Retirement investment is best if you start as soon as possible so the magic of compound earnings over time works for you, rather than compound interest working for the institutions that lend you money.Goal was the pay off the home by 40 and then start saving 40% (of max amount allowable in the retirement accounts) towards retirement. However already reading and learning about boglehead, I am now getting really worried that my plan may not be prudent.
If you take another 5 or 10 years to pay off the mortgage and then start saving, the amount you have to save increases significantly. In the example below, someone starting at age 21 and earning 6% return on contributions of $20K/yr, get's to a $736K balance by age 40. The one who waits to start retirement saving until age 25 has to contribute 5.7 times more ($113K/yr) to reach the same balance by age 40. Waiting until age 30 means contributing 13.2 times more ($246K/yr). You can't "make up for lost time" by investing aggressively (say an AA of 100/0), the only thing that really helps is aggressively saving more and that may not be affordable. This example is all in constant dollars with no inflation, so if you were earning $100K in an inflation-free environment, the 20 year old only put in 10% of salary, the ones that started later can never catch up because they don't earn enough income ($113K and $246K both > $100K).
So yes, your plan to delay retirement contributions is not prudent. Don't pay off the mortgage until after you max out 401k and IRAs. Even then you might want to invest towards retirement in a taxable account rather than pre-pay the mortgage if you still had contribution money after maxing tax-advantaged accounts.
Statistics: Posted by bonesly — Fri Apr 05, 2024 1:59 pm — Replies 5 — Views 314