I agree with everyone so far - ramp up your savings, lower your spending, and do extra payments on the mortgage debt. Please don't take money out of your IRA to pay your mortgage off. At your tax rate, that's really robbing Peter to pay Paul. You have a good start on your investment account. Think of it as you've got half and your spouse has half. You mention your pension, what does your spouse have? We don't need to know, you just need to think about this. Half a million $$ on a 4% draw-down - which is generous, most advisors nowadays advise 3% - is $20K per spouse, before taxes. With tax hikes almost certain to come in the future, what are you estimating as your future tax rate? Have you looked into Roth conversions? Instead of throwing all your bonuses and extra funds into the mortgage, you might get a better return by splitting the money and using some of it to pay the taxes on the conversions each year before retirement. Also, your spouse needs to roll over those 401k's into one IRA. Trust me, if anything happens to her, it's a paperwork headache for the survivor to get that done. It takes time and energy, and when somebody's grieving, it's the last thing one wants to do. But it's a necessity if you don't want the IRS to get involved. I'm going to offer some questions for you to think about because you are at the perfect point to start doing serious retirement planning. The reason you need to figure out if your assumptions are correct for future savings and the best return on spending, is that if those assumptions are wrong or plain bad luck intervenes, you still have time to adjust and make corrections. Have you and your wife sat down to talk specifically about what both of you envision retirement to be? What's your 'bucket list'? What's hers? What do you want to do in retirement? How much will it cost to do those things? For example: I retired 2 yrs before DH did. Our expenses did NOT go down and our income stayed static because we were contributing as much as we could to DH's 401k. But when he did retire, our expenses jumped overall. We have retirement health benefits, so there was no extra cost there. But we wanted to travel locally, and even that required several hundred $$ of clothing and travel accessories. We were able to donate an entire carload of work clothes to charity, which was great for deserving poor folks, but no one was going to pay us for them. That first year we spent almost four months out of twelve traveling through Northern CA and the PNW, mostly car trips but a few airline trips, at a cost of almost $25K post-tax. We do what I consider to be mid-level travel: not budget or RV travel, but not luxury high-end places either. If I were in your situation I would find a certified or registered financial advisor to run some numbers. What will happen if one of you dies? What happens if one of you gets disabled and needs care? What happens to the surviving spouse if death or disability happens BEFORE retirement? Are you adequately insured to mitigate the bigger risks in your life (and it takes some analysis to figure out what those risks are, that might prevent you from achieving your goals)? Do you have enough $$ coming in for a sufficient 'cushion', especially if you intend to maintain two houses in retirement? Do you know what medical insurance will cost for a pre-Medicare senior? What if a serious medical condition happens and one spouse becomes uninsurable, or at least rateable? Can the budget afford the insurance and any needed medications or extra co-pays? How do you plan to handle long term care costs for one of you? For both of you? These kinds of questions are just as important, perhaps even more so, than the simple question of "should I pay off my mortgage with IRA money." HTH, and good luck going forward.

I appreciate the responses. Celtic Moon - I should be eligible for two very small annuities at 60, one from my main employer (the bulk of retirement is 401K) and from the Air National guard. I'm assuming I can start using the 401K at that point but am not sure I should. The ANG medical kicks in at 60, I think I have to pay in but it should be more reasonable than just being out on my own. Of course that's assuming that all the benefits dont' change and it wouldn't surprise me if they did. I don't think we have any idea yet how much the war has cost but I think its going to be a huge shock. I doubt if those will be enough to live on but am wondering if I can maybe pick up something part time. Either way I would not longer be saving any money. -The bad luck with my portfolio was NOT from chasing profits but just leaving everything where I iniitally put it which was not good despite what everyone says about good times. Apparently. -I'm not sure how you want me to ride the slump out by not selling my house since I'm relocating 4 states away. Rent it? -Hunkering down in retirement would most likely be in a smaller city somewhere else. The rust belt city is where I'm moving for employment. That's not where I want to retire. Steve-o, normally I'd say my line of work is recession proof. However the war in Iraq is costing DoD so big and I think many many checks have been written that have not been cashed and won't be till after this administration. They are downsizing the Air Force, military and civilians to try to pay some of the shortfalls now, I can only assume it will get worse. No, I don't know what else I would do though I wouldn't want to stay in that city if I lost my job. If large cuts were to happens, the housing market in this city where the DoD is the largest employer will go from one of the higher foreclosure rates in the country now to worse. So if I do buy a house I would have a tough time selling. I would like to think though that while we make take some hits it won't be too bad. Very hard to predict and one of the reasons I was thinking of buying some little piece of crap. For say 130,000 or so I can buy a little 3 bedroom, 1 bath, 1 garage 1950's ranch in a slightly run down but safe neighborhood with a decent commute. Certainly suitable to my needs even if living in the burbs chafes. Not sure where these neighborhoods will be headed in 10 years but shouldn't become unsafe even if they slide downhill in terms of maintenance and cost. For plus or minus 100,000 I can buy a little 900 sq' older 2 bed bungalow almost anywhere. The plus or minus is based on location. And they are all painted white - why is that?:) They would keep the rain off my head just fine probably. Its not that important to have the deed in my hand - just whatever works best financially. The alternative is I've been looking for something in the country with a little wildlife and privacy. That's what I like, what I want but am wondering if I should suck it up, live in the burbs and try to work whatever extra money I have harder. Finda place in the country I like has been more difficult than I thought too since a lot of the houses in the country are surrounded by crop land, so even if its on a couple of acres or more there aren't many trees and you are fairly exposed and there's not much for wildlife. The prices are 230 to 300. If my house sells at anything close to asking I could do that with a mortgage. But should I? Rent? Buy? Buy small and cheap? Buy small and sort of cheap? Buy what I want and throw caution to the winds? The real estate market and all that is certainly part of it but I'm trying to look at that as part of this bigger picture am I'm just feeling lost.

I agree that very few of them beat the averages ... how could they? They have offices to run, computers, phones, postage and staff ... and buy and sell a lot of stocks, and though their fees are low, many of them pretty well turn over their whole portfolio annually. Those that do that ... have a lot of capital gain to report to you (you hope!) annually ... of which the income tax people want their, in that case, ongoing, share. And they have that management expense fee (often higher than the income tax cost) that reduces their effective rate - and they get their guaranteed rate, whether they produce or not! Also - when it comes time to sell those units, you'd better have kept records of not just your original cost ... but also of all of those declared payouts that were reivested, in order to calculate your capital gain. Many mutual funds keep track of your average cost per unit ... that works O.K. ... until they get bought out/merged, etc. and usually the new system just starts from when they took over. Have you checked Morningstar, the agency that rates them? What about learning how money works and buying individual stocks yourself? I bought shares in one of Canada's half dozen or so nationwide banks over 40 years ago for about $4.20 per share, that was paying about a dime or a bit more as annual dividend. A year ago May each of those shares was "worth" (i.e. "could be sold for") $107.00 ... but they were heavily involved with the U.S. stinky problem mortgage situation, so their price slipped down through the 90s, 80s, 70s, 60s into the 50s ... and have recovered a bit to low 60s. Some here recently said that, of course, I sold ... no, I hadn't. Partly, at the time of the high price, didn't have any idea that it would slide so far ... plus, it went from 4.5 doubles in 41 years to about 4 doubles in those years ... which, apart from the increased income via dividends over those 40 years, is a pretty good rate of growth. But if I were about to buy more bank shares, it'd be a different one, as this is not their first goof in recent years. Recently dividend rate grew from $2.80 to $3.08 to $3.48, which earlier in Canada were tax-advantaged, and recently that advantage increased substantially: so that a person with solely that kind of income went from tax-free $28,000. - 30,000. tax-free, to $46,345. tax-free, an increase of over 60% in one year. Further ... I've subscribed to what I consider Canada's best personal money management magazine for quite a number of years, that carries no ads, is pretty well all text - and the writers respond to subscribers' questions. Local subscribers meet regularly in about 40 places across Canada and I've met with about 20 others monthly here for about 8 years or so: many perspectives and I've learned a lot, there. Cost? Gas to get there, wear and tear on the car - plus, time ... a couple of hours a month, and another at the coffee house after, with a few of the guys and gals. If I'd put that $4.20 into the average even equity-based mutual fund 41 years ago, would the size of that asset have doubled that well? Rather doubtful, I think. A couple of mine have - several haven't. But I don't want to dump 'em this year, due to forced sale of a major holding - Canada's largest telco going private (damn it!). And that's with the income reinvested - and my shares paid me dividends quarterly, with frequent increases, for 41 years. However - the big proviso - the average growth rate has not been that good. I've avoided some taxes as I went along, but that piper will have to be paid, one of these days. Whether while I'm alive ... or for my executor to take care of, before dispersal of my estate to my kids and charities. Had I put that $4.20 into a bank account, GIC, bond, etc. where the number of dollars of principal has been guaranteed, would I have developed any such result? No way! Apart altogether from the tax advantages in the equity-based game (whether of the mutual fund or individual investment variety)! Did I say earlier ... that I prefer to run my own show? Further ... though it was 60 years ago, I grew up on a farm, and farmers are used to irregular income, with loss of some potential income when a cow dies, or reduced yields due to drought or flood (but the price of diesel fuel, fertilizer had to be paid, regardless). And seasonal income, for many. How many town folks could handle getting paid once or twice a year? Plus, they manipulate not only capital, but labour - to repair the tractor, or trade it on a bigger one? Which would require getting bigger tillage equipment, as well. Put a new roof on the barn, this year ... or build it larger? Farmers were much more used to uncertainty than city folks. Or, rather, than city folks used to be. Now, with pensions shrinking and disappearing like fog in the morning sun ... and, in many areas, the values of one's equity in one's owned home (well, "partly-owned", considering the mortgage), and with employment being uncertain, with full-time work scarcer, there have been major changes in the economic picture for city folks, as well. Back up and look at the far horizon ... occasionally, at least. Good wishes for increasingly more effective use of not only your income, but of your assets, as well. ole joyful

I guess I can't figure out how you, as sellers, would be paying out any cash at all unless you are selling the house close to or below what you owe? Bingo! That's what's happening, unfortunately. I don't care - I'm just happy to be selling. BUT I don't want to get screwed in the process. It seems weird that the money would go the buyer's closing person and not our closing person who should then use it pay off our loan. (yes, we're using a title company.) I guess I don't really understand all the logistics of closing. And what is an escrow company? Is that the same thing as the title company? (I don't know if we have an escrow company or not.) I have never understood that word "escrow." It's like purgatory to me - some weird untouchable place where money goes to hang out in limbo. My fear is that my $xx,xxx will go there and if we don't close may never come back again. I'm pretty sure we're going with the cashier's check now. Just have to get it fedexed at this point.