Residential Space A creative outlet during residency, turned ongoing virtual soap box

Pre-paying the mortgage vs. Saving for retirement  2

Posted on January 30th, 2007. About Money.

A recent family vacation and viewing the Canadian financial channel prompted an impassioned discussion – if a person has extra money left over, what to do – pay off the home mortgage early, or contribute to the retirement accounts?

I say – contribute to the 401(k) (or Roth IRA, or whatever retirement account is available). Here’s why:

Let’s presume a person has a $100,000 mortgage, for simple math purposes. Let’s also assume a 30 year mortgage and a 5.75% interest rate (this seems to be pretty standard when analysts make estimates). This makes the payments $583.57/month. The total amount of interest paid over 30 years on this mortgage is $110,086.23.

Now, if I suddenly have an extra $200/month available to me, here’s what happens if I place it towards the mortgage principal: the loan is paid off in 16.5 years as opposed to 30, and I only pay $54,986.58 in interest, a total savings of $54,876.49 from what I would have paid from making minimum mortgage payments for 30 years. My brother pointed out that, once the mortgage is paid off, the entire $583.57/month + $200/month ($783.57/month) can be placed in the retirement account. If we assume an 8% rate of return on the 401(k), putting $783.57/month into the account for 13.5 years will give us an account value of $231,829.75. Subtracting out our personal contribution of $126,938.34, the pure earnings on the account during this time amount to $104,891.41.

So what did we earn by paying off the mortgage early and then contributing fully to the 401(k)? $54,876.49 (money saved from not paying extra interest on mortgage) + $104,891.41 (earnings on the retirement account) = $159,767.90.

Compare that now to paying minimum mortgage payments for the full 30 years, and putting just $200/month in the 401(k) over this same time frame. After 30 years, the 401(k)’s value is $293,630.08. Our personal contribution to it was $72,000.00, so subtracting that out, our pure earnings are$0 (money saved on interest from paying off the mortgage early, which of course we are opting not to do) + $221,630.08 (earnings on the retirement account) = $221,630.08.

For simplicity of calculations, we have only compounded the interest annually (which, in actuality, the earnings on the 401(k) are continuously compounding as we’re adding money every month and the value of the account is constantly changing). Inflation is also not included (3–3.5%). Finally, we have also not included the tax breakdown (money into the 401(k) goes in pre-tax, thus lowering taxable income and favoring the 401(k) contribution over paying off the mortgage early, since the $200/month would be taxed prior to being put towards the loan; also mortgage interest can be deducted, so it’s not costing as much as it seems to pay the interest as there are breaks for it). And remember – both people still own the same house at the end of 30 years, but one has a retirement account worth $60,000 more than the other. And while home loans are easily available, it’s not as feasible to get a loan just for living expenses during retirement (how do you pay it off, unless you sell your assets?).

So I stand by my assertion that it makes more sense to contribute to the retirement account over paying off the mortgage early. Miracle of compounding interest indeed!

Of course, both options make more sense than blowing a lot of money each paycheck on shoes and purses, a pastime of several colleagues who laugh about not putting money away for anything long-term.

Our First Glimpse!  1

Posted on January 2nd, 2007. About Baby Dodds.

On Friday, Evan and I were privileged enough to glimpse for the first time at our future baby at 11.5 weeks old. It’s still too early to determine the sex, but he/she was definitely moving around in there! It was very much the amazing and memorable experience.

Image2-small-cropped

Sit tight, little one! We’ll see you again in about six weeks.

Many call nights down, many to go…  0

Posted on January 2nd, 2007. About Health Care.

While many make resolutions for change at New Year’s, I decided to create a countdown list instead. Today, I count 48 remaining call nights before my residency is halfway completed on June 30, 2007. It breaks down like this:

– University of Washington Medical Center: 10
– V.A. Medical Center: 23
– Harborview Medical Center: 15

Another way of looking at it is this way:

– Home Call Nights: 33
– On Site Call Nights: 15

So 48 more call nights. After tonight, it will be 47.

I’m Spiderman!  0

Posted on January 1st, 2007. About Entertainment.

After Evan informed the world that he is actually The Green Lantern, I took the same superhero quiz and found that I am most similar to Spiderman.

You are Spider-Man

Spider-Man
65%
The Flash
65%
Superman
50%
Green Lantern
50%
Wonder Woman
48%
Robin
45%
Supergirl
43%
Iron Man
40%
Hulk
20%
Catwoman
15%
Batman
10%

You are intelligent, witty,
a bit geeky and have great
power and responsibility.

Click here to take the “Which Superhero are you?” quiz…

Wild Strawberries  0

Posted on January 1st, 2007. About Entertainment.

Evan discovered the Independent Film Channel a year ago and has enjoyed many great films, uninterrupted by commercials. I admit to not being quite the movie fan that he is, nor is my enthusiasm anywhere close to my sister-in-law, Catherine’s, but recently the channel brought on a case of college-days nostalgia. When I was on the University of South Carolina’s academic team as a freshman in 1997, several of my teammates persuaded me (and thus, Evan – we have been together for that long!) to join them at an art film house on campus for a showing of Ingmar Bergman’s The Seventh Seal. Having recently emigrated from a very small town and graduated from an even smaller high school, I was familiar with blockbusters, but did not recognize that movies such as this one even existed. The experience of viewing the film for the first time was a surreal one. Antonius Block playing chess with death, a witch-burning – a reflective masterpiece created during a time when typical movies did not question the existence of God and one’s purpose in life, The Seventh Seal did just this.

The following semester, my English professor mentioned in passing that Bergman’s film, Wild Strawberries, was among the greatest movies ever created. Had I been smart, I would have found a way to get ahold of it then rather than waiting until this past week to see it for the first time. I don’t know why it took me nine years, but I saw that IFC was showing it, set the Media Center to record it. Again, an amazing experience! The IMDB one-liner reads: “After living a life marked by coldness, an aging professor is forced to confront the emptiness of his existence.” A nice summary, I think, but the way Bergman creates Borg’s story is clever. Flashback, nightmares, eloquent dialogues, and minutes-long scenes lacking words are a few of the techniques used to illustrate emptiness and loneliness. Again, an atypical 1950s picture, although easily recognizable as a Bergman movie. Then again, it could be typical of 1950s European legends – I always picture the U.S. as a tad on the repressed side during this era.

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