Planning a Happy Retirement – for young people starting out.
The Mortgage-Free Myth
All too often people make a major mistake early on in their lives that will sorely affect their retirement years later.
They try to pay out their mortgage as fast as they can during the years they are raising their family and paying for higher education. They end up cash strapped and not enjoying their lives to the fullest. Unfortunately, by the time they start to save for retirement they are close to retirement… leaving them a few short years to save and little time for those investments to grow. They are forced to work longer than they wanted to as they are not financially ready for retirement. The only winner in this situation are the kids who will inherit the free and clear home and sell it.
The plan is to diversify, especially when we have the lowest rates in history. You only save 15-20 dollars a month by paying several hundred dollars a month extra into your mortgage.
For example, if they had a mortgage of $500,000 on a 25 year amortization at 3.5% it would be paid off in 25 years with approximate payments of $1150.00 bi-weekly accelerated the mortgage would be paid out at the end of the 25 years. But even if they had 150,000 remaining their payments would be only be about $300 bi-weekly which is nothing with their pension income.
BUT, take a look at this scenario where if you put that money from 25 to 65 years of age into investments and were getting an average return of 8%:
These people made the right decision: they are ready for retirement with the income from their pensions and CPP, they have substantial savings, and a small mortgage which they may or may not pay out with their savings. If they would have put the $300.00 a month into their house they would have saved $160,000 in interest and had no savings.
Hope that helps all of our young people make a wise decision early, You do not get those years back.
Fair Warning to Retirees