Disclosure: This post contains affiliate links and we may receive a referral fee (at no extra cost to you) if you sign up or purchase products or services mentioned.
As some of you know, I’ve been a little bummed lately with my countdown to financial independence (FI) and early retirement being a ways out. Although I have a plan to retire before my 50th birthday, I just feel like this is too far out.
Every day that I spend at work is one less day that I get to spend with my daughter. Granted, this is the summer when she’s not in school, but it’s tough regardless (which I’m sure it is for most parents).
Life is short and I want to spend more time with my family and chasing my interests and dreams instead of spending 45 hours a week in an office chair.
Well, I now thought of a possibility to close in on FI a little faster, but I need some input from you guys.
The FI Plan and the FI Problem
If you’re not familiar with my game plan to reach financial independence, now’s the time to check it out. For the most part though, the plan revolves around getting our mortgage paid off on our residence. We’ve been investing like fiends for a number of years and have some pretty decent size investment accounts lined up.
We’ll continue to contribute to those and hopefully they’ll keep growing over the next handful of years. Once our mortgage is paid off, those investment accounts plus our rental properties should be strong enough to carry us throughout our retirement.
The hang-up though is that stupid mortgage. Right now, we’re basically eating out of dumpsters to put a ton of money each month toward that loan. Ok, the dumpsters part is a bit of an exaggeration, but we are running a fairly tight ship over here.
The plan is to keep paying solid money on that mortgage as well as the mortgage on our rental house. Our residence is slated to be paid off in November, 2026, which is almost a year and a half after my planned FI date. However, the rental house should be paid off well ahead of that in August, 2022. At that time, we plan to throw all that extra cash flow from the rental house toward finishing up the loan on our residence in time for my July 2025 FI date.
The problem comes down to the fact that I need a way to get the house paid off more quickly to reach FI sooner so I can dump the 9-5 job.
But where can I get the extra money to make this happen?
The Light Bulb
The other day, the idea hit me like a bolt of lightning.
That was the day I invented time-travel. I remember it vividly. I was standing on the edge of my toilet hanging a clock, the porcelain was wet, I slipped, hit my head on the sink, and when I came to I had a revelation! A vision! A picture in my head! A picture of this! This is what makes time travel possible… the flux capacitor!
Wait, wait… no – that wasn’t me. That must have been someone else. My epiphany was a little different. But the good news is that it still involves a toilet!
While near the end of my day at work recently, I was in the bathroom at the urinal (see I told you!). And that’s when my epiphany hit… I tend to have my great moments of thinking in the shower or using the facilities. 🙂
Anyway, the idea was simply this:
Why not stop my Roth IRA contributions and pay down my mortgage faster?
Now, that’s probably not something you hear very often – scaling back on saving money in order to retire earlier. But in my case, that’s exactly what I’m thinking.
This was the first year I would have been able to get close to maxing out my Roth IRA (in addition to all the other accounts I’m saving and investing in). I’ve been contributing $200 every other week. Monthly that comes out to about 433.33.
So, instead of sending that off to my Roth IRA, I could take around $435 and apply that to the principal on my mortgage instead. According to the What If Tool in Quicken (which is awesome, by the way!), that would shave 2 years and 7 months off my payoff date to make it April of 2024. Right off the bat, that means I’d be able to hit FI over a year earlier than my planned July 2025 date.
How about some pluses and minuses?
Well, there’s really one big minus that I can think of. Mathematically, this is the stupidest idea ever. The interest rate on my house is unbelievably low at 2.875%. Even if you figured in some crappy years with the stock market, the return would likely still be higher than my interest rate.
Anyone who knows anything about personal finance will tell you that a rate like this is outstanding and you should drag this out as long as you can.
So it’s pretty much a sure bet that I would lose out on growth with money that could be going into the Roth instead. The interest deduction on the loan would also start diminishing quicker for my taxes.
On the other hand…
On the plus side, I could reach financial independence over a year sooner. That’s huge!!! I’m definitely ready to be done with the 9-5, so that would take a huge weight off my shoulders.
And, as I’ve rambled before, I really do have a distrust for the stock market, so maybe that’s one way of not throwing more money at it for a little while. I wouldn’t be abandoning the market altogether though – I would still be contributing the max every year to my 401(k). And my wife would continue putting money into her 401(k) and her Roth IRA (although she doesn’t max either one of these out).
Also, I wouldn’t bail on the Roth IRA completely. Assuming I receive pay increases annually at work, I could then use the money from the raises to slowly start building back up contributions to it over the next few years.
And finally, I would also have 2 mortgages paid off at that time – my residence and my rental house. What a sigh of relief that would be! With this plan, when the rental house would get paid off in 2022, the additional rental cash flow wouldn’t be needed to finish paying off my residential mortgage. I could use it to build back up my Roth (even though I’d miss out on 6 years of growth). Or I can build up a bigger savings cushion for those first 5 years of retirement while I wait for the Roth IRA Conversion Ladder to kick in.
The more I think about this, the more I think it’s a good idea. Although I’ll miss out on some compounding interest in the Roth, being able to quit my job a year earlier would be outstanding.
But maybe I’m missing something and I don’t want to make a decision like this without thinking it all the way through.
This is where I need your help, readers!
What do you think? Does this make sense to do in my case or am I off my rocker?
Thanks for reading!!