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I used to think paying off all my debt was the key to retiring early, but the pandemic showed me a smarter way

Summary List PlacementWhen I discovered the FIRE movement, an acronym for financial independence/retire early, in 2019, I was completely enamored. FIRE enthusiasts are big on pursuing early retirement so they can have more freedom to do the things they love, like travel, which sounded great to me. I decided...

katie oelker

Summary List Placement

When I discovered the FIRE movement, an acronym for financial independence/retire early, in 2019, I was completely enamored. FIRE enthusiasts are big on pursuing early retirement so they can have more freedom to do the things they love, like travel, which sounded great to me. I decided to get on board.

One of the stepping stones to achieving FIRE is to pay off all debt, and by the end of 2019, my husband and I had paid off the last of my student loans and his car loan. Our mortgage was the last debt to tackle, and at the time, we thought we’d be on pace to pay it off within 10 years. 

Changing our debt-payoff plan after COVID-19 hit

Fast forward. We sold our home with the smaller mortgage at the end of 2019 and bought a more expensive home at the same time. Although we knew we’d have almost double the amount of mortgage debt to pay off, the new home was the right choice. And despite the higher balance, we were determined to work towards paying off our mortgage early. Then COVID-19 happened. 

When we sold our first home, we put most of the proceeds into a savings account for the time being. Our original intention was to put the proceeds towards the new mortgage within the first six months or so, but then the pandemic hit. And because of the uncertainty and fear that came with it, we decided to keep the money in savings until we had a better idea of what the economic climate was going to look like. 

Months went by and we were still experiencing shutdown after shutdown. We stopped going out to eat, visiting the gym, and traveling. Several trips were cancelled or postponed due to the pandemic. Although we both were still earning income, my husband works in the sports industry, and that was one of the hardest hit by shutdowns. It was unclear if our income was going to suffer. 

We knew we had savings to live off of if something happened, but we also weren’t sure when things would return back to “normal.” All of this change forced us to think more about how we want to live now and in the future. 

Why we changed our minds about our debt

We ultimately decided not to put the extra savings towards our mortgage for a couple of reasons. 

It makes more sense to invest the money

Rather than viewing our home as a forever home that we want to pay off quickly, we decided it would make sense to invest more instead. By putting more of the savings into investments, we are taking advantage of compound interest and will be setting ourselves up to retire earlier. 

Even if we decide not to retire early, we could still sell out of some of our investments down the line and pay off the mortgage in a lump sum. The average market return is higher on our investments than the interest rate for our mortgage, so we prefer to invest in the meantime until we decide what to do. 

The math makes sense to invest versus pay off our mortgage early. In this low interest rate environment, we will earn more money investing than we would saving on interest. This option also gives us more flexibility in the long run. We can use the money for early retirement or to pay off our home early if we choose to stay there for the long-haul. 

This is probably not our ‘forever’ home

It’s likely we will move before our mortgage is paid off. When we purchased our new home, we figured this would be our “forever” home. Although that may still happen, the pandemic also showed us the downfalls of living in a state with a long winter.

With most everything closed, we were forced to enjoy the outdoor weather more than we typically would, but when the weather dropped below 0, we felt stuck with nowhere to go for weeks at a time. With both my husband and I working remotely now, we are considering the idea of living someplace warmer at least for part of the year.

We just completed a refinance on our home, and the extra money we are saving per month will now be added into our investments instead of going towards the mortgage. Although our plan could change down the line, we feel that investing more aggressively now will give us more options and a higher investment balance in the future. We may decide to pay off our mortgage in full later on, once our investment balance reaches a certain level, but we’re happy with our plan for now.

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