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Should I Pay Off My Mortgage Before I Retire?

Retirement Planning
A senior couple stands in front of a blue house asking should I pay off my mortgage before I retire

People tend to balk at the idea of retiring with an unpaid mortgage. The sentiment makes sense — you may not want to use the bulk of your monthly retirement income toward those payments. But just like carrying a mortgage into retirement could have downsides, paying off a mortgage while you're still working might too. Whether or not your retirement should be mortgage-free may depend on a number of factors.

If you've been asking yourself whether you should pay off your mortgage before you retire, here are some considerations.

Paying Off Your Mortgage

There are good reasons for the standard advice that you should pay off your mortgage before retirement.

  • Having your mortgage paid off relieves you of what is often the largest monthly expense for most Americans, according to the U.S. Bureau of Labor Statistics.
  • Since your retirement income may come partly from tax-deferred retirement accounts — such as certain 401(k)s or independent retirement accounts (IRAs) — having lower monthly expenses could mean that you're withdrawing less from those accounts and keeping your tax burden lower.
  • Mortgage interest payments are potentially tax-deductible, however, which could offset some of the taxes triggered by taking distributions from your tax-deferred retirement accounts.
  • Having your mortgage paid off before retirement might give you more financial options.

Retiring With a Mortgage

Paying off your mortgage before retirement might improve your financial standing, but that's not always the case.

  • If paying off your mortgage early comes at the expense of saving for retirement, or even dipping into what you've already saved, you may want to think carefully before making a decision.
  • If you stop putting money away for your retirement, you could potentially miss out on compounding interest and the opportunity to grow your retirement savings.
  • A large withdrawal from funds earmarked for retirement could result in an unfavorable tax consequence. You'll be taxed on the money that you withdraw from a tax-deferred retirement account, and, if you're younger than 59 1/2, you may be subject to a 10% early withdrawal penalty.
  • Also, depending on how much you take out of your retirement account, you could end up in a higher income tax bracket.

How Can I Mitigate My Mortgage?

Carrying a mortgage into retirement does not necessarily mean you are stuck with a high monthly mortgage payment forever. There are a number of ways to potentially mitigate those costs.

  • Downsizing your home could be a good way to make your mortgage (and living space) more manageable.
  • A smaller, less costly home may suit current needs and help reduce or even eliminate your mortgage.
  • Another potential option is to refinance your mortgage before you retire. While you may end up with a longer mortgage term, you may also end up with a reduced monthly payment.

The Bottom Line

When deciding whether or not to carry a mortgage payment into retirement, consider how you can mitigate your housing costs and tax burden while maximizing your retirement savings. The best approach will depend on these factors, as well as your personal needs and financial goals.

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Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.