Parker has $2,200 per month to spend on his mortgage and retirement. He currently earns...
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Parker has $2,200 per month to spend on his mortgage and retirement. He currently earns $80,000 per year, and his job will match 100% up to 3% of his salary if he uses his 401(k). His current mortgage is $1,500 per month. If he puts all $2,200 into paying off his mortgage, then the mortgage will be paid off in 14 years. Should he put all $2,200 into paying off his mortgage and then invest all $2,200 in his 401(k) for the next 16 years, or should he pay $1,500 on his mortgage and $700 per month to his 401(k) for 30 years? Assume his 401(k) will earn 10% per year and that there are no contribution limits. (Hint: for simplicity, keep your TVM figures in years) He should pay off the mortgage early because the interest is expensive. He should invest longer in the 401(k) because he will have over $1.7 million if he does so. He should invest longer in the 401(k) because nothing should ever prevent him from getting the free money. He should pay off the mortgage early because he will have over $1 million if he does so.
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