Retirees, What You Need To Know About Your Mortgage


Mortgage debt is a topic on the minds of many retirees. A survey by a national mortgage banker, American Financing, found that 44 percent of Americans age 60-70 have a mortgage when they retire. More interesting still, that survey found that 17 percent of participants feel that they may never be able to pay it off. 

Retirement is an important phase in your life, one that if possible should be free of debt, including mortgage debt. But with so many retirees retaining their mortgages in retirement, how can you plan to pay it off before you get there? I’d like to discuss the importance of prioritizing debt repayment prior to retiring and solutions to help you get there. 

Why It’s Better To Pay It Off

Many financial advisors can agree that when possible it is best to pay off your mortgage before retirement and this is due to multiple factors. 

The first being taxes. There is a tax incentive for mortgage interest but with the new Tax Cuts and Jobs Act, many households are unable to itemize their deductions, lowering the number of households from 32 million in 2017 to 14 million in 2018. With the standard deduction nearly doubled, many families wouldn’t be able to participate in the itemized mortgage deduction. Another issue for retirees is that the majority of their payment is principal as opposed to the interest which also limits the possible tax benefit. 

Another obstacle is changing cash flow in retirement. Retirees need to prepare for the different streams of income and how it will impact their monthly spending. Factors such as part-time work, retirement accounts, Social Security, pensions, annuities, and personal savings are all items to help supplement your retirement income. How much can you expect these different income streams to generate each month? The number may be lower than when you were working full time, making your mortgage payment an additional burden for your retirement budget. 

For many retirees who wish to pay off their mortgage, they must withdraw more money from their retirement accounts (401k, IRA), triggering a higher tax bill

It is also important to remember that the impact of debt is more than just financial—it is emotional too. The emotional burden of debt in retirement can impact your lifestyle and may not allow you to do the things you want to do when you retire. Your lifestyle is one of the determining factors for happiness in retirement. If a mortgage payment will drastically hinder your ideal retirement lifestyle, consider making it a priority to pay it off.

Even though it is preferred, many households struggle with paying off their mortgage before retirement. It is also important to take caution that in an effort to pay off your mortgage before you retire that you don’t sell off too many assets to do so. This can limit the amount of money you have for emergencies or other living expenses. Remember, balance is key. 

What To Do If You Can’t

Paying off your mortgage before retirement can lead to many benefits, but it isn’t always feasible. The Federal Reserve’s survey of consumer finances mirrors the study above by finding that about 35 percent of new retirees (age 65-74) have a mortgage payment.  If you can’t eliminate your mortgage debt, here are some moves you can consider making. 

  • Consider refinancing
    • It is a more streamlined process to refinance your mortgage before you retire than after, so if you know you won’t be able to have it all paid off, consider ways to decrease the debt.
  • Downsize
    • Many retirees downsize. It can be a great way to get rid of your mortgage (should you sell at a profit) and decrease your living expenses. 
  • Reduce the mortgage
    • If you can’t pay it off completely, then do what you can to reduce the mortgage so you aren’t paying it off throughout your entire retirement. Allocate more money to the payments so you can chip away at it a little faster. 

Talk With A Financial Advisor

Retirement is a time in your life that should be dedicated to you. Your mortgage debt could stand in the way of you having enough income to live the life you want and deserve in retirement. 

But as we know, paying it off in full is a difficult task. It is our goal at Retire To, that you have an expert to help guide you in your retirement planning to ensure you can live the life you want. Debt can be a huge roadblock to your success and wellbeing, especially in retirement. We would love to work with you to help you live the retirement lifestyle you have always imagined. Give us a call, and we can get you on the right track. 

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