Hi,
My wife and I are recent naturalized U.S. citizens. We’ve been here since 2006 and have so far accumulated about $300,000 (myself) and $275,000 (wife) in IRAs. Except for a car loan with about $9,000 remaining and $125,000 we owe on the house, we pay off all credit cards each month. We make about $175,000 between both of us. Both aged around 47. No kids, no parents, though both of us help out our extended family members financially.
Questions are:
1. Are we saving enough for retirement?
2. Is paying the mortgage off completely a good idea?
3. What do we need to worry about for long-term care?
See: I’m 70 and am thinking of going back to work to qualify for Social Security. Should I?
Dear reader,
Great job saving for retirement and paying off your credit cards every month. It’s wonderful to have a focus on your financial well-being.
As I tell a lot of people in these letters, I can’t tell you if you’ve saved enough for retirement or anything specific about your own financial situation. There are just so many factors that go into an answer like that, and a financial adviser would need to look over your cash inflow and outflows, any risks or insurance needs, your overall health and lifestyle, investment choices and tax implications and so on. But I can provide a few things for you to consider, and hopefully give you more to think about as you crunch the numbers.
The mortgage question is a popular one — so many people want to know if they should carry this debt into retirement, or if they need to pay it all off before they get there. As you can imagine, there’s no one right answer. You may want to pay it off completely before you get to retirement, but if you’re able to continue making the monthly payments when you retire without straining your budget, it really doesn’t hurt you to have a mortgage. If, on the other hand, you can’t sleep at night thinking about a mortgage over your head (and not just the roof!), then sure, try and pay it off as soon as possible.
Consider a few other aspects first though. For example, assuming you stay in this house into and through retirement, what is your interest rate on the mortgage? If you were able to get in while rates were low (and nowhere near the 7% range they’re in now), that’s excellent, and definitely a point toward not accelerating a payoff. Not all debt is “bad debt,” unless you struggle to make the payments.
Don’t miss: I’m 52, single with no kids and only $190,000 in 401(k) assets. ‘I don’t want to die alone and forgotten in my home.’ What should I do?
Also, how much of your budget is going toward your payments? If you’re still able to save a healthy amount for retirement and pay all of your other bills, as you say you have been, keeping a mortgage isn’t the worst decision. It’s true that when you no longer have that monthly payment you’ll be able to earmark more for your future, but if you’re taking a chunk out of your current savings to pay it off, you’re actually hurting your future prospects. The money you have stashed away in your retirement accounts will generate more over the long term if it stays intact. Plus, you’d face penalties and taxes if you raided the retirement accounts to pay it off.
Now, for the long-term care question. I’m glad you asked. Long-term care can be very expensive, and not everyone thinks or plans for it. The younger you are, the better prepared you can be.
There is long-term care insurance, which is best to get in middle age (the later you wait, the more expensive it will be, if it’s even an option anymore at all). I would say do some research on the policies available to you, and run a cost-benefit analysis. I’d highly suggest working with a qualified professional who is working in your best interest (like a certified financial planner with a specialization in long-term care), as opposed to someone looking to sell you a policy. Don’t be afraid to shop around either, and make all the assessments you need first.
If you choose not to opt for long-term care insurance, as many people do, find other ways to protect yourselves. Here are a few.
Also see: If you think you can’t afford long-term-care insurance, here are some options
Save save save. If you have access to a Health Savings Account, that’s one way to go about it. HSAs offer triple-tax benefits, since people can contribute, invest and withdraw tax-free for qualified health expenses, whether they be in the present or future. HSAs are tied to high-deductible health plans, though, so they’re not a great option for everyone, and even when they are offered to workers, they may be too expensive.
If that’s the case, don’t despair — just keep health costs top of mind. A 65-year-old couple retiring this year could expect to spend $315,000 in retirement for healthcare alone, and that’s not including long-term care.
Start making plans for that now, even if you think they may change in the long run. Ask yourselves if you want to go to a facility like assisted living or a nursing home, or if you want to age in place with a home health aide, and how much it would cost to do either. Keep an eye on your medical expenses now, and when you get to Medicare age, and incorporate unexpected health costs in your budgeting. Do your best to live a healthy lifestyle by staying active and eating well. And go to your doctor’s appointments — take care of yourselves.
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