Assuming these are non-Roth accounts, a $175,000 withdrawal will be treated as if you earned $175,000 of ordinary income for the year. While you are working, you can adjust your monthly mortgage payments to pay down more of your loan's principal balance, reducing your mortgage debt at a faster clip. Would it be wise for us to pay off our mortgage now? When it comes to opining on seniors carrying debt into retirement, I’ll state upfront my personal bias that anyone with credit-card debt — or even mortgage debt — has no business fantasizing about retirement. I would anticipate in the next few years seeing even a larger percentage of older homeowners entering their retirement years with mortgage debt.". The mortgage is an ARM, with interest at 4.125% and a monthly mortgage payment of $1,457. We are in reasonably good health and quite active in community and religious groups. For retirement distributions, fixed payments related to paying off debt create a strain for retirees due to the … Older homeowners are carrying larger amounts of mortgage debt into retirement. "The most recent data we have might have missed some older homeowners in 2010 who refinanced their homes after the mortgage rates came down. There's the good kind … Often, the question of paying off debt comes down to whether you’ll save more in interest than you could earn by keeping the money invested. It's a question that's become more important as a growing number of homeowners enter retirement with large balances remaining on their mortgage loans. Generally speaking, paying off a mortgage prior to retiring is a good idea. Know that you are not alone. This has had a big impact: The Consumer Financial Protection Bureau reported that in 2011, older homeowners with a mortgage spent a median amount of $1,257 a month on housing expenses, while their counterparts with no mortgage spent a median amount of $434 a month on housing-related costs. If you save, invest and eliminate your largest expense — your mortgage — you can live well in retirement, as my Big Mama did. A growing number of homeowners are hitting retirement with a heap of mortgage debt. (It doesn’t sound like you’d qualify for a withdrawal under the temporary CARES Act rules, which let you spread the taxes of withdrawals up to $100,000 over three years if they’re related to coronavirus.). Mortgage debt in retirement presents an additional planning challenge. But based on what you’ve told me, I suspect that the right solution here isn’t the all-or-nothing approach. The idea is that you withdraw about the same amount that your investments are earning so you don’t run out of money during your sunset years. But times are changing. You could also put the money you’re saving while staying at home to knock out extra principal. Still, I understand why paying off your mortgage is appealing. Contact our support if you are suspicious of any fraudulent activities or if you have any questions. Here are seven reasons why NOT paying off your mortgage may be a good financial move at retirement: You have high interest rate debt. AARP says that from 2007 to 2011, more than 1.5 million older Americans lost their homes because of the mortgage crisis. Interest rates have dropped to record lows. I can’t give you a clear-cut answer for a decision as big as this one without knowing more information. But that’s no longer the case. The Consumer Financial Protection Bureau reported in May of 2014 that about 4.4 million retired homeowners had mortgage debt. Mortgage debt is generally considered good debt. With 30-year fixed-rate mortgages below 4.5%, it … Subscribe to our top stories. It buys you certainty at a volatile time. As part of my retirement planning, I’m eyeing my mortgage. We bought our home 10 years ago and have put considerable money into renovating it to be more energy efficient and taking care of long-deferred maintenance. En español | It used to be more the rule than the exception: Older Americans would enter retirement debt free, with no home loans, no car loans, no credit card debt.. Should you carry a balance on your mortgage loan when you reach retirement age? Mortgageloan.com is not a lender or a mortgage broker. Dear Penny: Do I Need My Ex-Husband’s Permission to Get His Social Security? You can pay off your mortgage faster and save on interest, even if you don’t eliminate the entire balance at once. Dear Penny: Can We Afford to Live on Just $65K When My Husband Retires? We had about $500,000 in retirement savings before the pandemic. Payments on another 625,000 of such loans were 90 or more days late. But another possibility may be to take larger distributions from your retirement accounts over the next few years — just not to the tune of $175,000 all at once. A $60,000 mortgage may seem like it needs to be repaid as soon as possible, but considering your monthly retirement income, your wife’s salary, your liquid savings and the retirement … Today, people are increasingly retiring with all sorts of debt … I love the idea of you enjoying a long and active retirement without the burden of a mortgage. If you’re debating between paying off your mortgage, doing a cash-out refinance, or retiring with your existing mortgage, here are a few things to keep in mind: Paying Off Your Mortgage … You might even decide to work part-time after retiring from your full-time job; if you do you can use some of this income to help cover your monthly mortgage payments. However, if your monthly income stream after retirement provides you more than enough money to cover your remaining loan payments, than rushing to pay off your mortgage debt might not make sense. Financial advisors are usually quick to encourage a debt-free retirement, but C. Eric Christiansen, a CFP in Spokane, Wash., admits that’s not always how life works out -- and having a mortgage … Dear Penny: How Do I Save for Retirement With 3 Kids on a Teacher’s Salary. It's possible to handle a mortgage even as you retire, but "your financial objectives always have to be achievable," Mr. Nagy says. If you have the money to do so, paying off the mortgage early will give you more freedom in retirement. But there are still a few pitfalls to be aware of. Mortgageloan.com is not responsible for the accuracy of information or responsible for the accuracy of the rates, APR or loan information posted by brokers, lenders or advertisers. We’d save money, but we’d greatly reduce our RMDs, and we’d pay quite a tax bill when the money comes out of investments. Older homeowners are carrying larger amounts of mortgage debt into retirement. Yet many in their senior years do not, choosing instead to retire with a mortgage. A mortgage-free home is the cornerstone of any solid retirement plan. | Privacy Policy This ratio must be under 28% meaning your housing expense cannot exceed 28% of your income. Don’t Worry: Worry a little less about your mortgage. A report from the Employee Benefit Research Council found that families with heads of households from the ages of 65 to 74 spent 8.6 percent of their income on housing debt payments in 2010. These homeowners might have taken money out during this refinance, making their mortgage debt higher. But what about when you move into retirement? Mortgage Loan Directory and Information, LLC or Mortgageloan.com does not offer loans or mortgages. For starters, you’d be withdrawing more than 35% of your retirement balance in a single year. And not surprisingly, there's no clear answer: Homeowners need to look at their individual financial situations before deciding whether paying off their mortgage loan early makes sense. A report from the Employee Benefit Research Council found that families with heads of households from the ages of 65 to 74 spent 8.6 percent of their income on housing debt … The conventional wisdom is that you should pay off your mortgage before you retire. Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. Trump vs. Biden: 3 Things We Know About Where They Stand on Social Security. "Not only do more older homeowners have a mortgage, but the average mortgage balance has gone up," said Craig Copeland, senior research assistant with the Washington, D.C.-based Employee Benefit Research Institute. Pay your costliest and least beneficial debts first Not all debt is created equal. Home Equity Loan & HELOC Payment Calculator, Coronavirus (COVID-19) & Home Loans Guide, Hacks to pay your mortgage with a credit card, How Marital Status Affects Your Ability to Get a Mortgage, The Ultimate Guide to Student Loans and Scholarships. According to a study by Harvard University, 46 percent of homeowners aged 65–79 had mortgage debt … I think it’s worth the cost to work with a financial planner so that you’re aware of all the consequences of whatever decision you make. It often makes financial sense to not pay off your mortgage before retiring. So your wife is right and wrong about this point. We do not plan to leave this home, except possibly for a nursing home one day (shiver at that thought!). Seniors also have the highest rate of mortgage … And if you lose your home, you're in an especially difficult spot if you're older.". 5 Tips for Retiring a Millionaire From ‘Shark Tank’ Star Kevin O’Leary. Like what you're reading? Copyright © 1995-2021 Mortgage Loan Directory and Information, LLC. If you don't pay it, you lose your home. But don’t start planning a socially distant mortgage burning party just yet There are a few … The proportion of seniors with mortgage debt has almost doubled from 8% to 14% (from 1999 - 2016). Their mortgage debt after you make your monthly mortgage payment direct marketing by or. Towards consumers 're in an especially difficult spot if you don ’ t give you more in! Mortgage now retiring a Millionaire from ‘ Shark Tank ’ Star Kevin O ’ Leary can pay that. Homeowners are hitting retirement with 3 Kids on a Teacher ’ s Salary 2016 ) % annually and. On a Teacher ’ s Permission to Get His Social Security all through your retirement balance in a single.. 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