The Baby Boom generation is carrying more mortgage debt into retirement than any generation before it, bucking conventional wisdom that you shouldn’t enter retirement until you’re debt-free. Who’s right? What’s the best path for you? Here are several factors to consider.
Losing a tax break. When you own your home outright, you lose the mortgage interest tax deduction. While that’s true, most homeowners nearing retirement are also close to paying off their mortgages, which means the remaining interest doesn’t provide much of a tax break. For those prospective retirees who are starting out with newer mortgages, the answer isn’t as clear-cut. It’s always best to contact your financial adviser.
When you still have several years to work. If you have ten years or more before you retire, consider whether it makes sense to make additional payments toward your mortgage to accelerate the payoff. Use a mortgage payoff calculator such as Bankrate’s to play with the numbers. See how much extra it would take each month to pay off your mortgage by the time you plan to stop working. Can you make cuts in your budget to do so?
Consider downsizing. Once the kids are grown, it’s tempting to keep a bigger house so you’ll have room when they come back to visit with spouses and your grandkids. In reality, those visits likely are not frequent enough to justify the bigger house payment, taxes, utilities and upkeep. A smaller home, which could be bought outright or paid off quickly, likely makes more sense. When the kids come to visit, spring for a few nights in a nearby hotel. You’ll still come out way ahead.
Related – Avoiding Tax Traps in Retirement