p>For most people with a mortgage, paying it off — ideally before retirement — is a major financial goal. But the percentage of Americans still making monthly mortgage payments when they receive that last paycheck is rising. According to the Federal Reserve's Survey of Consumer Finances, 35% percent of households headed by people ages 65 to 74 still have a mortgage — about 15% more than in 1998. Not surprisingly, the amount of debt they carry has also climbed.
Many personal finance experts recommend retiring your mortgage before you retire. There are also strong arguments in favor of prioritizing other financial goals.
Eliminating Your Largest Bill
For many people, a mortgage is their largest monthly expense. If this payment is still lingering into retirement, then more money must be withdrawn from retirement savings to cover this payment among other living expenses. Without this payment, imagine the financial freedom that could result. Your retirement funds could have more time to grow so you can spend your hard earned savings on activities you enjoy, not just paying bills.
Some argue you can use the money you would put toward your mortgage to make other investments that could possibly earn a higher return. However, because almost all investments fluctuate in value, paying off your mortgage is likely to offer a more risk-free return.
Many people believe that having a mortgage is not a total loss, as you can deduct your mortgage interest from your taxable income. However, due to the 2017 Tax Cuts and Jobs Act, this benefit may not be as significant as it was in previous years. The new tax bill increased the standard deduction to $12,200 for single filers and $24,400 for joint filers in 2019 (even higher for those who have reached age 65, which includes an additional $1,650 for single and $2,600 for married filers). In 2019, if you are married filing joint and both taxpayers are over the age 65, the standard deduction is $27,000. Your itemized deductions must be greater than $27,000 to see any benefit. With the state and local tax deduction capped at $10,000, this may be difficult to achieve.
Putting Other Priorities First
Although entering retirement mortgage-free can be a sensible move for many people, it is not right or possible for everyone. If you have credit card or other debt that carries a higher interest rate, you will want to whittle down those balances first. And if you have not adequately funded your retirement accounts, you should do everything you can to boost those savings. Also, liquidating a large portion of your investments to pay off your mortgage might leave you "house poor," with much of your wealth tied to your home and not easily accessible in an emergency.
Finally, before paying off your mortgage, check to ensure there is no prepayment penalty. The Dodd-Frank Act of 2010 limited lenders' ability to impose penalties on many mortgages, but it still makes sense to confirm this.
Factor In Everything
The decision to pay or not to pay off your mortgage should be made after reflecting on all of your personal circumstances, including your retirement plans, tax concerns and total wealth. Discuss these factors with a financial professional who can help you come up with a holistic plan.
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