We hear it all the time, but most people want to be debt free when they retire. It’s all about peace of mind and freedom from financial obligations. But mortgages are considered “good debt,” and if you can afford the payments, there’s good reason to keep them after you retire. (Especially when using money that can be saved or put into savings to pay off debts.)
Let’s find out:
1. You can often put your money to better use by investing instead of paying off your mortgage
Most long-term homeowners have been able to refinance their mortgages to ridiculously low interest rates. It is worth doing the math to determine the economic pros and cons.
please think about it. If your mortgage is at 3% and you think your investment will increase by 6%, you might be better off growing your portfolio while continuing to make your mortgage payments.
Don’t trust the simple example above. Run scenarios in NewRetirement Planner with your own financial data.
If you currently have a mortgage, try the following:
- Start by duplicating the baseline scenario and creating a “mortgage free” scenario. (Go to Scenario Manager.)
- In the “No Mortgage” scenario, either pay off your mortgage early (increase your monthly payments on the Real Estate page) or pay off your mortgage in full (you do this on the Money Flow page in the Transfers section).
- If you’re accelerating payments, be sure to reflect if less money is being put into savings. If you make a lump sum payment, you can specify which account to use to pay off your mortgage.
- Use scenario comparison to assess savings value, tax impact, cash flow, longevity net worth, and other metrics for two different plans.
Having different types of money and financial tools available is good. Post-tax, pre-tax, and even debt. Debt is a financial tool, a lever you can use to move forward financially.
Mortgages or debts to fund real estate investments are generally considered “good debts”. We invest in tangible assets that are typically available at low interest rates and have low depreciation potential.
Using debt usually gives you more financial flexibility. More savings are available for emergencies and other spending needs. On the other hand, once you pay off your mortgage, those funds are no longer available. Even if you own the property, you cannot use the funds for other purposes unless you sell or secure a home equity loan.
Taxes can be complicated, but it’s worth considering the tax implications associated with paying off a mortgage.
The Tax Cuts and Jobs Act of 2017 changed the rules for the mortgage interest tax deduction. Many people cannot always deduct mortgage interest due to the higher standard deductions. Also, if the deduction amount is insufficient, it cannot be itemized.
However, most people can get a tax deduction for putting money in a retirement account. By not paying off the mortgage, he can keep the money in his 401(k), 403(b), IRA, and pay less taxes.
Most of the time, if you have to make a trade-off between saving more and paying off debt, the math could show that saving and investing more will make you wealthier.
However, most people want the freedom and peace of mind of being debt-free promises, so they go to great lengths to pay off their mortgages before retirement.
There is no correct financial answer. just what is right for you. Need a mathematical or emotional decision?
Note: More and more Americans have a mortgage when they reach retirement age.recently data A study by the Center for Shared Housing Research at Harvard University found that 46% of homeowners between the ages of 65 and 79 still haven’t paid off their mortgage. Thirty years ago, this figure was just 24%.
