AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

Scott,

My wife and I have a joint income of about $200,000, my part being $120,000.   We are 57, kids are out of the house and on their own,. We are contributing the max amounts to our 401k's as deferred tax investments, not roth 401k (though that is an option now.)    We have about $800,000 in 401k, IRA s  and expected company retirement benefits.  We also have about $150,000 in our companys' stock, purchased through discounted purchase plans over the years.  Right now it is all "above water" but not by a whole lot.  Our house is worth about $750,000 and we have an outstanding 15 year mortgage of $170,000 at 4.85 %   (about 10 years to go on it). 

It is likely I will stop work  in the next year or two due to layoff, a buyout or simply getting fed up .        My wife, bless her, is willing to work  4- 5 more years.   We plan to stay in our current house for that period, and possibly downsize to a cheaper home when my wife stops working.   Should we try to pay off our mortgage before I am forced into retirement?  

Hi Thermals.

I'm not Scott, but one thing really pops out at me from your letter.  You are concerned about a layoff.  That means to me that you are concerned that your company is not doing too well, and yet you have about 15% of your financial assets in company stock.  You say that you have only a slight profit on your company stock, therefore there would be minimal tax consequences of your selling the stock.

I would advocate selling a large portion of your company stock, or even all of it. 

What to do with the proceeds is a more difficult question.  A 4.85% fixed mortgage is very attractive, and once you stop working it is unlikely you would be able to borrow at that rate.  

Bryan

Thanks for the observations Bryan.   Oddly, the companies behind our stock are doing quite well.  (Outsourcing, etc. is working for them.)    Perhaps, my anxiety is overblown about layoffs, yet, at this age, I feel like I have target  painted on my back.

Thermals2U,

The closer you get to the vulnerable years--- where you are now--- the more you should consider selling any company stock you hold because there is a good chance that if you are laid off or bought out, it will be a response to a lower stock price and the resulting belt-tightening. I sold an accumulation of shares from my former employer, Belo Corp., around my 60th birthday for that reason. It turned out to be a very good move. I suggest the same for you.

The sale proceeds of company stock would just about pay off your home mortgage. And while it is tempting to keep the mortgage because of its low 4.85 percent interest rate, you would be hard pressed to earn that much in the market today. So, in the interest of simplicity, I think paying off the mortgage would be a good use of the sale proceeds.

Those who favor retaining debt and investment don't consider the psychological benefit of having no debt. It is enormous.

Scott

Scott,

Thanks very much for your advice.  I've enjoyed reading your blog and have read Spend to the End.

I will probably do this in phases taking my long term cap gains sooner and ordinary income on about $50k worth of stock options early next year.  Like they say in the commercials, life comes at you fast.   I've been struggling get a grip on how to handle  "retirement" in whatever form it comes.