Prepaying Your Mortgage versus Saving

A recent report released by the Federal Reserve Board of Chicago provides us with some empirical evidence that mortgage planning is hugely important. This report states that,

...about 38% of U.S. households that are accelerating their mortgage payments instead of saving in tax-deferred accounts are making the wrong choice.....reallocating their savings can yield a mean benefit of 11 to 17 cents per dollar......these mis-allocated savings are costing U.S. households as much as 1.5 billion dollars per year.

Some takeaways from this report for me were:

• This is something that we can control and put into place very easily
• It comes from the Government -- i.e. typically some pretty conservative financial information comes out of the Government!
• A remarkable percentage of us do not contribute to retirement as we should (about 1/3 don't take advantage of employer-sponsored retirement plans and give up free money)
• The general arguments people make for paying down their mortgage versus saving elsewhere are very unfounded

The main argument here is that there is a true cost to not saving outside of your home or, put differently, that there can be big benefits to having money invested in retirement accounts (and elsewhere) and not having your money buried in your house.

I have gone through the entire report and have some other big "ah-hahs" that I have gotten from it which I will save for a conversation if you want to contact me or you can look for them in future posts.