I’m 30 years old, live in a large city, and make 150k(plus 30k annual bonus). I’ve been in my current role for less than 2 years and it’s the most I’ve ever made. So, I bought a house last year and started to seriously contribute to retirement. Next year, I’m gonna get a small raise and payoff a car loan that will free up an additional $300 a month. I want to get advice on 1- should I put this extra $300 towards mortgage principle or increase retirement savings? Am saving enough based on my income?
Financial overview
Net income: $7200
401k balance: 50k
– 10% contribution
– 167% company match on 6%
HYSA: 42k. I contribute around $2000 a month
Mortgage: $3045 at 6.7% (plus $200 a month towards principle)
Student loan: $140
No other debt
I am engaged but our finances aren’t combined and I own the home. My fiance pays $1100 of the mortgage and we split the house bills. Reason my fiance is paying less towards the mortgage is because their income is less.
Should I put the extra leftover income towards the mortgage or retirement??
byu/Rulesb inpersonalfinance
Posted by Rulesb
11 Comments
You’re behind on retirement, catch up there.
You have plenty of emergency/cash savings. Reduce your contribution to that account and and max your 401k.
Read the wiki for the sub and follow the flowchart. A mortgage interest rate of 6.7% is high enough that a fair number of people would funnel extra cash towards it, but in your shoes I’d be upping retirement, even above that extra $300/mo.
At 30, $50k saved is behind where you want to be, but your income is high enough that catching up and securing an easy retirement is still a simple math problem without too much sacrifice.
So
10% of 150k = 15k
1.67 x 0.06 x 150 =15.03k
That’s a decent amount in your 401k but your balance is so low and don’t really understand why
Take $1000-ish out of monthly $2000 from HYSA and move to your 401k/brokerage. You can only contribute $24,500 next year, so around $800 to 401k and $200 to brokerage perhaps (I’d do even more if I were you)
I wouldn’t put more toward your mortgage but maybe wait to refinance at some point in the 5’s?
As others have said, you’re behind on retirement savings. It’s okay to put some extra towards the mortgage but you should prioritize maxing out your 401k ($24k) and open up a Roth IRA (google backdoor Roth IRA contribution since you’re over the income limit) to catch up.
max out your 401k contributions every year, in the way that makes the most sense for your employer sponsored plan and your finances (i.e. if your employer matches and they have a true-up on their match at the end of the year, then you can max out early without losing out on the match. there are good reasons to max out early which you can look into).
Once you figure out how much to contribute to your 401k to max out your contributions, you’ll probably still have leftover additional income so you could consider contributing to a ROTH as well, or some additional investment portfolio to contribute to your retirement and, assuming the likely net gain exceeds the interest rate on your debt, you’ll be better off contributing to your retirement.
It would be worth your time to talk to a financial advisor (specifically a fiduciary, who is legally obligated to act in your best interests).
Emergency fund (12 months of living expense) > High Interest Debt > Retirement > Mortgage (In that order)
Do you have a Roth IRA?
Up your contributions to your 401(k) to the max. I think this will be an extra $500-$600.
Take $1,000 of the $2,000 contributions you make and put that towards extra principal on your mortgage.
This should leave you with $400 – $500 to put in HYSA monthly.
What rate is the student debt at? If close to or more than mortgage, eliminate that debt first.
6.7% mortgage, paying that down is a guaranteed 6.7% return. Long range stock market is about that (and definitely not guaranteed). I’d hit the mortgage before going higher on 401k.
Anyone advising you to go 401k first doesn’t know how to do math, you’ll have $3 million at 55 if you just keep doing what you are doing there.
What is your goal with the HYSA? Are you saving for something specific? How many months of expenses does it cover?
If you feel like your job is secure for the foreseeable future you don’t need to keep more than 6 months expenses in an HYSA. And that’s *expenses* as in what you would have to spend to stay afloat for six months, not counting what you’re putting into savings and whatnot that would obviously stop if you lost your job. If you work in a risky industry you *might* want to bump it up to a year but that’s a lot of money to have sitting around not earning much.
Once your emergency fund is enough you feel comfortable, take *that* $2k/mo, plus the extra $300, and put it into retirement (you might be able to max both 401k and IRA). The tax advantage is bigger than paying off your mortgage. Once you’re caught up on retirement savings *then* you can lower it and start paying off the mortgage, but retirement savings are the priority right now.
Adding to pay off the car after 401k/roth maxing out before paying down mortgage.