25% of Americans who consider themselves retired continue to pay a mortgage. As retirement approaches, eliminating a house payment can seem like an obvious goal. But is paying off a mortgage the right answer? It depends.
Daly Andersson with Busey Wealth Management breaks down the numbers.
Facts & Statistics (Source: Federal Reserve Survey of Consumer Finances):
32% of households ages 65-74 carry home mortgage debt
Nearly 20% of households ages 75 or older has a mortgage
As you head down the road toward retirement, this is a common question among homeowners.
Your two options (keep in mind the right decision depends on your personal financial situation):
Keep the mortgage?
Benefits: Your retirement savings remains intact, as does the tax deduction that comes from your monthly payment.
Downsides: You have the pressure of a monthly payment in retirement and you will leave a financial burden for your heirs.
When to keep your mortgage:
You plan to sell your home soon.
You have a large mortgage but little equity.
You have higher interest debt than your mortgage.
You would have to pull money from your 401(k).
You have recently refinanced.
You would have to reduce or stop 401(k) contributions.
Pay off the house?
Experts advise not paying off your mortgage if it requires dipping into your 401(k) or reducing your retirement contributions.
You may end up paying or losing more than you save—when you consider taxation at your highest tax bracket.
Plus, you could lose your employer’s matching contribution.
If you’re intent to pay off your mortgage but can’t make it happen right away without leveraging your 401(k), consider making extra payments instead.
You’ll shorten the term of your mortgage without penalizing your retirement fund.
When to pay off your mortgage:
You have enough money in taxable accounts to cover it.
You will live on significantly reduced income in retirement.
You aren’t itemizing taxes (and won’t get a deduction).
You want the peace of mind.
You don’t want to leave your family with debt.
You can add an extra monthly payment without sacrificing savings.
Above all else, consider the tax implications before making a decision on ending your mortgage.