And, of course, while interest rates are rising, they are still low by historical standards. 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. The countdown to retirement is on for millions of baby boomers and, thanks to a lifetime of diligent saving, some have amassed enough wealth to pay off their mortgages and live debt free. If you’re not sure you have enough stashed away, consult a financial adviser. president of Transamerica Center for Retirement Studies, a division of Transamerica Institute, a nonprofit private foundation funded by Transamerica Life Insurance Co. “Every case is a little different.”. Get a weekly briefing on news, trends, insights, deals and personalities with our brand-new newsletter. Mortgage rates are super low so borrowing is cheap so why rush it; … March 3, 2020 — 12.00am. Through its research, education, and public outreach programs, the Center helps leaders in government, business, and the civic sectors make decisions that effectively address the needs of cities and communities. Baby boomers as a generation have tended to be less debt-averse than their Depression-scarred parents, says If you've got all the money you need for retirement, you've got a big pension or you've got a big 401K balance, and you're set for retirement, then sure, you may want to think about paying off that mortgage. More than 40% of homeowners 65 and older had mortgage debt on their primary residences in 2016, up from 22% in 1995, according to a recent Wall Street Journal article. So how should homeowners approaching retirement evaluate whether to pay off their mortgages? The rule is simple and powerful: If you can pay off your mortgage with no more than one-third of your non-retirement savings, you should consider doing so. When you were working, the tax deduction you got from your mortgage was a good deal: In essence, the government subsidized your mortgage payment. Conventional wisdom says homeowners should pay off their mortgage before they retire so they do not have to make a large monthly payment on a smaller income. Save. Paying off a mortgage can be smart for retirees or those just about to retire who are in a lower-income bracket, have a high-interest mortgage, and don't benefit from tax-deductible interest. My interest rate is 3.75 percent. But many would have to take a sizeable chunk of those assets, which could leave them short of cash for emergencies or future living expenses. But this scenario is no longer the norm. However, if your retirement plans are not fully funded or you lack sufficient savings or emergency funds, keep that cash in the bank and leave the mortgage as is. Paying off the mortgage after 30 years followed by retirement used to be a rite of passage for many. But rushing to pay off those mortgages may not be a good idea, either. When Retirees Should Not Pay Off Their Mortgages Posted . There is a cadence to paying off debt. Jennifer Molinsky, Ph.D. Our expenses before the pandemic were just covered […] If you’re younger than 59.5 years, you will incur a 10% e… Baby boomers are swelling the ranks of retirees, and more older homeowners are carrying mortgage debt than in the past. But rushing to pay off those mortgages may not be a good idea, either. But another possibility may be to take larger distributions from your retirement accounts over the next few years — just not to the tune of $175,000 all at once. How to Keep Your Art Safe From Damage, Both Natural and Man-made, Virgin vs. Hyperloop TT: The Race to Make Musk’s Moonshot a Reality, House Delivers Article of Impeachment Against Trump to Senate, China’s Comac Aims to Rival Boeing and Airbus in the World’s Biggest Market, The Science Behind How the Coronavirus Affects the Brain. However, not all living situations end up like this. This is sponsored content for MLC. The answer is no.” That’s because you may be subject to a tax penalty of 10% for early withdrawal if you take funds out of an IRA to pay off your mortgage before you turn 59½. It does not apply to retirement accounts such as IRAs or 401(k) plans. Jamie Hopkins, Want more real estate? A: Ideally, retirees should strive to have their debts paid off by retirement. Some people have enough money in savings, investments or retirement funds to pay off their loans. Here’s What We Know. “It’s absolutely imperative to run the numbers,” says A lot of folks are working longer into their golden years because of the mortgage. The median outstanding mortgage balance for a 50- to 69- … And, of course, you’ll be depleting your retirement fund. Cons to Paying Off the Mortgage Before Retirement. In a perfect world, homeowners would have their mortgage paid off long before they hit retirement age. Is a mortgage-free retirement for you, or … After retirement… Some people have enough money in savings, investments or retirement funds to pay off their loans. Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. You may be able to lock in a lower interest rate. In Reality, It’s Much Harder. But paying off the mortgage isn’t always the best strategy. So, it appears that at least half of future retirees plan to have no mortgage in retirement. That can result in higher taxes and less reserves for retirees. Sometimes, it’s better to keep that money in the bank for other purposes, such as building retirement savings or paying down higher-interest debt. The analysis depends on the terms of your mortgage, the amount of your savings, and your expected retirement income. Catherine Collinson, Becoming a Landlord Looks Good on Paper. But paying off the mortgage isn’t always the best strategy. While it’s not a bad idea to use low-earning savings to pay off a higher-interest mortgage, that only applies if you have more than you need for retirement and emergencies. “The fact that so few people have a written financial strategy is quite alarming,” Ms. Collinson says. When Retirees Should Not Pay Off Their Mortgages. Other Debt. Many homeowners dream of hosting a “mortgage-burning” party as they approach retirement. Why more retirees are still paying off mortgages. Dear Penny, My husband and I are in our mid-70s and retired. Although homeowners will, and should, continue to aspire to pay off their mortgage before retirement, the reality for many could mean having a mortgage for longer. Some retirees find they still need to make a mortgage payment out of necessity, perhaps relocating in order to be closer to their grandkids or family. Pay off the mortgage or not: a guide for retirees Retiring a mortgage before you retire isn't always possible. If you plan to live in your home for a while or to age in place, then paying off your mortgage can bring peace of mind. But this state of affairs is now not the norm. Many homeowners dream of hosting a “mortgage-burning” party as they approach retirement. Among all homeowners, about 25% have no mortgage debt, and another 28% say they expect their mortgages to be paid in full within 10 years. “Most people are better off saving in a tax-deferred vehicle, such as an IRA or 401(k),” Mr. Hopkins says. For example, you could aim to pay off your mortgage in the next three or four years and take money out of your retirement accordingly. Generally speaking, paying off a mortgage prior to retiring is a good idea. With all the volatility, we’re not sure what it is precisely today, but as of a couple of weeks ago, we hadn’t lost much value. But many would have to take a sizeable chunk of those assets, which could leave them short of cash for emergencies or future living expenses. 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