Ask yourself hard questions on interest savings vs. investing


Important to stay on track toward retirement goal

Dollars & Sense

February 06, 2000|By Liz Pulliam Weston | Liz Pulliam Weston,LOS ANGELES TIMES

I am a homeowner with a 15-year mortgage at 6.9 percent. We've been paying extra toward the principal and are on track to pay off the loan in seven years. I would love to take my wife and daughter on vacations all over the world after our house is paid off and before our daughter, who is 10, gets too old and wants to be off doing other things with her friends.

Or should the money we're using to pay off the loan faster be invested in our 401(k)s instead? I have 6 percent of my check going into my plan at work, and my wife is contributing about the same to hers. We can contribute up to 12 percent.

Financial planning is all about making choices, and some are not as simple as calculating interest savings vs. a potential investment gain.

Your daughter is growing up faster than you think. By 17, she might already be too impatient for the kind of family vacations you have in mind. Don't let the present slip completely away while you focus on the future.

You really need to sit down with a financial planner or good financial planning software to figure out a few things:

Are you on track for a comfortable retirement at your current savings rate? Can you boost your 401(k) contributions and still have money to take those vacations you dream about? Do your trips need to be around the world? Or are there places closer to home that would allow you to build family memories and still stay on track for your other goals?

As far as your mortgage, that's almost a no-brainer. You're already saving a lot of interest with a 15-year loan, and your rate is low; it doesn't make much sense to accelerate your payments.

Some planners might even suggest refinancing to a 30-year loan to lower your monthly payment and thus free up more money to invest for your retirement and pay for other pursuits.

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