Over half of the American population age 55 to 64 carries a home mortgage according to a paper released at the 15th Annual Joint Conference of the Retirement Research Consortium and they are more likely to enter retirement with debt. Perhaps more surprisingly, almost half of individuals 65-74 had mortgages or other loans on their residences, a third had credit card debt and a quarter had installment loans amounting to two-thirds of Americans in that age bracket holding some form of debt. People in this age bracket also typically pay some of the highest interest rates for these services. The percentage of people with debt who were on the verge of retirement rose from 64 percent in 1992 to 71 percent by 2008 and the value of that debt rose from $6,200 in 1992 to $19,100 in the same time frame. Financial experts are all over the board when it comes to whether or not it makes sense to pay off your home versus possibly investing elsewhere in order to grow your retirement income, at least while you are younger. One problem with that proposal is that a lot of people simply don’t have the discipline to actually do the investing they say they are going to do with their money and so end up not only with a mortgage that hasn’t been paid off but also with not having reaching their retirement savings goals.
All that debt can create problems as people move into retirement where they’ll be forced to live on a fixed income. If you think of a mortgage as a forced savings account, paying it off can help you reach a degree of security you cannot achieve if you still owe money at a time in your life when you are more likely to experience an increased risk of having an uncovered medical expense.
In a MarketWatch article from May, one reason given for people getting reverse mortgages was because retirees are finding they cannot service their existing debt. A reverse mortgage to pay off your mortgage can help make your home debt-free if inheritance is not an issue but younger borrowers are hurting themselves financially when they get a reverse mortgage in their 60s or early 70s because reverse mortgages pay out more the older you are when you apply for them.
The number one reason for paying off your mortgage before your retirement surprisingly is not a financial one but a more practical one. Paying off your mortgage will help you sleep better at night. It sounds trite but it’s also a good argument and makes sense since your home isn’t just an investment tool. Regardless of whether or not its value increases, it’s still the place where you have a roof over your head. You cannot say the same of retirement accounts, Social Security or stocks and bonds. Having it paid off provides a sense of security and offers a degree of flexibility that doesn’t exist if you still have payments owed by the time you retire.
For your optimum security and peace of mind, it’s best to retire your mortgage debt before you retire, to have $500,000 in savings and a long term care insurance policy to protect against uncovered medical expenses.
If you have questions about whether or not you should pay off your mortgage, you should contact a financial advisor to go over your options. You can find a list of Preferred Partners who specialize in that sort of planning by going to our website.
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