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[quote=Anonymous][quote=Anonymous]So 8:23 and 9:00, this gets at the heart of my question. I love the idea of paying off my loan in 5-6 years. Love it. But at that interest rate, I know it isn't the option that results in the most dollars, given the est rate of return on the market. So in your scenario, if I have $3500 monthly left over after expenses (including 17.5K annually into 401K with match, and 5.5K in IRA), I would:

Put 2K monthly into the market.
Put 1.5K monthly toward loan.

At this rate, I'd pay off the $215,469 in 14 years, 9 mos (so I'd be approx age 54) with total interest paid: $48,947 (if I put 3.5K towards the loan it's paid off in 5 yrs/7 mos with total interest paid $17,929).

And by your numbers, I'd have an additional 115-191K for retirement (vs. 81-120K if I paid off the loan at age 45).

So, if we use median numbers for the market returns (153K in later loan payoff scenario vs 100.5K for earlier loan payoff scenario at 6-8%), there are two possibilities:

Scenario #1: Pay off loan at age 54. Earn approx 153K in market, pay $48,947 in loan interest. Net gain: $104,053.

Scenario #2: Pay off loan at age 45. Earn approx 100.5K in market, pay $17,929 in loan interest. Net gain: $82,571.

Difference between scenario #1 and 2: $21,482.

Is this math correct? Is later loan payoff worth it for a net gain of approx 21.5K?[/quote]

The difference is not 21k, but 250k (at 8%, 96k at 6%). The 153k referenced above is the earnings for the 24k invested in year 1, it doesn't account for the other 4 years, 7 months.

In your scenario 1 you invest 24k each year for 5 years 7 months and pay 18k/year toward the loan for 14 years, 9 months. (we won't worry about the investments after the 5yr7mo point, as those would be theoretically the same in either situation). So investing 134k (24k in years 1-5, 14k in year 6) would give you 902k at 65 at 8% (567k at 6%). It would cost you 31k in interest for a net of 871k at 65.

In scenario 2 you pay 42k/year for 5 years 7 months to the loan, then you would have an additional 18k to invest each year that you would have had to pay toward your loan under scenario 1. This 165k invested (7500 in year 6, 18k in years 7-15) at age 44-53 would give you 639k at 65 at 8% (458k at 6%), with an interest cost on the loan of 19k for a net of 620k (439 at 6%).

Putting 2k/month into the market now instead of the loan gives a difference of 250k at 8%, 96k at 6%. So the question is whether the emotional benefit of having it paid off 9 years earlier is worth 250k to you at 65, or working an extra 5 years. If you are still saving the same amount at 65 (42k/year), considering you will have to invest more conservatively, it would take you 5 years to save that 250k.[/quote]

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