Should You Pay Off Your Mortgage At Retirement?

It’s rarely a bad idea to pay off debt, so should you get rid of your mortgage when you reach retirement? You might be thinking of cashing out your 401(k), 403(b), or TSP savings to pay off your home loan, but make sure you know the pros and cons.

You can eliminate your monthly payment and stop paying interest with this approach. Plus, you may have less money in the markets, which can help reduce anxiety. However, there are some potential pitfalls of wiping out debt with your retirement savings.

Please be sure you understand the tax implications of this move. You may need to withdraw more than your mortgage balance (to pay the loan balance PLUS taxes), and there could be unintended consequences. For example, you might face higher Medicare premiums (at least temporarily), you might make more of your Social Security income taxable, you might need to pay estimated taxes, and you could potentially incur tax penalties.

Again, it’s not necessarily a bad idea, but it might or might not be the right move, so review the numbers carefully. Consider also your need to get cash for monthly or annual retirement income, and other important aspects discussed in the video. Before you make a decision, check with your CPA and your financial planner to review the details (this can potentially save you some heartache).

Note that by managing your retirement account withdrawals (perhaps paying off the mortgage over several years instead of in one lump sum), you might be able to reduce the impact on your taxable income.

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Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration. The information here may contain errors and omissions, may be outdated, or may not be applicable to your situation. You may lose money investing. Consult with a professional before deciding anything. Thank you!

[anthonydooley]

Using a retirement account to eliminate debt on your home is the same as moving money from one investment (ie mutual funds) into another (real estate). Your net worth didn't change, but your return on investment and liquidity has changed.

[benjamindover]

To be clear, this example assumes that the funds for paying off the mortgage come out of tax-deferred savings. If someone has savings in taxable accounts that do not result in additional income they should absolutely pay off their mortgage. A paid off home is more secure than an indebted one.

[stephenwright]

This is all very situational. It really depends on individual circumstances. Can you handle the payment as a part of your monthly expenses in retirement? If you can retire debt free that can substantially free up cash flow. You could also downsize to lower expenses or reduce the mortgage payment. You could also use different buckets of money that have different tax treatment to simultaneously pay off debt and have cashflow. (401K/Traditional IRA, Roth, Roth 401K, Taxable Brokerage Account)

[AxelQC]

Making curtailment payments early in the loan has a much bigger impact on reducing interest paid over the long haul.

[DaveM-FFB]

Most folks entering retirement should be planning to sell their home and downsize, in order to pay cash for a retirement home.

[steves]

Yes already paid my house off before I retire. I'm happy as hell on that. At 1.2 million at 50th. Hope to keep working 2 to 5 more years

[hanwagu]

you forgot to mention inflation. low fixed rate at high inflation means that it is costing you much less to carry that loan, and increases the opportunity cost of not investing the difference.

[daveholte]

Read my mind. This is what I am thinking retired at 67 twice and have a mortgage loan $171K at 4.24% 15 year loan
I like being debt free
But don’t want to a WD pay Fed tax of 35%
So looking at making an extra $200/ month on principal of loan?
Income am Getting SS $2438/ month. Annuity payable to death $835. Pension $567/ month
Also have an extra $51K CD that I could use to make the extra $250/ month on top of $1134/ loan payment

[daveholte]

Thanks for your excellent video. I was looking for this and here I find it with you. I have a new young Financial Advisor and he never mentioned any of your great ideas. And I pay him his fees….hmmm

[williewonka]

I will never pay off the mortgage. At 3.37% interest, which is also tax deductible, this debt allows me to make more money somewhere else. Since inflation is more than twice this interest rate, inflation is actually reducing this debt for me. Owning stocks, particularly dividend stocks, are assets, because they produce income. A house is not an asset, its a liability, as it doesnt do that. The concept of best use applies to paying off the mortgage. Great video, thanks.

[tab_nebraska]

Justin, recently found your videos. Great stuff. Thanks.

[stackedhippiechick]

You should pay it off BEFORE you retire.

[tdenningcc]

Thank you. Was wondering about this. You answered my questions.

[coelhocointech]

If your mortgage rate is less than 3 percent, don’t pay it off…let your assets grow

[okolepuka]

I will use approximately 25% of my roth ira to pay off my mortgage balance.