Paying Off The Mortgage

PAYING OFF THE MORTGAGE

You’ve probably asked – should I pay off my mortgage? 

Advice from one corner will say - no!  If you have a low interest mortgage, and the interest is tax deductible, couldn’t you make more by investing the money?

Advice from another will say - yes!  Get rid of all debt, including your mortgage, before retirement.

Consider this:  you may be able to borrow money at a fixed rate of 4%.  You may be able to deduct that interest (though with the new standard deduction for federal income tax raised to $24,000 for a married couple, it won’t be easy).  Since 1965, the S&P 500 has produced total returns (including dividends) of 9.7% annualized.  4% vs. 9.7%?  This doesn’t sounds like a difficult decision!

But that is just too simplistic.  It takes a lot of money to make a mortgage payment in retirement.  If you take 4% annually from an investment account, you will need $600,000 just to make a monthly mortgage payment of $2,000.  If that’s coming from a retirement account, the withdrawals will be taxed. Pay tax to save tax? However, if you have a pension, and that combined with your social security payment is enough to cover your retirement needs– and your mortgage – this might make sense for you.

So, the best advice is – it depends.  Your personal financial situation and retirement goals hold the answer to the best option for you. 

There are many variables in planning for your unique retirement.  A financial plan will allow you to look at the potential outcomes of multiple scenarios, including if to pay for the mortgage or not, taking these variables into consideration.  In this way, you can be confident in your decision rather than figuring out who to believe.  I encourage you to plan today!