Reader Mailbag: “I’m 60 years old. I want to pay off my mortgage of $96,000. I need a plan to do that.”

Dear DTA,

Hi. I’m 60 years old. I want to pay off my mortgage of $96,000. I need a plan to do that.

-Terrance H.

Thanks for your readership, Terrance. And thanks for taking the time to write in.

We love to help, motivate, and educate our readers as much as possible, which gave birth to the idea of this mailbag series.

The first thing I want to remind you of is, you shouldn’t be investing any money in the stock market that you can’t afford to lose.

And so when I think about buying stocks, I think of myself as a long-term business partner.

That’s because buying a stock is exactly the same as buying a very small slice of a real business.

You’re effectively “in business” with a company. You’re a “business partner”.

But businesses naturally ebb and flow, which means the underlying value of your investment (that which you could sell it for at any given time) could ebb and flow.

While truly wonderful businesses tend to become worth a lot more over the long run, anything can happen in the short term.

Now, you’d be hard-pressed to find a bigger fan of the stock market than me.

The stock market’s ability to compound one’s wealth and income is truly remarkable.

And I used that power to my advantage, investing every spare penny I possibly could for years into high-quality dividend growth stocks like those you’ll find on David Fish’s Dividend Champions, Contenders, and Challengers list.

What did that do for me?

Well, it granted me financial independence, as the six-figure dividend growth stock portfolio I built in the process now generates the five-figure and growing passive dividend income necessary to cover my basic needs in life.

However, we’re in different situations in life. And we have different goals.

Had I owned a house, and had I been interested in paying off my mortgage quickly, I might have done things differently. I can say that I wouldn’t have allocated mortgage payment capital toward the stock market. That’s for sure.

There’s a debate out there as to whether one is better off paying off their mortgage quickly or investing in the stock market.

After all, if your mortgage interest rate is low enough, you could be taking on significant opportunity cost by paying it off early, due to the potential return that capital could deliver you if it were instead invested in the stock market long term.

That said, peace of mind has a certain amount of value that can’t necessarily be quantified.

So if paying off your mortgage is your primary goal – as you seem to indicate – my best advice would be to instead focus on lifestyle choices in terms of trying to generate excess cash flow that can be directed toward paying off the mortgage.

Said another way, it would likely behoove you to investigate your budget in order to see if there’s some wasteful spending. If there’s fat in your budget, trimming it could result in extra cash flow (that you didn’t have before) that could benefit your goal.

This could lead to relatively large and immediate “wins” for you.

Let’s say you can figure out how to cut out just $100 of your monthly spending, which could then be directed toward paying off your mortgage.

This might sound like much. But it’s actually a lot of extra spare monthly cash flow.

In order to generate that same extra $100/month in passive dividend income from a basket of high-quality dividend growth stocks averaging a yield of 3.5%, you’d have to have a portfolio of stocks valued at $34,285.

So you have to ask yourself, which is easier and faster right out of the gate: figuring out how to cut $100/month in spending, or figuring out how to build a high-quality portfolio worth almost $35,000?

The answer is obvious.

Now, if you have the resources to simultaneously pay off your mortgage and invest in stocks, that would be wonderful. But we all have choices and sacrifices to consider. There are always limitations on our resources. And there are always opportunity costs in everything we do.

If/when you’re ready to invest (perhaps once your mortgage is paid off, or at least once the payoff plan is in full swing), we have some excellent resources across the site that can greatly aid you.

As noted earlier, I personally write about and invest in high-quality dividend growth stocks.

That’s because these tend to be the creme de la creme of stocks.

They’re often the best businesses in the world, proven out by their lengthy track records of growing profit and sharing that growing profit directly with shareholders via growing dividends.

You can’t write a check you can’t cash. And you certainly can’t write larger and larger checks every single year without being able to make good on that.

And so when you see a company like Johnson & Johnson (JNJ) being able to pay out increasing dividends to its shareholders for 55 consecutive years, you know they’re supremely talented at running their business, growing profit, and rewarding shareholders. It’s proven out.

While anything can happen, and while things can change, almost 60 years is a pretty good precedent.

As such, it should come as no surprise that dividend payers and growers (like Johnson & Johnson) outperform the broader market (in terms of total return) over the long run (according to Ned Davis Research).

If/when you’re ready to take that step toward building out a portfolio full of high-quality dividend growth stocks, we’ve got you covered.

Fellow contributor Dave Van Knapp wrote a series of “lessons” on the dividend growth investing strategy, covering pretty much every detail you’d want to know.

And I highlight an undervalued dividend growth stock every Sunday, as part of the long-running undervalued dividend growth stock of the week series I helm.

I sincerely hope this information helped you, Terrance.

Whichever way you decide to go with your finances, the key will be to start as soon as possible.

I wish you luck and success.

Jason Fieber


Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.