Should You Pay Off Your Mortgage Before Retirement?

by | Jan 14, 2020 | Retirement, YouTube


Should you pay off your mortgage before you retire? The short answer to that is yes!

In today’s video, I’m talking about:

  • The benefits of paying your mortgage off before you retire
  • How to pay off your mortgage early
  • Why paying off your mortgage early has better bang for the buck than putting those same funds in to your retirement savings

Click here to watch the full video or read the full video transcript, below.

Why You Should Pay Off Your Mortgage Before Retirement

For many Americans, your mortgage is your biggest monthly expense. If you look at a line item of all your expenses for the month, I wouldn’t be surprised if mortgage was right there at the top of the list.

And for many Americans, that represents about a third of your total monthly expenditures. If you pay off your mortgage prior to retirement, all you have left is just the property taxes on your house. You can cut down your monthly expenses in retirement significantly and make it a lot easier for you and your spouse, if you’re married, for you to keep up with all the other expenses you’re going to face in retirement.

Concerned About Your Tax Deduction?

A lot of times, when it’s suggested that you pay off your mortgage early, people get concerned about not having a tax deduction.

Let’s say you’re paying $3,000 a month in mortgage, taxes and insurance, and you pay off your mortgage. That’s great! Now you don’t have the $3,000 of expenses, you’re just paying the taxes.

Some would say that they would like the tax deduction for still maintaining a mortgage. The problem with that is, $3,000 is still going out the door and only a fraction of that is the tax benefit that you receive by maintaining a mortgage. You’re still having more going out the door, then you’re benefiting from having that tax deduction!

How To Pay Off Your Mortgage Early

I don’t recommend withdrawing money from your IRA or another retirement account and taking a big lump sum out to pay off a mortgage. You would be cutting into your retirement nest egg and it’s no different than if your portfolio dropped in a big market downturn. It can be devastating long-term for your investment portfolio and retirement.

A better option would be to pay off your mortgage gradually over time. You can calculate the pay-off time with an amortization calculator, my favorite is from bankrate.com. The calculator includes a spot where you can enter extra payments. You just need a few basic pieces of information about your mortgage: payment, interest rate, time left, and balance.

Example: Let’s say you have 16 years left on your mortgage, but you want to retire in 9 years. You would need to back in the extra payment amount that would be required for you to pay off your mortgage by that 9-year time frame when you retire. You would then add those extra payments to your mortgage every month.

It becomes a lot easier to pay off your mortgage when you do it gradually over time versus in one big lump sum. Even if the numbers don’t work with your budget to be able to fully pay off your mortgage, it’s still worth it to add those extra payments. Anything extra reduces the time period. Maybe you can’t pay it off in 9 years, but you can pay it off in 10 or 11 years, that’s better than 16 years!

Saving Vs. Paying Off Your Mortgage Early

You should be saving for retirement, especially in the last few years prior to retiring. However, if you run the numbers, chances are you’re going to be better off putting those extra dollars towards paying off your mortgage and getting rid of debt versus saving that same amount. You will need to run the numbers for yourself and I encourage you to do that as a first step.

Get Started!

Here is the link to my favorite amortization calculator >>>https://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx and it will only take you about five minutes! Grab your mortgage statement, enter your data and figure out what it’s going to take for you to pay off your mortgage by the time you retire!

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Ashley helps business owners exit their business and retire with financial security. As a Certified Exit Planner she specializes in helping business owners navigate the maze of decisions that need to happen from full-time running their business to retirement.

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