Hi Terry .I owe$220,000 on my house .I am 56 years old ,my wife is 59. we probably will not be staying in the house past six years.That is when I will retire with a full pension. We only have $75,000 in retirement savings. We just start putting 15% towards retirement. We have no debt and $20,000 in an emergency fund. We have $100,000 liquid cash. Should we invest in mutual funds, put it towards paying down our mortgage,or a little of both?

Terry Says:   OK, you’re in a tough spot if you “just” started saving toward retirement.  First, if you’re planning to sell the house, there is no reason to pay down the mortgage.  But you should realize check to see if you can refi now to a 15 year loan at a lower rate.  I realize this is extending your loan time, but if you’re going to sell tht won’t matter.  If you can cut your interest rate by half a percent, you can build more equity and keep your monthly payment low.  Just remember, if you’re planning to sell after you retire, you won’t qualify for a mortgage with no income!  So start planning ahead for that retirement home unless you will have enough equity after you sell to pay cash for a smaller place — or plan to rent.

The second issue is tough to deal with.  If you’re just “starting” to save for retirement, you definitely need growth that only stocks can bring.  Yet it is a very scary idea to keep most of that money in the stock market.  I’d suggest investing conservatively in your retirement funds (an equity-income fund, which you can get at Vanguard, Fidelity, T. RowePrice) and at least contributing $5,000 a year (at this stage you could put in up to $6500) in an IRA if you have that much income.  In fact, a Roth IRA would be better at this stage, since you already have a mortgage deduction so a traditional IRA deduction won’t be so important.   Do it — the IRA investment –on a monthly basis, automatically.  That way you won’t be buying at the top — since you’ll keep investing regularly.  You have at least 11 years till you collect on Social Security — so do the most saving/investing you can — but keep a nice cash reserve that will help you sleep through the market ups and downs.

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