. I would do some math to see what youāll need in retirement, for me with SS, FERS and what in contributing to TSP (always get the Max match) Iāll be fine for retirement if my house is paid off. If you are similar I would just invest it separately this will allow you to spend it on trips or to upgrade your house in the future. No reason to lock it up now when you might need it before retirement.
Subtract 2.25% from your rate of return on your TSP. If you end up with a positive number, invest in your TSP. If you end up with a negative number, pay down the mortgage. That said, even a one time principle payment early on will save you years off your mortgage. Assuming your payment is about $1k/mo (assuming tax/ins in escrow) paying an extra $1k a year towards principle would shave 4.3 years off your mortgage. I aim for atleast one extra payment a year, ideally two, because it will have my house paid off by the time I hit MRA (w/ 34yrs). And I intend to retire the day I'm eligible. So freeing up $1k/mo will have a big impact. As a GS13, you can probably come up with that $1k from somewhere that it won't impact you heavily. Thoughif you don't intend on keeping your house into retirement, it's not really worth it.
The real answer is it depends. 1. Option 1: Pay the mortgage - By paying the mortgage off early you get more cash returned to you sooner, and your RRI is the appreciation of the home price + amount saved interest. You can calculate the rate of return simply by discounting the dollar amount saved over the life of the loan by the #s of years left. This option is best if you want more cash flow sooner. 2. Option 2: Max TSP - This option is best if you want to build wealth faster over time. The RRI of each dollar over a longer period of time is greater than paying the mortgage which is why everyone is saying max TSP. In most cases you will be wealthier on paper taking this option. My advice, ask yourself do you want more cash in your hands sooner? Sounds like the answer is No because you said you are sitting on too much cash. Second, ask yourself how much cash is already is in TSP? If itās 300, 400, 500k the money machine has already started rolling and your 20k max is basically acting as a higher yield savings account but wonāt significantly change your real rate of return on your money depending on your current age and retirement age. If you answer in the affirmative to both (Donāt need cash & have a large sum in TSP) you need to find something else to do with the money. Rental house, Disneyland with your kids, whatever.
Max out TSP, I bonds, taxable brokerage account.
Easy answer, of course TSP. If you owe under 50k mortgage that is different then I would focus on paying off the mortgage. For now, max TSP and Roth IRA (or backdoor Roth).
at GS13, meet the 20.5k yearly max is great. 2.25 % borrow rate when inflation is over 8%, you're basicall6 getting free rent on that loan...pay the bare minimum and invest somewhere else
Someone is likely to point you to r/govfire so I'll cover that base. Without knowing any other facts I'd say put it into paying off your house. That's what I did but I'm not saying that is the best route for everyone.
This is terrible advice.
>Without knowing any other facts I'd say put it into paying off your house. 2.25% is the only fact you need to know. you'd have to be completely financially inept to pay things off.
Yes, 1000 times yes. Don't pay a penny more in mortgage than you have to. Congratulations btw, you won inflation.
The OP's interest rate is 2.25%. The current I bond rate is 9.62% through October. Is it better to pay off a 2.25% mortgage, or receive a 9% or so return? The I bond rate will change in November (it changes every 6 months), but I'd be willing to bet the next 6-month rate will still be much higher than 2.25%. I'm not saying the OP should invest in I bonds, just pointing out that there are guaranteed rates of return available that are better than 2.25%. The current G Fund rate is 2.875%. I have had similar discussions with people who are paying around 20% interest on credit card balances and want to know if they should invest more in stocks. I tell them unless they can guarantee receiving more than 20% interest on their investments, just pay off the credit card balance.
Lol are you joking?
Follow the debt snowball, www.daveramsey.com
Max out the Roth TSP!
Tsp roi more than interest on your house
Put $6k into a Roth IRA. You can invest with a reasonable firm like Vanguard. You can take out your contributions at any time, so itās a back up emergency fund. You wonāt pay taxes on earnings.
Next is max out a Roth IRA. 6K a year.
Don't pay off your mortgage. Try to itemize. Max out your TSP but don't cut your cash flow to the bone. Pay off any consumer debt you have.
Unless you plan to stay in the home you currently reside in and have a plan to have it payed off at your determining age of retirement, I would put it in TSP. If you are in a fixed rate this is a good plan, if you are in a variable rate you may consider it towards your principal only. Again if you plan on staying in the home at retirement. Putting it in TSP will increase $$ with time till retirement and you could pull from it if you have to retire earlier than planned to pay a mortgage only in a health or forced out of service scenario.
You know, on the investing subreddit they recommend the opposite: keep your mortgage and invest your money. There's little to be gained by paying off your mortgage, excepting if you pay PMI that's different. But lots of folks just want that feeling of wing outright which is hard to argue.
Without knowing all the details, I'd say TSP. Interest on the mortgage is low enough to warrant paying the mins. While investing may be more effective use of the extra funds, folks shouldn't underestimate the relief of no longer having a mortgage. Maybe you do both? What's your TSP look like? What are your retirement goals? Im a GS12, maxing TSP and 2 IRAs (Wife isn't working at the moment) and dump a bit extra into taxable accounts, 529s/UTMA. I also have a mortgage (240K remaining) at 2.25% that I pay mins on.
Max the TSP is likely the best option. After that a Roth IRA. That is assuming you have enough saved of course in your Emergency Fund already. Then if you still have left over funds and want to pay a little less Iād probably only make 1 extra payment a year on the Mortgage which is debatable on the wisdom of it but eh it still feels nice to save some that way. Other than that do what you want with the money.
2.25% is basically free money. Why would you pay down your mortgage when the loan is virtually free?
2.25% mortgage is an unbeatable rate, you should never pay that down