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. 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. Baby boomers are swelling the ranks of retirees, and more older homeowners are carrying mortgage debt than in the past. But paying off the mortgage isn’t always the best strategy. Jennifer Molinsky, Ph.D. The analysis depends on the terms of your mortgage, the amount of your savings, and your expected retirement income. 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. After retirement… So how should homeowners approaching retirement evaluate whether to pay off their mortgages? By Sam Powell. Today, 39% of those over 65 have mortgages compared to 28% who had the loans 16 years ago. However, not all living situations end up like this. , a senior research associate at the Joint Center. In other cases, paying off a mortgage makes sense, especially when you have ample retirement savings and plan to stay in the home for a while. Target coupon - 60% off Valentine's Day greeting cards, Macy's coupon - Sign up to get 25% off next order, Nike promo: Military members save 20% off, Beddings and bath linen: Extra 10% off with Home Depot coupon, News Corp is a network of leading companies in the worlds of diversified media, news, education, and information services. “The tax deductions are better that way too.” Here are some things to consider if you’re about to retire and still have a mortgage: According to the Transamerica Center for Retirement Studies, only 11% of workers over age 65 have a written strategy or financial plan for retirement. Cons to Paying Off the Mortgage Before Retirement. The Coronavirus Is Mutating. 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. But rushing to pay off those mortgages may not be a good idea, either. • Meanwhile, most Boomers who currently own their own houses still owe money on those homes. “Most Americans generate their income in retirement from social security, a 401(k) or IRA,” Mr. Hopkins says. When Retirees Should Not Pay Off Their Mortgages Posted . If you’d like to reduce your mortgage payment, but not pay off the mortgage entirely, you can lower your monthly payments by refinancing and extending the life of the loan. Want more real estate? But there are still a few pitfalls to be aware of. First, you will want to pay off other debt that has … “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. Many homeowners dream of hosting a “mortgage-burning” party as they approach retirement. By Robyn A. Friedman of the Wall Street Journal . For real numbers, say you owe $50,000 and have $160,000 in savings. “Holding debt in the 1980s when rates were in the teens is a lot different than holding it now,” Ms. Molinsky says. And, of course, while interest rates are rising, they are still low by historical standards. But this scenario is no longer the norm. An increasing number of Americans are facing decisions about what to do with their mortgages as they retire. “Should we be taking large withdrawals from them to pay down a mortgage? 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 state of affairs is now not the norm. 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. When Retirees Should Not Pay Off Their Mortgages Baby boomers are swelling the ranks of retirees, and more are carrying mortgage debt than in the past. If you withdraw $60,000 from your IRA to pay off your mortgage, … Baby boomers as a generation have tended to be less debt-averse than their Depression-scarred parents, says Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. Is a mortgage-free retirement for you, or … In a perfect world, homeowners would have their mortgage paid off long before they hit retirement age. Some people have enough money in savings, investments or retirement funds to pay off their loans. That can result in higher taxes and less reserves for retirees. Which group should you be in? Those who do not have their mortgage paid off yet sometimes have to dip into their investments to make their payments. Practically, I can appreciate that doesn’t always happen due to a variety of factors. Paying off the mortgage after 30 years followed by retirement used to be a rite of passage for many. We had about $500,000 in retirement savings before the pandemic. Why Retirees May Have a Mortgage. Withdrawing funds early from your retirement savings accounts can be costly. Mortgage rates are super low so borrowing is cheap so why rush it; … That’s especially true if the interest rate on your mortgage is much higher than the return you’re getting on your investments. March 3, 2020 — 12.00am. For example, if you’re investing in certificates of deposit earning an interest rate of 2%, it makes more sense to use that money to pay off your mortgage if the interest rate is higher, Mr. Hopkins says. Other Debt. If you’re not sure you have enough stashed away, consult a financial adviser. Save. “Most people are better off saving in a tax-deferred vehicle, such as an IRA or 401(k),” Mr. Hopkins says. Some people have enough money in savings, investments or retirement funds to pay off their loans. Otherwise, you risk outliving your savings. 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. Financial planners recommend creating a Plan … In Reality, It’s Much Harder. Aside from just paying off your existing loan, … This is sponsored content for MLC. Paying off the mortgage after 30 years adopted by retirement was a ceremony of passage for a lot of. In other cases, paying off a mortgage makes sense, especially when you have ample retirement savings and plan to stay in the home for a while. So how should homeowners approaching retirement evaluate whether to pay off their mortgages? When you were working, the tax deduction you got from your mortgage was a good deal: In essence, the government subsidized your mortgage payment. Many homeowners dream of hosting a “mortgage-burning” party as they approach retirement. But Paying off the mortgage isn’t always the best strategy. 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. If your money is sitting in CDs, earning 1% and you're paying a 4% mortgage, that may not … 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. 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. It does not apply to retirement accounts such as IRAs or 401(k) plans. Pay off the mortgage or not: a guide for retirees Retiring a mortgage before you retire isn't always possible. 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. Many homeowners dream of hosting a “mortgage-burning” party as they approach retirement. Being debt-free as you start retirement can make the transition to a fixed-income much smoother. https://www.wsj.com/articles/when-retirees-should-not-pay-off-their-mortgages-1534257060. Don’t make yourself poorer. 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. For instance, if you withdraw around $70,000 from your retirement account to pay off the mortgage, you might end up with less than $60,000 after taxes. Get a weekly briefing on news, trends, insights, deals and personalities with our brand-new newsletter. Our expenses before the pandemic were just covered […] Becoming a Landlord Looks Good on Paper. 87990cbe856818d5eddac44c7b1cdeb8, Copyright © 2021 Dow Jones & Company, Inc. All Rights Reserved. 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.”. But paying off the mortgage isn’t always the best strategy. If you’re younger than 59.5 years, you will incur a 10% e… “There are benefits because it does help with cash flow.”. But rushing to pay off those mortgages may not be a good idea, either. Here’s What We Know. The Harvard Joint Center for Housing Studies advances understanding of housing issues and informs policy. Why You Should Pay Off Your Mortgage. Experts point to several considerations. Let’s say you’re about to retire with $200,000 still owing on your home and you have $300,000 in super. Unless you want to delay your retirement, one way to eliminate debt is to take some of your super savings as a lump sum and use it to pay off your mortgage. This is ideal, as a hefty monthly mortgage payment can take a sizable chunk out of a fixed income. The change has happened for a number of reasons, experts say. Why more retirees are still paying off mortgages. 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. DON’T MAKE YOURSELF POORER. Subscribe here. Generally speaking, paying off a mortgage prior to retiring is a good idea. How can downsizing help cut down on mortgage debt? 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. 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. Yet, some retirees might find it more beneficial to keep making that mortgage payment. There is a cadence to paying off debt. When Retirees Should Not Pay Off Their Mortgages. Dear Penny, My husband and I are in our mid-70s and retired. “If you’re able to afford to pay off the mortgage, and you’ll have all the retirement assets you’ll need, you might just feel better paying off the mortgage, and that’s OK,” says Baby Boomers, Americans born between 1946 and 1965, are carrying extra mortgage debt than earlier generations at … The reader asked: “I’ve heard some folks say that you shouldn’t pay off the mortgage early if the interest rate for the mortgage is low. “Once you enter retirement, if you find out you don’t have the income you expected or have some surprise financial shock, it’s extremely difficult to get back into the workforce.” A written financial plan for retirement is like a reality check to ensure you’re financially ready to retire. But paying off the mortgage isn’t always the best strategy. It might not make any sense to pay off your mortgage from your retirement accounts. 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. Many homeowners dream of hosting a “mortgage-burning” party as they approach retirement. director of the Retirement Income Program at the American College of Financial Services. “It’s absolutely imperative to run the numbers,” says The analysis depends on the terms of your mortgage, the amount of your savings, and your... © 2021 Harvard Joint Center for Housing Studies, https://www.wsj.com/articles/when-retirees-should-not-pay-off-their-mortgages-1534257060?tesla=y. 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. Drawbacks of paying off your mortgage before retirement. Jamie Hopkins, Pay it off and you can take the day, week, and next decade off. I don’t teach people to put less than 15% of their income into retirement in order to pay off the house a little earlier. 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. “The fact that so few people have a written financial strategy is quite alarming,” Ms. Collinson says. My interest rate is 3.75 percent. 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. Regardless of the reason for a … A: Ideally, retirees should strive to have their debts paid off by retirement. Catherine Collinson, So, it appears that at least half of future retirees plan to have no mortgage in retirement. You’ve got offense and defense to think about, Callen. Through graduate and executive courses, as well as fellowships and internship opportunities, the Center also trains and inspires the next generation of housing leaders. Experts point … 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. You may be able to lock in a lower interest rate. And, of course, you’ll be depleting your retirement fund. Study Concludes Most Retirees Should Pay Off Their Mortgage . Paul Cordero, a financial adviser in San Rafael, Calif., often thinks about his parents, who bought their home in the 1970s and were determined to pay off their mortgage as fast as possible. 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