Should I Pay Off My Mortgage Before Retirement?

As many Americans are either approaching retirement age or beginning to plan for their eventual retirement, there are is one main factor that controls most of the questions they may have – money. While the questions are numerous, one that we at Accunet hear all the time is whether folks should pay off their mortgage before retirement.

Unfortunately, this is not an easy question to answer and ultimately will need to be reviewed on a case-by-case basis. That said, there are important considerations to make when deciding if paying off your mortgage is the right move prior to retirement.

Are you planning to sell your home in the near future?retirement

This is a quick and fairly simple question to answer. If you aren’t looking to stay in your home for long, then it doesn’t make a lot of sense to pay off a mortgage that will be leaving you once you close.

Have you paid off other high-interest debt?

If you have outstanding credit card, auto or personal loans out there with higher interest rates, then it is advised to take care of those debts before you decide to pay off your low-interest mortgage, especially when mortgage rates have been so low.

Do you have a healthy cash-reserve or emergency fund?

This is an important one. While it may seem like a weight off your shoulders to get rid of your mortgage before retirement, it’s important to reflect on where that money came from. If it comes from a surplus of liquid cash, then great. But if you had to reach into your tax-deferred retirement fund or other similar investment funds, you need to remember that will be taxed as income. Additionally, that is taking away from money that you may need to count on during retirement for medical costs among other emergencies that life seems to throw at us.

Are you making your decision based on emotion?

In theory, paying off your mortgage is a big step toward reducing your financial risk once you hit retirement. It can be a strong emotional pull since there is a sense of comfort in taking away one of your largest, if not the largest debt you have. For some folks this can certainly be the case, but not everyone has the cash-reserves available to make it worthwhile. Conversely, it may actually increase future risk since draining retirement funds, for instance, can lead to future issues when unexpected costs come your way. It’s important to realize what seems comforting now can come back to haunt you later if you’re not prepared.

In the end, it will be up to each individual’s financial status that will determine whether or not paying off their mortgage before retirement is in their best interest. In a perfect world, yes it would be great if everyone could pay off all their debts before retirement. But we don’t live in a perfect world, and we need to be ready for the unexpected. So consulting a financial advisor and mortgage experts, like those at Accunet, should be the first move before making a financial decision that could affect your financial stability through your golden years.