Slow down, don't cash out

Deb asks if they should take money from retirement to pay off their home. Dave has a better idea, especially after hearing their income.

QUESTION: Deb and her husband are both in their 60s. He’s retired, and she’s still working. They’re debt-free except for their house. They owe just under $100,000 on their home, and they have a combined income of about $200,000 a year through work and retirement income. They take $15,000 out annually for deferred compensation. Deb wonders if they should take some money from the $400,000 they have saved for retirement to pay off the house. Dave has a better idea.

ANSWER: Rather than cash out retirement, why don’t we just slow down retirement? Stop everything, and throw it all at the house until you get it paid off, and leave the retirement alone. I’d rather do that and have the house paid off in about 12 months.

Why not stop the deferred comp idea and throw that at the house, too? Just focus your cash flow on paying off the house. If you take it home, instead of deferred comp, you’re going to pay taxes on it anyway. Deferred comp means you’re putting off your income, so you’re going to pay taxes on it one way or the other.

I wouldn’t mess with your nest egg; given that you’ve got this fabulous income. If it takes you 14 or 15 months to get it done instead of 12, so what? Let’s cash-flow the reduction on that, and you’ll still be in your 60s with the house paid for. That’s pretty cool, plus you’ll have $400,000 in your nest egg and you’ve got the income stream — some of which is you working, and some of which is his retirement.

Way to go. You’re doing good!