I’m 50 years old, self-employed, with a total net worth of about 1.2 million. Our combined income varies from $80,000 to $150,000 a year, although in recent years business has been bad, and in my industry, people are being laid off and prices are stagnating.
My Father was laid off at age 55. My brother just lost his government job (an neat trick) at age 53. I worry that while I am making good money now, our debt servicing requires a fairly large cash-flow and if it is interrupted, well, all heck will break loose.
I am selling my vacation home (yea, poor me) because the overhead and amount of work is just too much. We have a $340,000 mortgage on our primary residence and a $30,000 balance on credit cards, mostly because I had to pay a capital gains bill on another property a year ago (my accountant had brain cancer, it’s a long tragic story) and I put it on a credit card. The rest of our savings is tied up in SEP, 401(k), IRA and life insurance investments.
By selling the vacation home, we can pay off all our debts and be debt-free. This means if my income drops (as it did this year) I don’t have to worry about making mortgage payments. It also means I can fully fund my SEP and IRA plans, etc. each year from here to retirement.
Should I pay off all my debts and be debt free? Some of these self-styled economic “gurus” say I should keep the debt and “invest” the $400,000 in stocks so I can make more money and take tax deductions.
My gut reaction is that the tax code is a lousy investment guide, and you can’t deduct your way to wealth.
Also, when I crank the numbers, the difference between investing the money (and making mortgage payments and paying interest for another 10 years) and paying off the mortgage and then investing the freed-up payment money is about a wash at my age. I have maybe 10 years more before I retire.
And if the stocks tank, well, there was my one shot at being debt-free, and now I’m broke and have this huge mortgage to pay off. And if I lose my job, wow, I’d have to tap into my 401(k) to live. Ouch.
Are the “Gurus” right and I am missing something? Or should I go for the brass ring and be debt-free at age 50? I guess you can see which way I am leaning. But this is the biggest decision of my life and I want to make sure I do this right. I don’t get a “do over” on this one.
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