Should I Pay off my Mortgage Before I Retire?
It’s a question everyone wonders. Should you pay off your mortgage before you retire? It seems like you should, but that’s not always the case. Sometimes it doesn’t make sense to pay off your mortgage instead of investing or even saving money.
This isn’t a one-size-fits-all approach. Whether it makes sense to pay your mortgage off before you retire depends on your situation.
Let’s dive in to see how where you stand.
The Benefits of Paying off your Mortgage Before you Retire
In a perfect world, you’ll pay your mortgage off before you retire. Without a mortgage, your cost of living is a lot lower, which means you can allocate your retirement funds differently.
When you have to cover your mortgage payment, you must withdraw more from your retirement account. This does two things:
- Creates a higher tax liability (unless you have a Roth IRA or 401K)
- Decreases the money you have for the rest of your life
Paying your mortgage off before you stop working eliminates the worry of how you’ll handle the large responsibility of a mortgage payment plus the other standard cost of living expenses.
Times you Shouldn’t Pay your Mortgage Before you Retire
While living mortgage-free is ideal during retirement, it’s not always feasible. If any of the following apply, don’t pay off your mortgage before you retire:
- You’ll use up all your savings. If you won’t have any liquid assets left, you can’t cover emergencies, home repairs, or other major expenses, it doesn’t make sense to pay your mortgage off early. You’ll only set yourself up for financial difficulties in the future.
- You can get a better return on your investments. If you have a low mortgage rate, you may earn more money investing your funds and making regular mortgage payments. For example, if you can earn a 6% rate of return on your investments and only pay 3% on your mortgage, you come out 3% ahead by not paying your mortgage off early.
- You have high consumer debt outstanding. If you have credit cards or other consumer debt left unpaid, chances are the interest rates are much higher than what you pay on your mortgage. Get yourself out of consumer debt before focusing on your mortgage.
Your circumstances will help with your decision
When deciding whether you should pay off your mortgage before you retire look at your situation. Assess where you stand financially, including your current assets and liabilities. If you have enough money to pay the mortgage off and live debt-free, then you’ll start retirement off on the right foot.
If paying your mortgage off will cause financial stress and make it impossible to cover emergencies or you’ll be stuck with other high-interest debt in its place, don’t do it yet.
Your circumstances may change over time and you may find that you can pay your mortgage off shortly before or even right after you retire. If it works out – great. If not, work your mortgage payment into your cost of living and make sure you have enough retirement income to cover your costs.