I have a TSP from my federal govt job and a mortgage. Does anyone know if it is wise to use it to pay off the mortgage? I want to retire early without a mortgage.
Your still working civil service right? The mortgage was it funded through TSP? Or is it a traditional mortgage through a bank or mortgage company?
If mortgage is through a bank, I’d suggest you look into getting a loan through TsP to pay off the old mortgage. TSP - if it’s anything like the old Civil Service Retirement System (my dad was a Fed) - has loan programs at better than market rates for both personal loans and mortgages for employees. If TSP is like old CSRS they don’t do full 6 figure mortgages (likely cause there’s FHA / HUD you can go to for this) but more smaller mortgages under 6 figure to pay off the tail end of preexisting mortgage or to buy investment property. I’d suggest you try to find out about TSP regular loans and house loans, then run the #’s to see what’s best use of $ over time vs. your current mortgage.
I’m in agreement with others about the advantage of keeping a mortgage and using the $ instead in other ways (investment, pay off other debt, perhaps something purely fun). If your interest rate is low and the mortgage deduction continues to be allowed for taxes, it’s a better use of your $ to keep mortgage and use $ in other ways. We have SBA disaster recovery mortgage lending from Katrina & interest is like 2%; it’s not worth paying it off as there’s no way to ever get $ cheaper other than marrying it or burying it.
In the past you’ve written about your very real concern about how to financially manage if your hubs needs a NH and your still the community spouse. CS planning if you anticipate Medicaid will be filed for hubs is not simple. Really try to find out what your options are for a mortgage/ housing / loans and discuss this with a NAELA level elder law atty. Especially as to how Medicaid in your state approaches liens / claims on your homestead property and how you can perhaps shift $ to become income for you rather than getting stuck in a spend-down.
I would see your financial advisor. I also wanted to pay off the mortgage early and ours said “Why?” Like Barbs, our rate is very low, we make more than that in our investments, and we can still pay all our expenses in our retirement. And a withdrawal that large would be a big hit on our taxes. So he counciled us not to do it. I still look forward to paying it off in 7 more years, but financially it would have been a bad move. So you need to assess your own situation.
It's taxed as income no matter how you take the distribution, of course. But if you take all of it at once, the tax bite is likely to be large than if you take it over time.
Worried; A very good book that I read recently was Jane Bryant Quinn's Making your money last in Retirement. I don't recall that it addressed that issue, but it is a good general overview.
As geewiz points out, there are many ways of looking at this equation.
The one I've used is as follows: I have no debt EXCEPT my mortgage. My mortgage is at 3.5 %. The interest is still deductible. I am funneling the monies I am currently putting into my 403B (guaranteed 7% right now) and 457 (split 50/50 between equities and bonds) [I'm withholding the maximum allowed into each so as to reduce my tax bill].
There is tremendous psychological peace to not having a mortgage; but for me, it makes more tax and long term financial sense to put all I can, tax deferred into retirement savings that grow at a rate greater than my mortgage interest than to deplete either my retirement nest egg, my emergency fund OR the current salary that I'm deferring into paying off a 3.5% loan. It's cheap money.
Worried, do you mean a TSA (Tax Sheltered Annuity)? There isn't enough information here to give you a solid response. A good financial planner should be able to assist you. The planner will ask about all of your sources of income at retirement; assets, budget, large potential expenditures, tax situation, etc. Retiring without a mortgage is an excellent goal. BUT you don't want to pursue it without regard to the income tax implications (of cashing in the TSA) or depleting a chunk of your retirement savings. Have you been paying extra towards your mortgage each month? Do you have disposable income each pay period? What are the likely expenses for your spouse? Sorry not to be able to give a definitive response but I hope I've given you some issues to consider.
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If mortgage is through a bank, I’d suggest you look into getting a loan through TsP to pay off the old mortgage. TSP - if it’s anything like the old Civil Service Retirement System (my dad was a Fed) - has loan programs at better than market rates for both personal loans and mortgages for employees. If TSP is like old CSRS they don’t do full 6 figure mortgages (likely cause there’s FHA / HUD you can go to for this) but more smaller mortgages under 6 figure to pay off the tail end of preexisting mortgage or to buy investment property. I’d suggest you try to find out about TSP regular loans and house loans, then run the #’s to see what’s best use of $ over time vs. your current mortgage.
I’m in agreement with others about the advantage of keeping a mortgage and using the $ instead in other ways (investment, pay off other debt, perhaps something purely fun). If your interest rate is low and the mortgage deduction continues to be allowed for taxes, it’s a better use of your $ to keep mortgage and use $ in other ways. We have SBA disaster recovery mortgage lending from Katrina & interest is like 2%; it’s not worth paying it off as there’s no way to ever get $ cheaper other than marrying it or burying it.
In the past you’ve written about your very real concern about how to financially manage if your hubs needs a NH and your still the community spouse. CS planning if you anticipate Medicaid will be filed for hubs is not simple. Really try to find out what your options are for a mortgage/ housing / loans and discuss this with a NAELA level elder law atty. Especially as to how Medicaid in your state approaches liens / claims on your homestead property and how you can perhaps shift $ to become income for you rather than getting stuck in a spend-down.
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As geewiz points out, there are many ways of looking at this equation.
The one I've used is as follows: I have no debt EXCEPT my mortgage. My mortgage is at 3.5 %. The interest is still deductible. I am funneling the monies I am currently putting into my 403B (guaranteed 7% right now) and 457 (split 50/50 between equities and bonds) [I'm withholding the maximum allowed into each so as to reduce my tax bill].
There is tremendous psychological peace to not having a mortgage; but for me, it makes more tax and long term financial sense to put all I can, tax deferred into retirement savings that grow at a rate greater than my mortgage interest than to deplete either my retirement nest egg, my emergency fund OR the current salary that I'm deferring into paying off a 3.5% loan. It's cheap money.
Retiring without a mortgage is an excellent goal. BUT you don't want to pursue it without regard to the income tax implications (of cashing in the TSA) or depleting a chunk of your retirement savings.
Have you been paying extra towards your mortgage each month? Do you have disposable income each pay period? What are the likely expenses for your spouse? Sorry not to be able to give a definitive response but I hope I've given you some issues to consider.