Should You Pay Off Your Mortgage When You Retire?

Happy Senior Couple in the Front Yard of Their House.A 30-year career, a paid-off mortgage, and a financially healthy retirement used to be staples of the American dream. But with Americans carrying more mortgage debt than ever now, it may not always be possible to pay off the house when you retire.

This is particularly true if your plan is to take a lump sum disbursement from a retirement account in order to pay off the house. Here is a rundown of when eliminating that debt is still a good idea, and when it’s unfeasible or unwise.

Paying off your mortgage doesn’t make sense if…

● You’re in a higher income tax bracket
● You have a low-interest mortgage (less than 5 percent)
● Paying off the mortgage would mean that you don’t have a healthy cushion to pay for unexpected medical expenses or other emergencies
● You can afford the make your monthly payments without sacrificing your standard of living

If the above provisions apply to you, it might not make sense to pay off your mortgage. In particular, withdrawing funds from your retirement policies means you lose principal that might be gaining interest at a higher rate than you’re paying on your mortgage at this point.

Paying off your mortgage might make sense if…

● your retirement funds are earning a low rate of interest in a savings account
● you have other well-funded retirement policies to cover living expenses
● your mortgage payments will be too high for you to cover once you stop working, and you don’t want to sell the house

There are no one-size-fits-all answers that work for everyone in retirement. Before making the decision to pay off your mortgage, sell the house, or refinance, talk to your financial advisor. He or she can help you analyze your budget and earnings, and make the decision that works best for you.

14243 – 2015/3/10