AIBU to be more concerned about saving for retirement than paying off the mortgage?

[Mickeysmonkey]

I am 38 with 3 small children aged 7, 4 and 1. DH is late forties. We've been married for 10 years and own a house. Both of us spent our twenties having fun - building our careers, yes, but not saving much and spending what we had. I don't regret this at all!

I have taken a few years out of work and recently returned to full time employment. I earn a decent amount - although I won't be retiring to a yacht any time soon! - and DH has a business that's doing well enough to support us.

Since we've been living on DH's salary, I wanted to be sure that we did something productive with my salary and didn't fritter it away (which I know from past experience we'd be likely to do.) So we made the decision to invest in my company's pension scheme and I save the maximum that the IRS allows (I'm in the US).

We have a massive mortgage that won't be paid off for another 12 years. A couple of friends of ours (same age) have expressed surprise that we are not overpaying our mortgage to pay it off sooner. One even thought it was "a mug's game" to save in a pension scheme. I've seen that attitude here on MN too. I really don't understand it. I see the mortgage payment as giving us somewhere to live, obviously, then the house should allow for some inheritance for the children, hopefully. I've never considered it a nest egg. I don't think for a second that there'll be a state pension when I retire and I would hate to be financially dependent on my children.

How do other people think to allocate their savings and think about retirement? AIBU to think that this should be the priority?

Paying off the mortgage should be the priority. You will save such a lot of money if you make overpayments. You are still saving for retirement if you pay off mortgage as you'll then have more money to reinvest in another property or a pension

I do both, overpay mortgage and save into a pension. Depending solely on one type of investment is risky.

You say you are in the U.S. we are too. No point paying off the mortgage if your rate is fixed and low. We have 25 years on our current mortgage and the rate is 3.625%. We then do max 401k plus Roth ira by doing a non deductible IRA and doing a conversion. It's bugs me than the Roth option goes away once joint income is about $185k. Here in the ny area that income is low.

We keep 6 months of expenses as our cushion. So many more unexpected things that can come up.

We are in the US and with current interest rates etc. it definitely makes more sense to pay the pension before overpaying the mortgage.

I have worked in the US for 20 years. I didn't even sign up for 401k until a few years in but it is amazing the money I have saved in it just by maxing contributions and having a good employer match. Not sure it is enough for me to retire yet :) but it is way way more than I would have saved by putting that money into mortgage. You have to take tax advantages and employers contribution into account too.

We also overpay on mortgage though. In fact we could pay off our mortgage fairly quickly at this point and I would love to from an emotional point of view - but we were advised it was better to leave our money elsewhere and take advantage of the low interest rates.

I dont know the specifics of paying a mortage or a pension plan in the us butringing a financial advisor can be a good idea? Paying ofc your mortage is not simply "giving a place to live", it is gettingn out of debt.

I'm in the uk and paying a whopping 0.25% interest on my mortgage. My pension plan would have to do badly to underperform that. So assuming yours is similar yanbu.

The problem with pensions is how do you know you will ever be in a position to claim it?

But goldenmilk either way you can't take it with you. Plus mine is linked to death in service anyway if we want to get morbid.

The problem is that people tend to see bricks and mortar as guaranteed to grow in value; whereas financial investments like pensions, they see as risky and likely to plunge in value at the drop of a hat. So if that's your perspective then I can see how it makes sense to focus on the mortgage.

I don't know about in the US, but in the UK pensions contributions are tax-free, so you get 25% more than if you're putting it to a mortgage, which makes it a no-brainer for me, even if you're not looking at interest rates (if you can afford it, of course).

And frankly if your mortgage is going to be paid off when you're 50 then you're already doing extremely well!

No, but you can leave bricks and mortar to your children :)

(I don't "want" to get morbid. I just think it's something worth pointing out. The retirement age is 69; both my parents were dead before that.)

but if you die before 75 you can leave a pension to your children also.

My parents couldn't.

A pension maybe doesn't seem very important when you are young,but it sure seems important when you get old.
No one knows when they are going to die but we are living longer and it is now fairly unusual to die in your sixties.
If I could do both save fo a pension and overpay on my mortgage I would do it. Mortgage rates are very low and so it is probably the cheapest loan you are ever going to get.
I would definitely start saving towards my pension and make sure I have enough life cover. With small children, a remaining partner would have to pay out a lot for childcare. I would consider Critical illness cover as well.
Life cover is cheap when you are young.

They've changed the rules (assuming you are in the UK).

The changes in the pension rules have made pensions a much more viable prospect. Previously the rules about annuities etc put many off. make sure that web you are doing your reading you look at the most up to date articles (although your situation will be slightly different due to you being in the US)

We are in a similar position. We have just reassessed our situation (with help from the MSE site). We are not risk takers with our money and so it will always be going into the safe options like isas, pensions, our home but we did realise that we were being complacent regarding our pensions.

I would recommend you go onto a pensions calculator and see how little income you get from what seems like a massive pot of money. Shockingly, a £1m pension pot does not enable you to live a life of luxury.

We are now doing the following:

1. Increased pension contribution (for us we are self employed so no employer contributions but clearly its tax advantageous)
2. Max into cash isas each year (this also doubles as our emergency fund)
3. Every month we overpay on our mortgage. Only five years left to go!! I am trying to cut this a bit more so that we are mortgage free by the time I'm 45. This will mean our disposable income shoots up massively. Yes I know the interest rates are currently low but they won't stay low forever and our aim is to make sure that by the time they increase it is no longer a problem for us because we're all paid up.

I'm also going to start a small pension for both of the DCs. Just £50 a month will give them a good head start.

I agree with the pension option, for the reasons other have given.

Also, if you've been living on DH's income, surely that's on target to pay off the mortgage anyway.

If you're inclined to fritter money away, it's safer in the pension than the mortgage, as it's harder to get at it prematurely.

Thanks Toby :)

I have paid into a pension since I was 22. If I was starting out again, I wouldn't bother. If they start means testing the state pension, I will be no better off than if I had never paid in at all.
If you are one of the very well off MNers, having a pension makes sense. It will end up being a waste of time for most of us.

Whether it's a good idea to pay off a mortgage early can depend on facts, and the facts in the US often favour it less than they do in the UK. In particular long-term fixed-rate mortgages and if the mortgage is non-recourse.

I agree with LordEmsworth especially when the employer, like mine, puts in about 14% compared to my own 7%. I think many might also find that as children get bigger, with both of you working you can pay down some of the mortgage in a few years anyway.

I've always contributed to a pension from when I could from 24 (yes in those days you had to be 24 to join the company scheme) except for my 8 years as a SAHM. I won't get my state pension until state retirement age but I could take my private/occupational pension earlier.

For me it seems worth it and more worth too to have a lump sum because my family tend to live into their 90s. I am very happy to know that I'll have a decent income when I'm retired.

morgue that makes no sense whatsoever . You recommend that people do not save money into a pension because they might not get pension benefits from the state. What if the state pension disappeared altogether?

Pensions make sense for everyone who doesn't want to potentially be living on the breadline and relying on their children (who might not have money themselves).

The retirement age is 69

You can withdraw your pension savings from age 55, even if you are still working.

The other thing to factor in is that whilst many view their home as their pension they also have to buy a replacement home with that pot of money. DH calls our house our pension but half of the money we'd get from selling it would have to immediately buy us an alternative place to live.

Plus DS2 has bagged the house.