Today’s mortgage rates could be low enough to make it smarter not to pay off your mortgage before retirement — if you are positioned to take a little risk. So a lot of near retirees are finding themselves with 10-20 years left on their mortgages when they want to retire. As you approach retirement, it’s up to the individual to decide whether or not they can handle a mortgage payment in addition to their regular expenses. And at age 65, retirees can expect to pay some amount, sometimes several hundred dollars depending on income-level, for Medicare coverage. They noted that many of the boomers were able to buy more expensive properties with lower downpayments during this time and older boomers who bought pre-housing bubble were much less likely to be underwater than newer boomers. Box 608Severna Park, MD 21146 Lusardi and Mitchell’s study suggested that baby boomer’s mortgage balances were so high due to the housing bubble. Retirees commonly carry credit card, automobile loan, and sometimes even student loan debt. To make these decisions, there are important factors to consider. About Us if( width > 480 ){ Property prices will always fluctuate but it’s up to you to decide how much house you can afford. A recent study by Anna Maria Lusardi of George Washington University and Olivia Mitchell of the University of Pennsylvania confirmed just that. Good debt vs. bad debt. “I've had people ask if they should take out half of their 401(k) to pay off the mortgage, and the answer is no,” says Kristin C. Sullivan, a certified financial planner in Denver. But if the question is whether to take money that might be invested in other places like a 401(k) or IRA, or to pay off a mortgage, that is another question. You can think of this as a simple leverage play. Most folks suggest that you retire without a mortgage. If your retirement income is enough for you to live on, including your mortgage payment, and if your income comes from guaranteed sources like a pension, Social Security or guaranteed annuity where you can pay your mortgage as well as the rest of your monthly expenses, then it’s much easier and prudent to keep the money invested instead of withdrawing it and paying off the mortgage. I think that would be a bad idea,” warns Shaw. Zach Sparks joined The Voice Media Inc. in 2013. Sometimes, you have to think about it economically and not emotionally. Most people want large homes while they’re kids are younger. Then the program will narrow down your options from thousands of advisors to up to three registered investment advisors who suit your needs. '&charset='+document.charset : (document.characterSet ? Actual investment results may be more or less than those shown. (Your age shouldn’t come up at all — the Equal Credit Opportunity Act prohibits creditors from discriminating against loan applicants because of their age.) Opinions expressed are that of the author and are not endorsed by the named broker dealer or its affiliates. They took a closer look at the debt load of the current baby boomer generation and found that most boomers are approaching retirement with more debt than any generation before them (even after taking into account inflation). All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy. You don’t want to find yourself constantly worrying about money during retirement because you haven’t saved enough or your investments aren’t returning quite what you expected. We’ve been hearing a lot about interest rates and the Federal Reserve in the news lately, but most of the chatter has concerned interest rate decreases. It will not a big burden to your monthly budget. But once your children are off living on their own, it may be time to look for a smaller house. That is virtually unprecedented in American history. document.write (document.charset ? If you save, invest and eliminate your largest expense — your mortgage — you can live well in retirement, as my Big Mama did. If you’re finding that your mortgage is causing you to live beyond your means, there’s always the option of downsizing your home. Most people make a lot less when they retire and if your sole income source is 401 (k) or social security, all of that money is still taxable at regular income rates. Some people may have chosen to be in this position, rather than being desperately short of cash. I frequently have clients who tell me they are paying off their mortgage no matter what and there is nothing I can say to change their minds. 'https://voicebanners.creativecirclemedia.com/www/delivery/ajs.php':'http://voicebanners.creativecirclemedia.com/www/delivery/ajs.php'); The bottom line here is that in today’s environment, with low interest rates, it’s OK to have a mortgage. If you have considerable retirement savings as well as other sources of reliable retirement income that will cover your expenses including any debt, then carrying a mortgage, for instance, may not be an issue. How Much Do I Need to Save for Retirement? Regardless, make sure you retain an emergency fund in retirement. If you read the headline of this article, you will assume that my answer is to always have a mortgage, but as you might imagine, life isn’t that cut and dry. The best advice is probably to start planning early and try to live within your means. The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. June 11, 2013 at 11:18 am. That’s a tax deduction, meaning if that couple makes $75,000 a year and they take a $10,000 tax deduction, they don’t pay taxes on $75,000. if (document.MAX_used != ',') document.write ("&exclude=" + document.MAX_used); You are earning a net 3% in that scenario. I am frequently asked whether a mortgage should be paid off before retirement or if it’s OK to have a mortgage into retirement. Qualify the type of debt you have Total debt is important, but so is the type of debt you have. Most of my clients come from the generation when their parents told them to be debt-free as soon as possible and to never have a mortgage in retirement. }console.log("Calling zone: " + zoneId); If you’re struggling to pay your monthly bills, it may be in your best interest to pay off your mortgage as soon as you are able and before you retire. Whether to carry mortgage debt into retirement is a perennial hot topic among financial advisers and their clients. This is especially true for those who have significant pensions and Social Security payments in retirement where it’s providing enough income to make the monthly mortgage payments. This does not represent any specific product (and/or service). Paying off your home mortgage before you retire is a major financial achievement, but you don't necessarily have to eliminate all housing debt in order to retire … Welcome to the wonderful world of being debt-free!” It is never a bad decision to pay off your mortgage; however, it may not be the best idea if you plan on taking withdrawals from your retirement or other investment accounts to pay off that mortgage. if (document.mmm_fo) document.write ("&mmm_fo=1"); @@Sparks907, Please log in to comment by clicking here, Rockwell Fitness Builds On Strong Foundation, Why Now Is The Best Time To Consider A Roth IRA, Severna Park Duo Takes Aim And Hits “Bullseye”, Powered by Creative Circle Media Solutions. Home loans tend to be Americans’ largest liabilities, so … As it … Ideally, you could pay off your mortgage and have significant savings remaining. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. According to the Social Security Administration, a typical 65-year … I know you have a better financial future for all your sacrifices and investment endeavor. You can get more details about reverse mortgages at the U.S. Department of Housing and Urban Development website. But Larry Kotlikoff, a professor at Boston University and president of … If you have a $200,000 mortgage at 5%, that would be $10,000. Would you like to submit another request? You can reach Zach at: Just because a bank will loan you X amount, doesn’t mean you should take it. It’s unthinkable nowadays that a 30-year fixed mortgage would be 18%, but that was reality for those in 1981. Still, you have to consider how sustainable that is for your budget. Having a mortgage in retirement may or may not be a danger signal. First you’ll answer a series of questions about your situation and goals. This is also a good time to get a new mortgage. A taxpayer in … A lot of the problems boomers with high mortgage balances are facing could have been avoided with some simple planning. To me, it’s simple: if you have debt of any kind, you keep working until it’s all discharged. Do you add this to your retirement savings when running the retirement calculators. Ultimately, your personal situation will dictate whether it makes sense to carry a mortgage into retirement or not. The bad news: more and more of those homeowners are carrying mortgage debt into retirement, and the amount of debt is rising, too, according to a new report released by the Consumer Financial Protection Bureau. '&charset='+document.characterSet : '')); That would likely be cheaper than the rent you … Obviously, not having any debt in retirement is an advantage and you should strive to be debt-free if possible. Have a question? var m3_r = Math.floor(Math.random()*99999999999); We have a $10,000 tax write-off because we have a $200,000 mortgage at 5%. 410-647-9400 Well, take mortgage debt. The approach one takes to deciding whether to pay off a mortgage or continue one into retirement is different for these two situations, right? A new federal report says one-third of retirees now have a mortgage. If your interest rate is 4% and you are getting a return on investment of 7%, is it prudent to take the money that is earning 7% and pay off the mortgage you are paying 4% on? Yes, you are correct without paying mortgage monthly, you have the peace of mind and worry free. , P.O. By Jason LaBargeManaging Partner, Premier Planning Group. Compare the Top 3 Financial Advisors For You. If you want more personalized advice, consider talking to a financial advisor. And if you have a workplace plan that offers a match, you should most definitely continue to contribute enough to snag the maximum matching contribution. Member FINRA www.finra.org and SIPC www.sipc.org. But having a mortgage in retirement may not be so bad. Is there any reason a person should make it a goal to own property free and clear by the time they retire? If you use your savings to pay off your mortgage, you run the risk of not having enough cash to take care of emergencies that come up.” However, it’s not always a bad idea to dip into your savings to eliminate your mortgage. Anyone who’s seen a housing bubble can attest to that. var width = jQuery(window).width(); A financial advisor will evaluate your complete financial situation and make tailored recommendations. When you sign the dotted line on that 30-year mortgage, you’re probably thinking how great it will be to have that house paid off right around the time you retire. Even though by paying off a mortgage you’ll lose the interest deduction, the peace of mind may be more than worth it. You would not want to find that you can’t afford to pay for an unexpected car or home repair without going into credit card debt because you depleted your savings to pay off your mortgage early. If you pay off your mortgage before retirement, you’ll lose a lot of the deductions associated with owning a house. For instance, refinancing for a longer loan term could yield immediate financial relief in the form of lower payments. Lets say you have a paid off mortgage. When it comes to opining on seniors carrying debt into retirement, I’ll state upfront my personal bias that anyone with credit-card debt — or even mortgage debt — has no business fantasizing about retirement. Most retirees have … We will sell this house and a retirement home in North Florida.The house, we want to buy is $ 500,000. To take it further, let’s say you have a guaranteed investment paying 7% from an investment, such as an annuity. if (!document.MAX_used) document.MAX_used = ','; The average 30-year fixed mortgage in 2010 was 4.750%; that’s a significant difference. By the way, four in 10 households aged 60 to 69 in 2007 have a mortgage and, of those, one in two have enough to pay down their mortgage. For more information about the author, Jason LaBarge, visit his website at www.jasonlabarge.com. }else{ While you may have your retirement fund, you do not want to compromise it if you do not have to. DC @ Young Adult Money says. More than 1 in 4 people in retirement had an outstanding mortgage … Premier Planning Group is an independent firm with securities offered through Summit Brokerage Services Inc. To those people, I say, “Congratulations! But that scenario is changing. They instead pay taxes on $65,000. I would much rather have that money earning 7% then take the money out and pay off a mortgage where I am only paying 4%. But is it really so bad to have a mortgage payment during retirement? If we some of… if (document.referrer) document.write ("&referer=" + escape(document.referrer)); Bank of America® Travel Rewards Visa® Credit Card Review, Capital One® Quicksilver® Cash Rewards Credit Card Review, matching tool like SmartAsset’s SmartAdvisor, 7 Mistakes Everyone Makes When Hiring a Financial Advisor, 20 Questions to Tell If You're Ready to Retire, The Worst Way to Withdraw From Your Retirement Accounts. The Cons of Refinancing a Mortgage in Retirement . It might seem like a mortgage is taboo during retirement but if you’re stuck in this situation, it’s not all that bad. I am frequently asked whether a mortgage should be paid off before retirement or if it’s OK to have a mortgage into retirement. According to an article published on APlaceForMom.com, you can expect to pay $5,000 a month to live in a one-bedroom unit in a retirement community. Some pre-retirees and retirees might be wondering if it makes any sense to pay off the mortgage on their home in the current low-interest environment. Debt that is low-cost and potentially tax-deductible, such as a mortgage or student loans, may actually … Plus some choose to take on second mortgages through the years. I am thinking the mortgage qualifies you for a tax break and frees up your money for other stuff, spending and investing, etc. Refinancing a mortgage in retirement could have some downsides, depending on how you approach it. “If you have a $1,500-per-month mortgage today at the beginning of a 30-year retirement, your payment will still be $1,500 at the end,” he says. It’s important to note that being debt-free should be the goal for everyone in retirement, but for some, it’s just not a possibility and shouldn’t prevent you from retiring. When planning for retirement, the factors you need to consider are your interest rate, the investment’s rate of return, and your income sources. Jim has run his own advisory firm and taught courses on financial planning at DePaul University and William Rainey Harper Community College. If you read the headline of this article, you will assume that my answer is to always have a mortgage, but as you might imagine, life isn’t that cut and dry. Whether you’re approaching retirement or not, it’s never a prudent choice to buy more house than you can afford. zoneId = 'Array'; If you’ve been diligently saving for retirement for decades, it might be worth considering reducing your current contributions to use the money to pay off your mortgage, but only if you are on track with your savings. If you’re younger than 59.5 years, you will incur a 10% … You may prioritize being mortgage free simply so you have one less thing to worry about. zoneId = '2'; Paying off the mortgage is something most homeowners hope and expect to do by mid-life. By downsizing, you can effectively reduce your mortgage payment to something more manageable and still be comfortable. No money:If you need to dip into your retirement savings to get rid of your mortgage, maybe it’s best to skip paying it off for now. document.write ('&cb=' + m3_r); Realistically, many retirees will have more than the mortgage payment on the debt side of the equation and taxes to consider. “You need to have a certain amount of liquid cash on hand in retirement. But most people don’t live in the same house for 30 years like they used to. There’s no single reason behind the increase, but there are definitely a couple major factors that played an important role. 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