Should I Drain My 401k to Pay Off My Mortgage? | AMA #2 with Jesse - E86

The Best Interest - Complex Personal Finance Made Easy

In today’s AMA, Jesse delves into various financial dilemmas and strategies to maximize benefits and secure a stable retirement.

The first question comes from Mindy, a 50-year-old widow, weighing the pros and cons of remarrying due to its potential impact on her survivor benefits. Jesse explains the complexities of Social Security spousal and survivor benefits, urging listeners to consult with a Certified Financial Planner to navigate the intricacies and optimize their benefits.

Then, Bob seeks Jesse’s advice on whether to use retirement savings to pay off a mortgage on a new home. With $1.2 million in retirement savings and plans to retire in five to ten years, Jesse takes into consideration some additional context to make some suggestions. Of course, any financial planner or advisor will answer unknown questions with “it depends” - we need to know all of someone’s financial “puzzle pieces” before we can put that puzzle together.

Jesse then addresses Tad's query on compound interest and its application to stocks, bonds, and stock funds, clarifying the concept of "compound growth" in investments and the benefits of reinvesting profits.

Our penultimate question is from Dan, a retiree who shares his bond-avoidant investment strategy, relying on pensions and CDs for market downturns. Jesse discusses the potential risks if Dan passes away, affecting his wife's income, and suggests considering a small bond allocation.

Last up is Amy's question about setting up an annuity from a 401k to create what some might call a “retirement paycheck”, prompting Jesse to caution against high fees and sales tactics associated with annuities, recommending traditional investment portfolios for better returns, flexibility, and liquidity.

If you’d like a question in a future AMA, send Jesse a message!

Key Takeaways:

• Consult a certified financial planner to navigate the complexities of Social Security spousal and survivor benefits, especially when considering remarriage.

• The most common answer to finance questions is “It depends”. It depends on your city, your state, different tax rates, your income, your relationship status, your goals. There is no one size fits all solution.

• Understand that "compound growth" is a more accurate term than "compound interest" for investments like stocks and stock funds, with reinvested profits accelerating growth.

• Bonds can be a useful asset in your investment strategy, but of course, it depends on your goals and life situation. It’s important to consult with a CFP to get a more complete picture.

• Be cautious about setting up an annuity from a 401k due to high fees and sales tactics; traditional investment portfolios often offer better returns, flexibility, and liquidity.

Key Timestamps:

(00:00) - Introduction

(01:49) - Social Security and Survivor Benefits Explained

(09:46) - Financial Planning for Retirement and Mortgages

(19:34) - Understanding Compound Growth vs. Compound Interest

(25:49) - Dan's Retirement Strategy

(27:59) - Evaluating Risks in Retirement

(32:51) - Amy's Annuity Question

(36:29) - Comparing Life Insurance and Annuities

(42:46) - Immediate Fixed Annuities

(47:08) - Conclusion and Final Thoughts

Key Topics Discussed: The Best Interest, Jesse Cramer, Rochester New York, financial planner, financial advisor, wealth management, retirement planning, tax planning, personal finance, annuities, compound interest, compound growth, death of a spouse, prenup, mortgages, ask me anything

Mentions:

https://bestinterest.blog/valuing-social-security-as-an-asset-in-your-retirement-plan/

https://bestinterest.blog/how-much-life-insurance-do-i-need/

https://open.spotify.com/episode/2NMGr6vYPT4KuCdu9txoce?si=41789317e9614367

More of The Best Interest:

Check out the Best Interest Blog at bestinterest.blog

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The Best Interest Podcast is a personal podcast meant for educational and entertainment. It should not be taken as financial advice, and is not prescriptive of your financial situation.