I received an email from Kiplinger’s with these five steps to take before paying off your mortgage early during retirement:
• Pay off consumer debtâ€”given todayâ€™s interest rates, youâ€™re probably paying less than 5% on your mortgage, compared with about 13% on credit card balances. Paying credit card debt give you an instant return on your money equal to the rate on your cardsâ€”and you can continue to deduct the interest on your mortgage (no such tax break for credit card balances).
• Fuel retirement accountsâ€”the remaining few years before retirement represent your last chance to stash money in tax-advantaged retirement accounts. Youâ€™ll waste that opportunity by not maxing out your accounts. An even worse idea is withdrawing money from your IRA to pay off the mortgage.
• Keep a reserve fundâ€”even if you donâ€™t plan to touch retirement savings to pay off the mortgage, be sure to have enough money in your emergency fund to cover six months of living costs; otherwise, you could end up tapping retirement accounts anyway. Also, be mindful youâ€™ll need income in retirement to cover other expenses.
• Weigh return versus riskâ€”if youâ€™re paying 4% on your mortgage and you have nonretirement cash accounts earning less than 1%, retire the mortgage. But, if you think you can earn 6% on your investments and your mortgage costs 4%, keep the mortgage and let your investments growâ€”assuming you wonâ€™t kick yourself if your investment return takes a dive.
• Stay flexibleâ€”you could refinance a shorter-term mortgage, saving thousands of dollars in interest. The downside: you would incur closing costs and could also lock yourself into a higher monthly payment, depending on your current interest rate. Consider prepaying your current mortgage each month instead.
You can read the entire article here.
I have always felt that the decision of whether or not a person should pay off their mortgage should be a function of interest rates. The higher the interest rate, the faster it should be paid off. When I can get a mortgage at under 4% and I have no trouble making the payments, it makes little sense to me to worry about paying off my mortgage quickly. Yes, there are benefits other than financial to paying off a mortgage early. Peace of mind is one of themespecially during retirement. I understand that. I guess a person must decide what’s most important to them.