Invest or Pay Off Mortgage?

Summary

Podcast Summary: "Invest or Pay Off Mortgage?" – Jill on Money with Jill Schlesinger

Release Date: April 10, 2025

In this insightful episode of "Jill on Money with Jill Schlesinger," host Jill Schlesinger delves into a common yet complex financial dilemma: whether to invest the proceeds from selling a home or use them to pay off an existing mortgage. The episode features a detailed conversation with Julie, a listener from Seattle, providing listeners with a real-world scenario to explore this critical financial decision.

---

Listener Introduction: Julie's Financial Landscape

At [02:18], Jill welcomes Julie, who outlines her current financial situation. At 58 years old, Julie and her 60-year-old husband are on the brink of retirement, with her husband set to retire imminently after selling his business. Julie shares that they own two properties: one they are selling and another they are moving into, which currently has a remaining mortgage of approximately $1.365 million at a remarkably low interest rate of 2.78%. This favorable rate was secured in 2021, allowing them to invest the remaining funds.

Julie reveals a substantial combined portfolio of $9.4 million across retirement and investment accounts, including $1.1 million in inherited traditional IRAs subject to a five-year withdrawal requirement, $1.5 million in traditional IRAs, and $250,000 in a Roth IRA. Additionally, they have significant investments in taxable accounts and a short-term rental property that will provide supplemental income upon moving.

---

Analyzing the Financial Scenario

Jill begins her analysis by dissecting Julie's income streams and expenses. Notably, Julie and her husband plan to cease full-time work, with the husband's retirement imminent. Their monthly expenses are substantial, estimated around $15,000, covering mortgage payments and lifestyle costs.

At [05:17], Julie emphasizes the robust nature of her financial standing: "We have 9.4 million in investments and retirements." This positions her couple well above the typical retiree, allowing for flexibility in financial decisions.

Jill questions the sustainability and optimal use of the $1.365 million mortgage, considering the low interest rate locked in for the long term. She highlights the strategic advantage of maintaining such a mortgage in a low-interest environment, especially when investment returns can potentially outpace mortgage costs over time.

---

Investment vs. Mortgage Payoff Debate

A central theme of the episode revolves around whether Julie should utilize the net proceeds from selling her current home to pay off the new mortgage or to invest the funds in the market. Julie expresses a preference for some portion of the proceeds to be reinvested, seeking both peace of mind and financial growth.

At [09:17], Jill advises against paying off the mortgage, stating, "I wouldn't pay that off. ... You're not going to be doing better than two and seven eighths [referring to the mortgage rate]." She underscores the rarity of finding such a low-interest mortgage in the current financial landscape, suggesting that leveraging this low rate while investing the proceeds could yield superior financial outcomes over a 20-30 year horizon.

Jill also introduces the concept of dollar-cost averaging as a strategy for investing the proceeds. This involves gradually investing the funds over time to mitigate the risk of market volatility. Additionally, she recommends establishing a CD ladder as a safety net, allowing a portion of the investment to be secured in low-risk certificates of deposit, thereby balancing the investment strategy with security.

---

Strategic Financial Recommendations

Jill’s recommendations are multifaceted, addressing both immediate and long-term financial strategies:

1. Maintain the Low-Interest Mortgage: Given the advantageous 2.78% rate, Jill advises against paying off the mortgage, emphasizing the potential higher returns from investments.

2. Invest the Net Proceeds: She encourages Julie to invest the $1.7 million net proceeds from the house sale into index funds or other investment vehicles, leveraging their substantial investment portfolio.

3. Implement a CD Ladder: To ensure liquidity and reduce emotional stress related to market fluctuations, Jill suggests allocating a portion of the proceeds to a CD ladder, providing a blend of security and accessible funds.

4. Optimize IRA Withdrawals: Jill touches upon the strategic withdrawal from inherited IRAs, advising Julie to spread out withdrawals over the next five years to manage tax liabilities effectively, especially as their active income ceases.

At [13:57], Jill succinctly summarizes her stance: "No, don't pay off the mortgage. ... You're all fine, everything's good." She emphasizes that maintaining the mortgage while investing the proceeds is financially sound, given the long-term benefits and the low-interest rate.

---

Emotional and Psychological Considerations

Jill acknowledges the emotional aspect of financial decisions, particularly when dealing with substantial sums. She advises Julie to consider her comfort level with debt and the psychological peace that paying off the mortgage might bring. However, she ultimately prioritizes financial optimization over emotional relief, given Julie’s strong financial foundation.

---

Conclusion and Takeaways

The episode concludes with Jill commending Julie on her excellent financial positioning and encouraging listeners that such robust financial scenarios, while exceptional, are achievable with strategic planning. Jill reiterates her advice to leverage low-interest debt and invest wisely to maximize financial growth in retirement.

Jill’s closing remarks emphasize the importance of personalized financial strategies and invite listeners to seek assistance regardless of their financial standing: “You do not need to be the $9 million woman like Julie. You can do anything you want with a much lower amount of money and we'd be there to help you out along the way.”

---

Notable Quotes with Timestamps

• [05:17] Julie: "Well, in all of our investments accounts combined, like 9.4 million."

• [09:17] Jill Schlesinger: "I wouldn't pay that off. ... You're all fine, everything's good."

• [13:57] Jill Schlesinger: "No, don't pay off the mortgage. ... You're not going to be doing better than two and seven eighths. Over that time horizon."

---

Final Thoughts

This episode serves as a comprehensive guide for listeners grappling with similar financial decisions. By presenting a detailed listener scenario, Jill Schlesinger effectively breaks down complex financial concepts into actionable advice, emphasizing the importance of leveraging low-interest debt and strategic investing. Whether contemplating paying off a mortgage or optimizing investment portfolios, listeners are equipped with valuable insights to make informed financial decisions.

For more personalized financial advice, Jill encourages listeners to visit jillonmoney.com, engage with the content, and consider reaching out for tailored assistance.

Transcript

[Jill Schlesinger]

Do you know a high schooler who's a natural leader who wants to create change by bringing people together? They could be one of the next Student Visionaries of the Year candidates. Across the country form powerful fundraising teams uniting with the Leukemia and Lymphoma Society to honor a local child with blood cancer. Through this seven week philanthropic leadership program, students build valuable skills like project management, entrepreneurship and financial literacy. Something I wish I'd learned at that age, but plus, it helps them stand out on college applications. But most importantly, it's a chance for students to connect meaningfully with their communities and make a real impact on blood cancer patients and their families. Learn more about Student Visionaries of the [e-mail] students that's lls.org students hi, this is Jill Schlesinger. I used to own a small business and now I talk to a lot of business owners like you who know that having the right partners in place place can help you take your business to the next level. Partners like American Express that give you access to world class business and travel benefits so you can get more for your business wherever it takes you. With the Amex Business Platinum Card, you can earn 1.5 times Membership Rewards points on select business purchases. And you can get complimentary access to more than 1400 airport lounges worldwide, including the Centurion Lounge, so you can keep running your business while you're on the go. See how the Amex Business Platinum card gives business owners like you the tools and rewards that can help move your business forward. Terms and points cap apply. Learn [e-mail] AmEx Business.

Welcome to the Jill on Money show. It's Thursday, April 10th. Yes, I still have a little froggy voice. I'm so sorry about that. If you've got a financial question, ignore my voice. Just go to the website jillonmoney.com click the contact us button, write us a note and if you'd like to join us live, check the box and Mark will do everything else. Don't forget to bookmark the website. All of our content lives there. You know, I'm not going through the whole mess of that stuff. You know, it's all there. And today let's go immediately to listener Julie who joins us from Seattle. Hi Julie. What's going on?

[Julie]

Hi, Jill. Thanks for talking with me.

[Jill Schlesinger]

Sure. What's up?

[Julie]

This week we are listing a house that we own and we'll be moving into another house that we own. We have a mortgage on the house that we just that we're moving into and Our question is whether or not we should pay off that mortgage once we sell our house or we should use that money and invest it in the market.

[Jill Schlesinger]

Okay, let's talk, let's do. Let's do some numbers. First of all, Julie, how old are you?

[Julie]

I'm 58.

[Jill Schlesinger]

Okay, and you're married? Single?

[Julie]

I'm married. My husband's 60 and he's retiring at the end of the week.

[Jill Schlesinger]

Oh, do you work full time still?

[Julie]

No, I don't work. I mean, not now. No.

[Jill Schlesinger]

Okay, so he's retiring like in days. That's exciting. Okay, how much money did he make?

[Julie]

Well, he had his own business.

[Jill Schlesinger]

Okay.

[Julie]

And then we sold it. And then this is the end of the three years.

[Jill Schlesinger]

Okay. Okay, I got it. Okay, great. So let's do a few little pieces of business before we get to the house trans transaction that might inform what we should do on the house transaction. So first and foremost, will you guys still be getting any sort of income, whether it's passive or income from some pension? Is there any income coming in as of, you know, a few days from now?

[Julie]

We have a short term rental on our new property that I'll rent out. And that's other than that's it.

[Jill Schlesinger]

Okay, so let's talk about the amount of money you've saved. What's. What? What do we have? What's our big fat nest egg?

[Julie]

Well, in all of our investments accounts combined, like 9.4 million.

[Jill Schlesinger]

Oh, my God. Does that include retirement accounts or just investments?

[Julie]

Retirements and investments.

[Jill Schlesinger]

So everything together piled up. Nine and change. Very good. Okay, great. Is the game plan to live off of that money and live your best life and enjoy retirement?

[Julie]

Yes.

[Jill Schlesinger]

I love that. It's a great plan. Do me a favor, just break it down for me. I just need to know what portion of the 9.4 is money that is in a retirement account that's not yet been taxed. A traditional retirement account, we have about.

[Julie]

1.1 in inherited IRAs that we have to withdraw the next five years and then another 1.5 traditional IRAs.

[Jill Schlesinger]

Okay, okay, so but we know with that inherited IRA we've got a five year clock that's starting to tick. Right? Okay, got it. And this is traditional as $1,500,000. Okay, great. That's amazing. And then any Roth. Have you done any conversions?

[Julie]

Yeah, we have a roth. It's like $250,000.

[Jill Schlesinger]

Okay. And then the rest is all in just investment accounts that are taxable accounts. Yes, yes.

[Julie]

A small savings account. It's not. It's a little bit.

[Jill Schlesinger]

So the house that you are listing, what will be your guesstimate of, like, the net proceeds?

[Julie]

Let's say 1.7.

[Jill Schlesinger]

Okay. And a new home that you have purchased, what is the value of it? And then we'll talk about the mortgage. What's the value of the new home?

[Julie]

Well, we don't know. Like, we've. We're. We've been investing over the last year in a renovation, so we don't know how much it'll be worth when that's done.

[Jill Schlesinger]

Okay.

[Julie]

Let's just say 3.2 million.

[Jill Schlesinger]

Okay. I see you've done the downsizing. I'm just kidding. There's no downsizing here.

[Julie]

Well, it's a nice.

[Jill Schlesinger]

Okay. All right. It's your forever house, essentially. Okay. The mortgage. What is the mortgage amount on that $3 million house?

[Julie]

It's 1.365 left on a million. 3. 65 is left on it, and it's at 2 and 7, 8.

[Jill Schlesinger]

What?

[Julie]

We got that. We got it right. Well, we actually took this mortgage after we closed on it because it was. The rate was so low, and we just. God, invest the money in which we have been investing that money.

[Jill Schlesinger]

Julie, I'm gobsmacked right now.

[Julie]

That is. It was. It was in 2021.

[Jill Schlesinger]

So you really just lucked out, right?

[Julie]

Yeah, well, we knew the roots were great.

[Jill Schlesinger]

Yeah. I mean, you knew it was great. It's just that, like. That's incredible. Okay. How much money you. Once you get this, the housing stuff settled up, including the mortgage, what do you think you spend on a monthly basis?

[Julie]

Oh, my gosh. It's so hard to tell because we've been doing so much.

[Jill Schlesinger]

I know. The renovation, it's like the money pit, right? It's like money comes out.

[Julie]

I mean, the mortgage on this loan is 6,000.

[Jill Schlesinger]

Okay. All right, let's say 15.

[Julie]

15,000. Sure.

[Jill Schlesinger]

Sounds about right. And you guys will both be entitled to Social Security. But you're going to wait for a while, right?

[Julie]

Yeah.

[Jill Schlesinger]

You got kids?

[Julie]

We have three kids. They're all in their 20s, and they're all independently doing great.

[Jill Schlesinger]

Thank God.

[Julie]

Yes.

[Jill Schlesinger]

Amazing. This is such a weird question because it's like the embarrassment of riches. So congratulations. First of all, you have a pile of money. And I also presume you've got some money just in cash, savings, banking relationships, some amount of money.

[Julie]

We actually, those inherited IRAs, we moved those to a, you know, a 5% basic cash.

[Jill Schlesinger]

Okay.

[Julie]

Because we're going to be withdrawing those in the next five years.

[Jill Schlesinger]

Got it. Okay, so here we go. So the good news is that your husband's income ends. What was he going to. What do you think? He has already on the books for this year in terms of income?

[Julie]

I don't know. We had a payout, our final payout.

[Jill Schlesinger]

Oh. So it's probably you still in a high tax bracket is what I'm guessing.

[Julie]

I roughly. If you include all of that. Yeah, it's probably 500 maybe.

[Jill Schlesinger]

Okay. So it's still 35% bracket. I was going to see, I was going to wonder whether we should like take a little bit less this year from that inherited IRA and then just more in the subsequent four years just because you'll have zero income.

[Julie]

Yeah. I think it has to be by the end of 2030 that we.

[Jill Schlesinger]

2030. So let's see. 26, 27, 28, 29, 30. Yeah.

[Julie]

So wait till next year.

[Jill Schlesinger]

Yeah, maybe just. Cause, I mean, you're used to paying your top bracket right now. You're used to take paying at the 32% bracket. Right. Okay. So you could potentially just say, you know, for each of those years, there's 1.1. We could take 400 grand out. 1, 2, 3, 4, 5 years. And you know, you, you can live on that. You can basically use that to live on. That's your pay. Right.

[Julie]

We're hoping that we can just reinvest some of that.

[Jill Schlesinger]

We, yeah, but you got to live on. You still have to do your 15 grand a month.

[Julie]

Right, Right.

[Jill Schlesinger]

Right. So you might as well just use. I would just in my mind that I have a very simple way of thinking about this, because I know I, and I. This is, it's just, you know, it really doesn't matter. It's all the same money. Right. But I just sort of think, oh, income. I spend that. That's fine. That's what. So if you had 400 grand of income, then, you know, it gets taxed and then whatever's left over, you spend your 15 grand a month, you don't have to pay off your mortgage. You're all fine, everything's good. The net proceeds from the old house just get added to your investment accounts.

[Julie]

Right.

[Jill Schlesinger]

I wouldn't pay that off. I'm sorry. Two and seven eighths is too good a deal. I'm so, I, I that if it bugs you, Sure, I guess. But I don't know on what planet for the next. Let's just say you guys live for 20, 30 years. On what planet you would not be doing better than two and seven eighths. Over that time horizon.

[Julie]

All right, my next question is, should we invest it? How? Like over time? Like, how do you feel per week, per month?

[Jill Schlesinger]

Well, let me ask you something. You got $9 million invested right now, right? Do ups and downs freak you out? Like when the market falls apart, do you go like, oh, do you feel a little.

[Julie]

Well, not really at this point because we're still relatively young, but you know, we're retiring, so.

[Jill Schlesinger]

Yeah, sure.

[Julie]

And we. It is nice to have cash on hand to invest when it's a good time to invest.

[Jill Schlesinger]

Okay, well, look, you don't have to do it all at once. I mean, if you wanted to, it would not be like the worst thing in the world. But if you don't want to, you can say we'll just dollar cost average and you know, maybe we'll say, you know, 300 grand every quarter or something if you feel like you want to do that. Um, how, how is the money invested right now? Do you work with someone? Are you guys doing it yourselves?

[Julie]

No, we do it ourselves. The majority of, well, it's a lot of it is in index funds.

[Jill Schlesinger]

Okay.

[Julie]

A lot of, some of it is in some individual stock picks as well.

[Jill Schlesinger]

I mean, look, whatever, that's your fund money account. But if you said out of the $1.7 million and that's happening soon, right?

[Julie]

Yeah, hopefully in a month, six weeks.

[Jill Schlesinger]

Okay. So if you really wanted to like, make yourself feel a little bit of like, I don't want to get all this money invested at once, it freaks me out a little bit. You could sort of do two things. You could say, well, maybe I'd like to get that money invested over the next six or nine months. You can take the same amount of money every month and put it into your index funds. Alternatively, you could say for the, all that time, you know, we're taking money out of the, the inherited ira. And so maybe what we also would rather do is also have a little bit of safety valve in our portfolio. And maybe we'd like to take, you know, 6, 700 grand and build a, a CD ladder. Just have some money in really boring stuff. 1, 2, 3, 4, 5, 6 year CDs and just do that and make, and go to sleep at night. And then maybe you'd be like, I'll put the million bucks to work and that you have plenty of money. You're not going to spend your money. You're all, you know, you're, you, you're in fantastic shape. But now what we're just trying to do is Manage your emotions around the money you have. Right. And so if it makes you feel a little bit better that, like, hey, every time we are pulling money out of the inherited ira, we'd like to know that there's like, a corresponding similar amount of money that is locked up in a nice, boring CD for the next five or six years. That's fine.

[Julie]

Okay.

[Jill Schlesinger]

That is called peace of mind. Have a good night's sleep. But I do think, like, the million bucks, the bulk of that, I think it should get invested, and I think you should have some game plan to get it invested. I do not. If you said, I can't sleep at night knowing I have a $1.365 million mortgage, even if I don't care what the rate is, if you tell me that, then you can pay it off. It's not going to matter to you. It's like. It's just a shame, though. No.

[Julie]

And I guess in we can revisit that in 10 years or.

[Jill Schlesinger]

Exactly. Right. You can always pay it down. There's never a problem. You have plenty of. You got the money going. Now you are going to tell me you've got a beautiful estate plan created, right?

[Julie]

We do, but we're revising it right now.

[Jill Schlesinger]

So.

[Julie]

Okay, that's the next thing. That's one of the first things on the list.

[Jill Schlesinger]

Good. All right. So I think, to answer your question, no, don't pay off the mortgage.

Yes.

Get your net proceeds to work. Maybe take some portion of those net proceeds and build a little CD or a bond ladder. You can do that very easily. In terms of the inherited ira, try to take the money out when you've stopped earning money. So maybe that's next year in 26. And pull out 3, 400 grand a year. Pay the tax that's due on it. It's fine. You're gonna have to do it anyway. Like, there's no. There's no way around it. It's just nice that you'll be able to do it before you have any earned income or any Social Security. So get the money out of there.

[Julie]

Right, right. Right.

[Jill Schlesinger]

It's an amazing plan. I think you're in great shape. Is it. Are you excited for this?

[Julie]

Yes, very excited. Excited to move into our new, newly remodeled house.

[Jill Schlesinger]

I know. I'm excited to visit you there. It's great. Well, I hope you have room for me and Mark.

[Julie]

Yes. Come in.

[Jill Schlesinger]

We're coming out. I want to do the Pacific Northwest. I have a big trip that I have in mind. I know. I want to do that what's your favorite time of year there?

[Julie]

I love the fall. It's my favorite.

[Jill Schlesinger]

It's great. I have some friends who live outside of Portland in Vancouver, Washington and so I owe them a visit. So I'm going to have to go do that white fish, that whole area. All right. So cool. All right, Julie, I thank you so much and we are delighted that you are able to retire with all that money. Congratulations. For those of you listening, no, you do not need to be the $9 million woman like Julie. You can do anything you want with a much lower amount of money and we'd be there to help you out along the way. So just go to jillonmoney.com, click the contact Us button, write us a note, let us know if you'd like to come on the air live. Don't forget to sign up for the free weekly newsletter and check out all that great content that lives on our website. You can subscribe to us on the Odysee app or wherever you find your favorite podcast. Try to lift someone up. Change your work, change your wealth, change your life. Thanks for listening and we'll talk to you tomorrow.

Need contract help for those workload peaks and backlog projects? You're not alone. Robert half found that 67% of companies surveyed said they will increase their use of contract talent. That's why their recruiters leverage their experience and use award winning AI to quickly find the skilled candidates you want. Learn about their specialized talent in finance, accounting, technology, marketing, legal and administrative support at Robert Half. They know talent. Visit roberthalf.com talent today.

[Courtney Harrell]

Imagine if you could ask someone anything you wanted about their finances. How much do you make? Who paid for that fancy dinner? What did your house actually cost? On every episode of what We Spend, a different guest opens up their wallets, opens up their lives really, and tells us all about their finances. For one week they tell us everything they spend their money on.

[Jill Schlesinger]

My son slammed like $6 worth of blueberries in five minutes.

[Courtney Harrell]

This is a podcast about all the ways money comes into our lives and then leaves again. Which of course we all have a lot of feelings about.

[Jill Schlesinger]

I really want these things.

[Julie]

I want to own a house. I want to have a child. But this morning I really wanted a coffee.

[Courtney Harrell]

Because whatever you are buying or not buying or saving or spending, at the end of the day, money is always about more than your balance. I'm Courtney Harrell and this is what we spend, listen to and follow what We Spend An Odyssey original podcast available now. Wherever you get your podcasts.