Wealth Column: Mortgage-free retirement - should it be a priority?
Mortgage-free retirement used to be something of a given.
Your 30-year mortgage would be paid off—or very nearly so—by the time you reached age 65, freeing you up for a gloriously debt-free retirement.
For many Americans, though, that's no longer the case. According to the Federal Reserve Survey of Consumer Finances, nearly 30 percent of retired households had mortgages in 2016, compared with less than 10 percent in 1989. For many people, changing economic conditions, increased debt and decreased savings have all made mortgage-free retirement more of a dream than a reality.
Of course, keeping that monthly mortgage bill during retirement isn't the end of the world. For some people, paying off their mortgage before retirement just isn't possible. And for others, it makes more sense to keep their mortgage, even if they could pay it off.
So just how big of a priority should a mortgage-free retirement be for you? Here are some considerations.
How Big Are Your Mortgage Payments?
When you're on a fixed income, monthly mortgage payments can become burdensome. The psychological peace of mind that comes with ditching that mortgage payment is a motivating factor for many people.
How Low Is Your Interest Rate?
If you have the means to pay off debt, tackle the higher-interest ones first. If you've got a low interest rate, it might not make sense to pay off your mortgage early.
Ask yourself: Could you invest the money you would have spent on paying off the mortgage and get greater returns elsewhere? The answer depends on the specifics of your portfolio as well as your risk tolerance.
Can You Take Advantage of the Mortgage Interest Deduction?
This deduction used to play a much bigger role in financial strategies for retirement. But with the Tax Cuts and Jobs Act, fewer than half of filers who previously took the deduction were able to take advantage of it this year.
If you can itemize, and you're relatively early into your mortgage, the deduction may weigh in favor of keeping it.
Do You Have the Means to Pay it Off?
For many people nearing retirement, this is the biggest hurdle to paying off their mortgage. You shouldn't jeopardize your cushion of savings or your standard of living just to own your home outright. Nor should you raid your retirement assets to pay off your mortgage—you'll end up incurring substantial penalties. Withdrawals could also push you into the next tax bracket, slamming you with hefty tax bills.
Generally, it's better to prioritize maximizing your retirement contributions—especially in the years leading up to retirement—over paying off your mortgage, but be sure to discuss any decisions of this kind with your financial adviser.
Have You Considered Alternatives?
Paying off your mortgage all at once isn't the only option. You can increase your monthly payments, add an extra payment or two per year, refinance to make your monthly payments more manageable or even downsize.
Above all, make sure you consult with a financial adviser before taking drastic action. In the big picture of retirement, your mortgage is just one piece of the puzzle.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.