What You Need to Know About Retiring with a Mortgage What You Need to Know About Retiring with a Mortgage

Did you know that Baby Boomers own over 32 million homes in the United States? Of those, one-third of retired Boomers were still paying off their mortgages.

You may have watched your parents retire, without a mortgage, and a comfortable pension, and now feel a little panic you won’t do the same. In this article, we will talk about different retirement scenarios, and how in some, have a mortgage may make more financial sense long term.

Boomers are three times for likely than their parents to have a mortgage at retirement.[iii]

The value of a home has increased 67% since the 1960s with those numbers estimated to continue climbing.[iv] College tuition has gone up eight times faster than wage growth.[v] Boomers reported a 72% increase in student debt in the last five years alone.[vi] Making student loan debt the second largest debt after housing debt. Obviously, there are pros and cons to paying off your mortgage before you retire, but for some, the goal is just unrealistic or potentially disastrous for their retirement egg.

Only 19% of Boomers expect to pay off their mortgage before retirement.[vii] 

When Paying Off Mortgage Before Retiring May Be Good

  1. If you have healthy retirement savings, little debt, and an emergency fund set up, you may be in a good spot to pay off or down your mortgage.
  2. If your area is seeing little or no appreciation, paying off your mortgage is a good way to prevent going underwater on your mortgage (where you owe more than the house is worth).
  3. If your growth potential on retirement savings is low in comparison to your mortgage rate, it may make more sense to pay off your mortgage.
  4. To cover mortgage payments, retirees have to draw more of their retirement savings to pay for it.

When Keeping Your Mortgage in Retirement

  1. Consider refinancing to lower your payments and/or interest rates into retirement.
  2. Make a budget for retirement. Factor in all expenses and costs.
  3. Using that budget, downsize and trim down expenses.
  4. Look into maintaining part-time work
  5. The interest paid toward your mortgage may be tax deductible
  6. Your home equity
  7. Your assets are more accessible if you need to draw on them in retirement, if your mortgage is paid off, you would need to open a line of credit or sell the house to access them.[viii]

Before Paying Off Mortgage

  1. Are you saving for retirement and taking advantage of workplace matches and maxing out any and all contributions? Before retiring, that should be a priority.
  2. Do you have an emergency fund to cover unexpected costs? Half of Americans over 50 carry credit card debt due to medical expenses.[ix]
  3. 31% of soon-to-retire boomers report paying off debt is a higher priority than retirement savings.[x] Pay off high-interest non-mortgage debts first, especially credit cards. The average retired boomer owes debt. This debt will continue to grow and can become a real hindrance in retirement. Federal law allows student loans can be garnished from your Social Security payment.[xi]

If You are Underwater on your Mortgage, in Deep Debt, or The Property Has Devalued

  1. Paying off your non-home debts and getting your credit score up is vitally important, to downsize or get lender financing.
  2. It may be worth talking to your lender and pursuing a “short-sale” where you would not be held responsible for the difference of the mortgage balance and sale price. This is often preferable to lenders than a foreclosure.[xii]
  3. Fix up your home to the best of your ability, improving curbside appeal. Simple fixes like painting a front door, adding some plants, and a big-declutter can make a big difference.
  4. Seek out the help of professionals, be it debt-management, real estate, or financial advisors to make a smart course of action.
  5. If you plan to stay in the home, downsizing overall costs and making the house safer for you to age at home, can help with costs and prevent injuries.

[i] https://therealdeal.com/2018/07/20/could-baby-boomers-spur-a-housing-bust/

[ii] https://www.cnbc.com/2018/11/07/one-third-of-baby-boomers-had-nothing-saved-for-retirement-at-age-58-.html

[iii] https://www.seniorliving.org/life/baby-boomers/

[iv] https://www.businessinsider.com/millennials-cost-of-living-compared-to-gen-x-baby-boomers-2018-5#millennials-are-saving-more-money-for-a-longer-time-to-become-homeowners-1

[v] https://www.forbes.com/sites/camilomaldonado/2018/07/24/price-of-college-increasing-almost-8-times-faster-than-wages/#22a05f5766c1

[vi] https://www.savingforcollege.com/article/student-loan-debt-hinders-retirement-plans-for-baby-boomers

[vii] https://www.savingforcollege.com/article/student-loan-debt-hinders-retirement-plans-for-baby-boomers

[viii] https://www.forbes.com/sites/nancyanderson/2014/01/03/7-reasons-not-to-pay-off-your-mortgage-before-you-retire/#4e10a5d5576f

[ix] https://www.newretirement.com/retirement/average-retirement-debt-will-it-take-big-bite-from-future/

[x] https://www.savingforcollege.com/article/student-loan-debt-hinders-retirement-plans-for-baby-boomers

[xi] https://www.aarp.org/money/credit-loans-debt/info-2018/student-loans-garnish-ss.html

[xii] https://www.debt.org/real-estate/downsizing-your-home-to-reduce-debt/


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About the Author

Bob Hanna

Bob Hanna

Bob feels strongly that you only retire once leaving no room for mistakes. He is dedicated to building and more importantly preserving investors assets. Bob is a Financial Advisor with Cambridge, an independent broker-dealer, honored to be among the most respected firms in the industry.

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