I am 64 years old and preparing to retire in a year. I’m in debt about $165,000 on my home with no other debt. I have nearly $850,000 in retirement savings, $2,200 a month from a pension, about $2,300 a month in Social Security benefits, and $300 a month from my ex-wife’s pension. I also ride Uber for about $1,500 a month.
Does it make sense to pay off my house when I retire?
See: I’m 67 and Retired with $57,000 Left on My Mortgage and $600,000 Saved for Retirement: Should I Pay for My House Now?
Ask one of the most common questions we get at MarketWatch about retirement savings and spending: whether it makes sense to pay off a mortgage before retirement.
The answer is, as you may have suspected: it depends. This situation is highly personal to the individual. Some people have absolutely no problem retiring with a mortgage, while others are stressed about having this debt on their heads when they leave the workforce.
What you need to do before you can even answer this question is write down every single expense you anticipate having in retirement and add a little extra pillow for what you don’t expect. (You should aim to have an emergency savings fund that is easily accessible in case of an emergency… maybe six months of expenses would be fine, although some retirees like to be more cautious and have a full year in a bank account.) When listing your expenses, include everything: larger bills, such as mortgage, taxes, utilities, groceries, gas for the car, medical needs, as well as smaller, more flexible expenses, such as vacations , gifts for loved ones, hobbies, entertainment, TV and magazine subscriptions, pet care, and so on.
Compare your spending to your income, but don’t include your Uber earnings (or any other earnings you may have). How do you feel about it? It’s too tight? More than enough? This can help you decide if you want your mortgage payment to be included in the list.
See also: I have a $250,000 mortgage, with 24 years left on the loan. Do I have to sell stock to pay off the mortgage before I retire in a few years?
Also determine if paying it off upfront will require you to keep working a little longer and if you’re interested in doing so. You probably don’t want to dip into your $850,000 to pay off the mortgage, as that would leave you with less than $700,000. You should have as much in your retirement savings as possible before you retire. It may sound cliché, but advisors aren’t wrong when they say you can borrow for a home or an education but not for retirement. On the other hand, if you keep paying your mortgage for the next few years, and when you can even pay a little extra to the principal, you’ll end up with “bonus” money when you’re already retired and have all that extra money.
This only works if you can financially afford the mortgage in retirement and are emotionally comfortable doing so. If the idea of having this account retiring when you lose some of your income gives you stress, and maybe even keeps you up at night, it won’t do you any good. If so, I’d suggest trying to strike some sort of balance and reaching out to a qualified financial planner to help dig into the details of your financial plan and help you sort it out.
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