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.