Photo of Ray Ferrara CFP Ray Ferrara CFP Jul 19, 2020

We all wish that retiring would be as simple as reaching a certain age and having a comfortable retirement income to live happily off of for the rest of our lives. But, the truth is that building a retirement nest egg takes a lot of hard work and careful planning. 

Everyone who is saving for retirement is a unique individual who has unique challenges. You might be a single mother helping your children pay for college. You might be a small business owner who is ready to stop working every day. You might be a physician who has massive amounts of student debt to pay off. Regardless of your situation, it is generally good advice for you to pay off your debts before retiring. 

However, your mortgage is a little different. There are good reasons to pay off your mortgage before retirement, and there are good reasons to carry your mortgage into your retirement. Take a look below for some help on how to make the decision whether to pay off your mortgage before or after retirement.

Reasons you should pay off your mortgage before retirement

  • Less expenses — Your monthly mortgage might be one of your most significant expenses. Eliminating your mortgage from your monthly financial responsibilities can help free up a lot more money to invest into your retirement or other areas of life. Freeing up debt can grant you peace of mind as you head into your retirement.
  • Long-term savings — Mortgages come with an interest tax deduction that can be beneficial, but depending on the size and term of your mortgage, it might be more beneficial for you to pay it off early and have more free funds for your retirement. Take a look at your mortgage and calculate how much it would save you to pay off early instead of taking advantage of the mortgage interest tax deductions.
  • Predictable return — Interests from your long-term investments can be volatile. Paying off your home mortgage removes interest that is like earning a risk-free return with your remaining expendable income.

Reasons you should not pay off your mortgage before retirement

  • Insufficient emergency fund — You should have at least three to six months of your living expenses saved up in case of an emergency. You should not consider paying off your mortgage early until you have emergency funds saved up, so you don’t end up having a nice house but no money to live.
  • Insufficient retirement savings — You should strive to reach your contribution limits for your 401(k), IRA and other retirement accounts. If paying off your mortgage early forces you to significantly reduce your retirement contributions, then you might want to wait to pay off your mortgage at a later time.
  • Other debts — Do you have other debts with high interest rates, such as credit card debt? Debts like these usually do not provide deductible benefits like your mortgage interest, so it is a better idea to pay these off first and then focus on your mortgage.
  • Early payment penalties — Mortgages often include an early payment penalty clause, which is a fee for paying off your mortgage early to help offset the cost of losing the interest your monthly payments generate for the loan institution. Consider what your early payment penalty would be on your mortgage and whether it would benefit you to take the penalty now or to continue paying the loan and interest in the long-term.

Talk to a ProVise CFP® professional about financial planning

Going into your retirement on your own is like touring a foreign city without a guide. There might be some things you can figure out on your own, but to get around safely and enjoy all of the sights, you will need a guide. Similarly, you will need a financial professional who can act as your guide for navigating the financial landscape as you approach retirement.

At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can act as your guide. We get to know your current financial circumstances, long-term goals, risk tolerance and personal values to help develop and maintain a retirement strategy that works for you.

We can create a written plan for you at a fiduciary standard of care. All of our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about your planning for your retirement? Contact ProVise today to schedule a complimentary consultation.