So you’re in your 40s and have thousands left each month after expenses — but you’ve saved $0 for retirement. Should you use that stack of cash to pay off the mortgage or build a nest egg?

Retirement investing should (almost) always take priority

Regardless of your age, when deciding between allocating extra funds towards paying off your mortgage or investing for retirement, you should almost always choose the latter. It doesn’t matter whether you have $2,000, $5,000, or $10,000 to spend.

Here's why this is a no-brainer.

From 2008 until the post-pandemic era, mortgage rates averaged under 5% and have often dipped under 4%. Even in recent years as they've climbed, they're still below 8%. In fact, average rates have not topped that 8% range since 2000.

Your return on investment (ROI) for repaying your mortgage early is interest saved. For anyone who took out a typical home loan in the last 24 years, the absolute best ROI for paying it off early is under 8%.

By contrast, the S&P 500 has consistently produced 10% average annual returns. Not only is that higher than 8%, it's well above the 3% to 4% rates many people are currently paying on their mortgages.

Now, if you have a subprime mortgage at a very high interest rate, things may be different for you. But, for most people, the choice is clear. If you can earn higher returns in the market than you are paying on your mortgage, prioritizing investing over early loan payoff is the obvious choice.

Retire richer: The secret to building wealth faster

Most people miss out on key opportunities to grow their wealth. Partnering with the right financial advisor can help you secure a brighter future. Learn how to make your money work harder for you today.

Discover the secret

Investing has even more benefits

Aside from the better long-term returns investing offers, there are other reasons it makes sense to invest rather than pay off your home early. Tax breaks are one of the biggest.

You can include mortgage interest as an itemized deduction on your taxes on loans up to $750,000. For example, if you paid $5,000 in annual interest and are in the 22% tax bracket, you could save up to $1,100 on taxes, resulting in a net interest cost of only $3,900 for the year.

Note that for many, a standard deduction is more advantageous, and would negate the benefit of claiming an itemized deduction.

There are also tax advantages when you invest for retirement. For starters, contributions to a 401(k) and IRA are deducted in the year you make them. Your employer may also offer you matching contributions if you're contributing to your 401(k). That's free money, which no one is giving you for making extra mortgage payments.

You can also benefit from the fact your mortgage effectively gets less expensive over time thanks to inflation. If you have a fixed interest rate on your mortgage and pay $2,000 monthly today, you'll still be paying $2,000 monthly in 20 years when that $2,000 provides only $1,107.35 in buying power (assuming a 3% average annual inflation rate).

Still not convinced? Your money is also more accessible if you put it in the stock market. You can sell your investments to cover unexpected expenses or provide income in retirement. You can't easily access equity in your home without selling it or taking out another loan. And if you sell, you still need a place to live.

For all these reasons, there's one clear path forward for most: keep paying the regular payments on your mortgage and invest the rest of your disposable income — ideally, in tax-advantaged retirement accounts.

If you're 40 and already a homeowner, your loan should be paid off by the time you retire even if you pay just the minimum. If, at the same time, you’ve invested $10,000 a month for 25 years at 7%, you'll have a nest egg of over $7 million even without factoring in any employer match. With that kind of wealth, anything you've got left on your mortgage isn't going to matter much anyway.