Retiring With A Mortgage

Written by: Andrew Briesacher, CRPC® – Wealth Manager

Recently, many clients and prospects have inquired about whether they should pay off their mortgage in retirement. While there can be easy math behind the decision, there are a lot of factors to consider before finding the best course of action. The current interest rate environment has only made that more difficult with mortgage rates around 8% and the short-term yields on treasury bills and CD’s going north of 5%. Clients and prospective clients often want to know what happens if they pay off a mortgage with a low rate of 3-4%, and what could happen if they do need to borrow again at the highest rates since the tech bubble of 2001-2002?

Whether or not you should pay off your mortgage when you retire depends on your specific financial situation and your financial goals. Here are some factors to consider when making this decision:

1. Your Financial Situation: Assess your overall financial health. Do you have enough retirement savings and other investments to cover your living expenses in retirement? If you have sufficient savings to comfortably cover your expenses and pay off your mortgage, it might make sense to do so. However, if paying off your mortgage would deplete a significant portion of your retirement savings, you might want to reconsider.
2. Interest Rate: Consider the interest rate on your mortgage. If your mortgage has a high-interest rate, it might be more beneficial to pay it off, as you’ll be saving on interest expenses. If the interest rate is low, you might be better off investing your money elsewhere, where you have the potential to earn a higher return on your investments.
3. Tax Implications: Mortgage interest can be deductible on your income taxes, which can reduce your overall tax liability. If you pay off your mortgage, you will lose this deduction. Consider consulting with a tax planning professional, to understand the impact on your specific tax situation.
4. Cash Flow: Evaluate your monthly cash flow needs. Paying off your mortgage can free up extra money in your monthly budget since you no longer have to make monthly payments. This can be particularly helpful if you’re on a fixed income during retirement.
5. Risk Tolerance: Consider your risk sensitivity. Paying off your mortgage is a conservative financial move, as it provides peace of mind and eliminates the risk of foreclosure due to missed payments. If you’re risk-averse, paying off the mortgage might be the right choice.
6. Other Financial Goals: Think about your other financial goals in retirement. Do you have other debts or financial objectives, such as funding your children’s or grandchildren’s education, traveling, or leaving an inheritance? Ensure that paying off your mortgage aligns with your overall financial plan before making any changes.
7. Investment Opportunities: Compare the return you could potentially earn on your investments to the interest rate on your mortgage. If you believe your investments can outperform your mortgage interest rate, it might make more sense to invest your money rather than paying off the mortgage for the time being.
8. Emotional Considerations: Some individuals find peace of mind in having a home with no mortgage during retirement, while others are comfortable keeping the routine of making monthly mortgage payments.

Ultimately, the decision to pay off your mortgage when you retire is a personal one that depends on your unique financial circumstances, goals, and preferences. As always, at Wheelhouse, we are continuously looking to help you in making these decisions, and your peace of mind is of utmost importance to us when creating an action plan.

If you have any questions about whether you should pay off your mortgage or continue to carry it upon retirement, please give us a call.