When planning your retirement, you may wonder what to do about your mortgage. In January, 2014, an article appeared in Forbes Magazine in which the author advised not paying off your mortgage before retirement. I disagree. In the long run, you’ll do better by paying off your mortgage before you’re living on a pension.
Here’s why:
Ditch the debt
The article argues that since mortgage interest rates are currently low, it’s better to pay 
off higher interest rate loans instead. While paying off higher interest debt before lower interest debt is a reasonable strategy, the argument falls short, since it implies that it’s ok to still have debt once you retire.
It’s a good idea to eliminate all debt before you live on the fixed income of retirement. If you have trouble making ends meet now, how will you do it on an income that is a fraction of your current income? Also, without a job, you lose not only your steady paycheck but the possibility of bonuses and raises. When you are working there is a chance that you can take out a loan (if needed), but what bank would lend money to someone without a steady income?
Don’t spend your retirement savings on paying off the mortgage
The author of the article claimed that another reason not to pay off the mortgage is that you may end up taking money from your retirement savings for this purpose if you find your current payments a little high. I agree with not withdrawing money from retirement accounts until retiring, but there are other ways of finding money to meet increased monthly mortgage payments. There is always the possibility of earning more (second job, increased hours, etc.) or spending less. No matter how difficult scrambling to pay off a mortgage before retirement is, it will nearly always be easier than paying off a mortgage while you are living on pension payments.
There are many steps you can take to prepare for a secure retirement. But one of the most important ones is making sure that you are debt free, including your mortgage, before leaving the work world. If you are going to spend your days in the house, make sure you can claim full title to your home.
Douglas Goldstein, CFP®, is an investment advisor and author of Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing.
Douglas Goldstein, CFP®️ is the director of Profile Investment Services, Ltd. www.Profile-Financial.com He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation on how to set up your American assets to meet your financial goals. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.
Published July 21, 2014.