I’m 67 and retired with $57,000 left on my mortgage and $600,000 saved for retirement. Should I pay off my house now?
I’m 67, single and retired at 66. After taxes, I get $3,100 a month from a pension. After taxes and my Medicare Part B payment, I get $2,100 a month from Social Security. I have about $100,000 in mutual funds/savings accounts and $500,000 in my 401(k) account.
I can live comfortably on the $5,200 I receive monthly from my pension and Social Security, barring disaster. My pension and my SS meet my basic needs and expenses, so I don’t plan to dip into my 401(k) until I’m 72 and have to. There isn’t much left over for something “fun”, however, as I have two adult children, a grandchild and another on the way, the extra money tends to flow their way.
My question. I own a house worth about $275,000 and pay a monthly mortgage of $800. I have $57,000 left on the mortgage. I have a seven year mortgage at 2.65% which I refinanced in 2020, so five years remaining. Should I pay off my house with my savings or keep paying a mortgage until I finally have to move to a house with no stairs.
Thanks for any advice you may have.
To see: My wife and I are in our 50s with $300,000 in a 401(k) and $700,000 in a pension. Will we have enough to “live a simple life” in retirement?
It’s an age-old question and I’m glad you asked it. Many other retirees are wondering the same thing as you and may find themselves in a similar financial situation where they are able to pay the bills and have money set aside in their retirement accounts.
The answer often depends on your personal situation and your feelings about debt. If you can handle the fact that you owe that money on your mortgage, then it’s not bad to have it. Your interest rate is fantastic, you’re able to make the monthly payment from your pension and social security alone without dipping into your 401(k) and you’ve already paid off a lot of your house – everything is winner. Not everyone feels comfortable carrying debt in retirement, even if it matches their cash flow, and these are the people who really need to weigh their options.
Ultimately, you really don’t want to drain your retirement accounts for a mortgage you can afford.
Another way to look at it: compare your fixed interest rate to what you can earn on your portfolio. For example, you have $500,000 in a 401(k), and depending on how it’s invested, it will likely have a higher rate of return than your mortgage rate, the advisers said.
Check what your investments really are. Some retirees invest too conservatively because they think they need to exhaust all the risk in their portfolios to preserve that money for retirement – when you might not want as much risk as a 25-year-old. who starts their 401(k) with 40 years to go until retirement, you want your assets to be spread out over the rest of your life, which means there will have to be some risk involved. Talk to your advisor, and if you don’t have one, contact your 401(k) administrator to help you understand what’s going on in your account.
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Also, keep in mind that you’ll have to pay taxes on your 401(k) distribution to pay off your mortgage, so you’re taking out more than $57,000. The more you withdraw, the less your account has to work with to grow over time.
“If she is able to cover the mortgage and other expenses with cash flow from pension and social security income, she should avoid taking this large taxable distribution,” said Byrke Sestok, Certified Financial Planner. of Rightly.
Since you’re not yet 72, you may also want to consider some conversions to a Roth IRA, Sestok said. Over time, transferring money from a taxable account to a tax-free account could save you thousands of dollars in tax debt in the future. You would pay tax on the current distribution, so you want to stay within a threshold that prevents you from falling into a higher tax bracket – a professional financial adviser or accountant could help you figure this out.
As I said before, there is an emotional component to this question and it should not be ignored. While from a financial perspective it makes sense to keep your mortgage and continue paying it as is, you need to be comfortable, said Paul Winter, Certified Financial Planner and founder of Five Seasons Financial Planning. . If you can’t sleep at night because you’re thinking about that mortgage hanging over your head, that’s not good either. “The optimal financial decision for an individual is not always the right decision for the person,” said Susan Mitcheltree, Certified Financial Planner and Partner and Director of Communications at Berman McAleer. “We are humans, so we have to balance both finances and our emotions to determine the best course of action.”
Also see: I’m 60, a school bus driver and bartender with $165,000 saved for retirement and a spendthrift mentality – ‘is there any hope for me?’
Still, you’re in a good place – and it’s important to remember that.
“If she’s comfortable (financially and emotionally) making the mortgage payment with her income, there’s not a lot of economic benefit to paying it off early,” said Matt Stephens, Certified Financial Planner and Founder of ‘AdvicePoint. “It’s a very low interest rate and her payments will mostly go to principal anyway since she’s at the end of the loan.”
You also don’t know what the future holds. You may need to dip into your 401(k) for another more pressing reason, and again, you also want that money there for you in your old age.
And when it comes to cash flow, ask yourself, what would you do with that extra $800 you’re currently using to pay your mortgage each month? Would this “found” money be used for additional expenses or would you invest it?
“I urge clients to be very intentional about how to manage money that is no longer needed for mortgage payments,” said Jesse Sell, Certified Financial Planner and Managing Director of Prevail Financial Partners. “This can easily lead to increased lifestyle expenses in situations such as the one you described.”
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