Well, I really find it ironic that “America Saves Week” is the week before our taxes are due!

What’s up with that?

How can folks save when they're up against taxes?  Maybe “America Saves Week” should change its name to “America Start Saving” and put it the week after April 15th.

But seriously, how much do Americans really need?

According to Fidelity, aim to save at least 1x your salary by 30, 3x your salary by 40, 6x your salary by 50, 8x by 60, and then 10x by 67!

It’s a pretty good rule of thumb. And if you have that saved and invested, you will be in good shape. 

• Truth: When you retire you will spend as you would your normal salary.  But when you get up into your 80s and 90s you will not spend as much. 
• Truth:  Most seniors don’t want to spend because they want to leave something for their children. 
• Truth: How much will seniors leave?  They will leave it all. 
• Truth: Most seniors who have saved responsibly will not go hog-wild when they retire.
• Truth: Between 1980 and 2020, the share of 25–35-year-olds who owned their home declined from 39.4 to just 15.5 percent. Among 35–45-year-olds, the share who owned their home dropped from 64.4 to 39.7 percent.
• Truth: Senior citizens (65 and up) have the highest homeownership rate at 78.6 percent.
• Truth: Just over 40 percent of homeowners older than 64 have a mortgage, a jump from roughly 25 percent a generation ago

Fidelity also has three rules of retirement they follow: 

1. 80% of your pre-retirement income

Over decades of helping people plan for retirement, the financial planning industry has figured out that most retirees can live on less than they earned during their working years. 

“Replacing 80% of your income means your lifestyle can essentially stay the same.  That’s because, once you retire, you’re no longer paying Medicare and Social Security taxes or making contributions to a 401(k) or IRA.

2. 10x your annual salary by 67

The financial-services firm Fidelity suggests that savers can target a much lower income replacement percentage than 80%. To maintain a lifestyle similar to the decade before retirement, a 45% income replacement target is sufficient.

3. The 4% rule

Retirees can safely withdraw 4% of their portfolio in the first year of retirement. If they adjust subsequent annual withdrawals for inflation, they should not run out of money in most market conditions. 

Should I pay off my mortgage?

Since more seniors are retiring with a mortgage, what's the answer.

Well, according to Forbes, it really depends…

[Say you have a 30-year mortgage of $200,000 with a fixed rate of 4.5%. Your monthly payments would be $1,013 (not including taxes and insurance), and you’d spend a total of $164,813 in interest over the life of the loan.

[NOTE: Check withy our advisor but as a rule of thumb…if the interest rates drop 2% or more than your current rate, consider refinancing. And be sure not to finance closing costs but pay those outright.]

Now let’s say that you’re able to come up with an extra $300 per month to put toward your mortgage. You’d shave off 11 years and one month from your repayment period, plus save $67,816 in interest.

On the other hand, you could take that $300 per month and invest it in an index fund that tracks the S&P 500 Index instead. Historically, the S&P 500 has returned an average of 10% to 11% annually since its inception in 1926 through 2018. If you want to be extra conservative, however, we can assume an average annual return of 8% on your investment.

At the end of 19 years (about the length of time it would take to pay your mortgage early), you would have $160,780. That’s more than double your potential interest savings. In fact, after that length of time, you’d have about $105,487 left on your mortgage. If you decided to pay your mortgage early after all, you could use your investment funds and still have $55,293 left over.]

Since most seniors live in their homes and not senior communities…

Here are some reasons why you may—or may not—want to consider paying off your mortgage early.

Pros

• Interest savings: This is one of the biggest benefits of paying your loan off early. You could save thousands or tens of thousands of dollars in interest payments. When you pay your mortgage early, those interest savings are a guaranteed return on your investment.
• Peace of mind: If you don’t like the idea of constant debt, paying your mortgage early could ease your burden. If you experience a financial emergency, having a home that’s already paid off means you don’t have to worry about missing mortgage payments and potentially losing the home to foreclosure. You still will be responsible for property taxes as long as you own the home, but that’s a much smaller financial responsibility.
• Build equity: Paying down your mortgage faster means building equity in your home more quickly. This can help you qualify for refinancing, which can save you even more money in the long run. You may also be able to leverage your equity in the form of a home equity loan or home equity line of credit (HELOC), which you can use to make improvements that increase your home’s value or pay off other higher-interest debt.

Cons

• Opportunity cost: Any extra money you spend on paying down your mortgage faster is money you aren’t able to use for other financial goals. You may be paying off your mortgage early at the expense of your retirement savings, emergency fund or other higher-return opportunities.
• Wealth is tied up: Property is an illiquid asset, meaning you can’t convert it to cash quickly or easily. If you faced a financial emergency or had an investment opportunity you wanted to jump on, you’d not only have to sell your house, but also wait until a buyer was available and the sale closed.
• Loss of some tax breaks: If you choose to pay down your mortgage instead of maxing out your tax-advantaged retirement accounts, you will give up those tax savings. Plus, you may lose out on tax deductions for mortgage interest if you normally itemize.

Pros and Cons of Investing

Investing your extra cash instead of paying off your mortgage early has some benefits and drawbacks. Here are the main ones to consider.

Pros

• Higher returns: The biggest benefit of investing your money instead of using it to pay down your mortgage faster is the ROI. For many years, average stock market returns have been significantly higher than mortgage rates, which means you stand to gain quite a bit from the difference.
• Liquid investment: Unlike a home that ties up your wealth, having your money in stocks, bonds, and other market investments means you can easily sell and access your money if you need to.
• Employer match: If you choose to invest your extra funds in a retirement account and your employer offers a match, that’s additional free money that you get to enjoy compound earnings on over time. You’d also be investing pre-tax dollars, which could help you afford larger contributions.

Cons

• Higher risk: There is more volatility in the stock market than in the housing market year over year, so you should be sure your investing timeline is long enough to weather ups and downs. You also need to make sure that your investment strategy matches your risk tolerance and that you’re mentally prepared to take some hits.
• Increased debt: Choosing to invest your money may not be the best option if you don’t like the idea of having debt to your name. Until your mortgage is repaid, you don’t actually own your home—the bank does. And there will always be some risk that you could lose your home if you aren’t able to make the payments.

Or, you can decide to do a mixture of the two. There are many choices. 

But just like the beginning of this article, America Saves Week, be sure you have saved enough to live the life you want.  We know social security and medical bills are not something we can control or predict.