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#5 of Series

I’m nearing retirement, should I pay-off my mortgage?

If I buy a new house, should I finance it?

As with many questions regarding finances and retirement, whether to have a mortgage in retirement depends on your situation. Being debt free in retirement can bring additional “peace of mind” and could be more than just a mathematical decision. It has been my experience that often retirees who are mortgage free can weather unexpected expenses as well as market volatility with more confidence. Without debt, you might be able to have a portfolio with more equity exposure and thus higher expected returns (albeit with additional risk). However, being mortgage free may not be feasible for everyone.

If you are nearing retirement, there are several factors to consider when considering paying off your mortgage or financing a new home purchase.

  1. Income: How is your income in retirement structured? If you have high pension income and Social Security income, your mortgage payment may easily continue to be covered in retirement. With those income sources, you may also qualify for a mortgage in retirement.

  2. Balance sheet: Your financial resources and how they are structured may impact your ability and decision regarding a mortgage. If your financial resources are not sufficient to pay down the mortgage or purchase a home without one, then focus on the appropriate mortgage product for your circumstance. If you have substantial financial resources but they are all in tax deferred accounts such as IRAs and 401ks, the tax impact of pulling a large amount out may not make this a prudent option.

  3. Other considerations are current interest rates and how long will you stay in a house. If you have a low interest rate and can support the monthly payments, keeping the mortgage as is may make sense. A low fixed interest rate mortgage on a home might also be a reasonable inflation “hedge”. In an environment with higher mortgage rates, financing a new home may have a bigger impact on your long-term financial stability. If you are planning on moving in the near term, it may be better to wait on paying off the mortgage till there is clarity on the financial impact of the new home.

Should you have a mortgage in retirement? It depends! A qualified financial advisor may be able to help. We encourage you to find a guide.

Important disclosures here:

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