Conventional wisdom says that you should pay off your mortgage when you retire. But what if you can’t afford to do that? It can be scary to retire with mortgage payments looming over your head.


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In 1989, 26.4 percent of all households retired with a mortgage, according to statistics from the Federal Reserve’s Survey of Consumer Finances. In 2007, just before the recession, that increased to 46.5 percent.

Deciding whether to retire with a mortgage really depends on your personal circumstances. You have to take into account your tax situation, how long you think you’ll continue living in the house, and your retirement security among other factors.  Here are a few questions you should ask yourself when contemplating retiring with a mortgage:

What is your tax situation?

Are you in a high tax bracket and do you have a relatively high mortgage? It might make sense to keep your mortgage in retirement rather than get bumped up to a higher tax bracket. Also, does your way of paying off a mortgage include a 401(k) plan or other tax-advantaged account? If so, keep the mortgage because you’ll have to pay income taxes on those withdrawals, which could push you into a higher tax bracket.

How long will you stay in the house?

If you are going to sell your house in retirement and move to Florida in a few years, you can pay off the mortgage at that time. Keeping the mortgage for now will give you some flexibility.

What’s your medical situation?

If you anticipate having high medical expenses in the future you might want to consider keeping your mortgage. Fidelity estimates retirees will need $220,000 for medical expenses in retirement. If you can’t increase your income in retirement you’ll have to tap into your assets, which is easier to do when you’re still paying your mortgage.

What’s your future cash flow going to look like?

If you’re planning to live on some of your home equity at the beginning of your retirement, then you should try to stretch out the mortgage. Because once you pay off your mortgage, you’ll be faced with more expensive alternatives if you want to take money out.

How are your other investments doing?

Compare the rate of return on your investments to your mortgage interest rate. Are you doing better than your mortgage rate with your investments? If so, you might consider using those dollars to pay off low interest rate debt.

Are you already maxing out your retirement savings?

If you’re spending more of your income to pay off your mortgage rather than maximizing your retirement savings, stop. That money would be much better spent matching your company’s 401(k) contribution.

What will give you peace of mind?

If you are the type of person who can’t stand having debt of any sort, then pay off your mortgage. When you’re in retirement you want to enjoy life and have peace of mind, so choose the option that will help you sleep at night.

Before you make any big decisions about your home or retirement, you might also want to consider consulting with a certified financial planner who can help you make the best choices based on your circumstances. The last thing you want to do is make an irreversible decision that will affect your financial future in retirement.


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