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Is It Smart for Retirees To Pay Off Their Mortgage?

Is It Smart for Retirees To Pay Off Their Mortgage?

Reaching retirement and relishing in a ceremonial mortgage-burning party was a twentieth-century custom recognized by many Americans. At that time, there was no better reason to celebrate than rejoicing in the liberty that comes with paying off your mortgage. Fast-forward to 2018, where mortgage-burning parties rarely, if ever, occur. Why? Well for starters, etiquette experts strongly disagree with the custom. But beyond that, financial advisors are now pushing baby boomers to reevaluate whether or not paying off mortgage debt makes sense.

A recent survey from American Financing, a national mortgage banker, revealed that 44 percent of Americans ages 60-70 still have a mortgage upon retirement. Baby boomers seem to be much less debt-averse than the previous generation of Depression-affected retirees, pushing them to reconsider the benefits of paying off their mortgages. As such, retirees will look to a financial advisor to conduct a strategic analysis of an individual’s financial situation, revealing the pros and cons of carrying mortgage debt into retirement. Most notably, financial planners will evaluate the following:

  1. Mortgage terms

  2. Amount of savings

  3. Expected retirement income

Crunching the numbers is imperative, as each individual case likely requires a different proposed retirement plan. So, measuring a variety of factors will determine what makes the most financial sense. For instance, people who intend to stay in their home forever and have the means to pay off their mortgage while retaining the retirement assets they need for a comfortable life may want to go ahead and do so. Particularly in scenarios where the interest rate exceeds the return on investment. Plus, increased cash flow and an equity cushion for emergency situations is both wise and comforting for retirees.

Conversely, people who lack adequate savings and have not completely funded their retirement plan find themselves in a different scenario. In this situation, keeping the money liquid can be important from a cash flow perspective. The home mortgage interest deduction should also be considered. Retirees must evaluate if the after-tax returns are greater than the after-tax mortgage rate.

As stated above, the right financial path to take hinges on factors specific to the individual retiree. Therefore, speaking with a financial planner is essential to living a comfortable, stress-free retirement. Retirement and financial planning means creating a written strategy to satisfy your personal goals and objectives. In doing so, you are safeguarding your future and minimizing risk.

At Baron, Silver, Stevens Financial Advisors, our financial planning and wealth management team is here to help our clients do the planning necessary so they can have a happy and fulfilling retirement. Running out of money is one of the biggest fears among retirees. Take a look at our Retirement Shortfall Calculatorfor insight into your personal retirement savings status and determine your projected shortfall or surplus at retirement. Contact our Boca Raton financial planning office today to learn more!

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