Should You Pay Off Your Mortgage Before Retirement?

Choose the correct phrase to complete this analogous pair:

  1. A mortgage is to retirement as water is to
    1. Ice
    2. Rain
    3. Oil

The correct answer is C: a mortgage is to retirement as water is to oil. A mortgage doesn’t mix with retirement just like water doesn’t mix with oil.

Did you just have a flashback to the SAT, nervously tapping your pencil on the desk so loud that the proctor gave you a stern glance? I sure did when writing this question! But I wanted to use it as an active way to get you thinking about debt in retirement.

While a mortgage payment is often looked at as “good” or healthy debt, because of the equity you build, is it really possible that “good” status can hold up in retirement? In most cases, the answer is no. When you retire, your life changes so much and debt can really hinder the things you are able to do when you decide to finally hang up your hat.  

Let’s take a look at why eliminating your mortgage will help you soar through retirement with flying colors.

A Fresh Start

Here is a scenario:

Task: An artist must paint a picture of a sunset using oil pastel paints.

Example 1: The artist is given a blank canvas to start their work.

Example 2: The artist is given a used canvas with a dark smear on the side.

Will it be easier for the artist to create their own picture or have to complete that same image after another person started it?

A blank slate will help the artist paint a new picture, something interesting that no one else has seen or touched. This same idea can be applied to your mortgage payment in retirement. By entering retirement with a mortgage, you have streaked your canvas with dark colors when you want to create that pastel sunset. It can stand in your way from being able to create the retirement lifestyle you want and deserve.

It is wonderful if your home has built up a significant amount of equity over the years but that money is often tied up in loans or credit which can only be redeemed if you sell the house. So your equity won’t be as useful as you think for your retirement lifestyle unless you take out a home equity line of credit. You should only do this option after speaking with your financial advisor as it can be really risky.

Paying off your mortgage before you retire will give you the opportunity to not be weighed down by debt. Rather, it will allow you to focus on the things that really matter to you and will free up your purse strings to be able to make an additional impact through volunteer and charitable contributions.

A New Leaf

Debt has many psychological, physiological, and emotional side effects. From depression to anxiety to fear to anger, debt lingers and can lead to increased stress which is not something you want to bring with you into retirement.

On top of that when you retire, your relationship with money changes. You won’t be putting money into your 401k each month, you will be withdrawing money from it. This is a big change and something that you will need to get used to.  

In retirement, you will rely on your investments, savings practices, social security, and other savings channels for your monthly income. Keeping your mortgage in retirement you could be risking the health of your cash flow— perhaps even forcing you to dip into your savings to front the monthly bill. Before you make any concrete decisions about your mortgage, you need to take a close look at your retirement finances.

For example, maybe you are only a couple of payments away from being debt-free and you want to remain in your home after you retire. In this case, it may make sense to hold onto that mortgage for a few extra months and delay your retirement if possible.

The most important thing is that you make the best decision for you, the choice that will honor your values and commitments as you enter this new phase of your life.

Why Debt Free?

Perhaps the most important question you should ask yourself when it comes to your finances is why? Why do you want to reach a goal? Why does this moment matter? Your why is so important when we talk about debt in retirement.

One of the main reasons I want to help my clients be debt-free is because it allows them to dedicate their time, energy, and resources to people, places, and things that matter the most to them. When they don’t have to worry about debt, I see that they are more invested in their community through volunteer efforts and charitable giving. When you are debt-free in retirement, you really give yourself the opportunity to make an impact in a way that you may not be able to with debt.

Are you ready to start off your retirement debt-free? I’d love to help you.


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