The Simple Dollar posted a great article that is helping a member who is young figure out if he starts early, then when can he retire. If he start at the age of 20 years old, then he can retire early basically at about 42 years old. That will only mean that he will be getting the same salary that he has right now but he will be work free but still far from retiring rich.

If you were to take 20% of your annual income starting at age 20 and put it in a S&P 500 index fund, that index fund continues to grow at the long-term historical rate (12%), and you received a 4% raise each year, you could walk away from your job and live off the interest at age 41 matching your current salary, or quit at 43 and be able to give yourself a 4% “raise” each year from the interest, which is probably the better plan because it combats inflation. Raise the amount to 25% and you’re done at age 38 and able to live in perpetuity at age 40.

All he has to do is save 20% of each pay check and then invest into an index fund like the S&P 500 index fund, I prefer to use Exchange Traded Funds (ETFs) but all the same.

The hardest part is saving that 20% or heaven help you if you can 25% per paycheck.

But like snow-flaking debt, why can’t you snowflake to a rich retirement? And of course, once you start to save and that compounded interest really kicks in, then you can be saving an extra couple thousand per year just on interest alone.

If you can save $20,000 and get 5% in interest, then you just gained an extra $1,000 for having your money sit there. That $1,000 will then help you reach another $20,000 that much quicker then before you know it, you are now getting an extra $2,000 per year.

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The debate is in and it is a very touchy and personal decision.

First let’s talk about the pure proud feeling of knowing that you finished paying off for your house. Another factor would be that you would be reducing your mortgage term significantly. Another factor that you have to include is that all interests that you pay towards your mortgage is tax deductible. Let’s say if you were to enroll yourself in bi-weekly payments and/or if you were to just add an additional 10% of your monthly mortgage payment just to principal you would cut down the term by about 3/5.

Now let’s say that you were to instead invest that extra money into a index fund or better yet an Exchange Traded Fund (ETF) in the stock market. For one point, the 10%-14% that you could have compounded within the years would have been greater then paying down the mortgage of a 5%-7& interest rate.

That is the question that you must ask yourself. Is the interest on your mortgage a comparable rate when compared to the stock market returns of a index fund that is well diversified. If you are looking to gain upwards of 4% and are willing to test the waters and have a good risk tolerance for long investments then by all means then you should invest in the stock market.

You would be able to invest and after say 10 years you would have a great deal more net worth and capital then if you decided to just prepay your mortgage instead.

If this article has intrigued you then please go to Investing Versus Paying Ahead on Your Mortgage: Which Makes More Sense? and Question From a Reader: What to do With My Mortgage?

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