Your goal should be to be debt free before you retire. This includes not having a mortgage in retirement. Don’t have a plan that takes you to retirement and not working and still have a mortgage, while maybe having just enough other assets to squeak by. This isn’t a good way to enjoy your retirement years because it destabilizes your retirement.
Destabilizing your Retirement
Having any debt in retirement is not a good idea. Maybe you think you are handling your car payment and mortgage quite well in retirement, but what happens when the income quits coming in?
Let’s look at a situation where a couple are both 70, are retired, have investments of $300,000, and both collect social security. The average social security check is about $1,500 each month, so this couple has $3,000 each month from social security. This is an ok retirement plan if there was no mortgage, but this couple has a mortgage that costs $1,400 a month.
This couple planned their retirement to live on $3,000 a month and not touch their nest egg. Not too bad.
This couple can afford the mortgage payment, but there isn’t much wiggle room in their budget. As soon as one spouse dies, the mortgage becomes unaffordable because the lowest social security payment goes away.
If one spouse has health issues, which is very common at that age, the investment account can become depleted. If your spouse dies, uses your nest egg for medical needs during their last years, and leaves you with a mortgage, your life goes from bad to worse. The death of a spouse is heartbreaking, but also being in an unstable financial situation can be devastating.
The surviving spouse either must move because the mortgage is unaffordable, or the retirement funds get drained completely in order to pay the bills each month.
Having a mortgage in retirement causes your retirement to have an extra bill that’s not needed. Get your mortgage paid off so that you can live and give like no one else.
Benefits of not Having a Mortgage in Retirement
There are other benefits of not having a mortgage in retirement. First, your monthly budget is much lower. At least your budget can be lower if you want it to be, but this is my second reason, so I am getting ahead of myself. Your budget can be lower. The less money you plan to spend each month, the more stability your retirement can have.
As stated above, your budget can be lower “if you want it to be”. Not having a mortgage in retirement gives you so many options. You can have a lower budget, or you can spend more money on golf or traveling or whatever you want.
Your spouse doesn’t have to decide to sell because of financial reasons if you die. Even if you personally want to have a mortgage in retirement, get your house paid off for your spouse’s sake!
If you are very rich, then you might be able to afford a mortgage in retirement, but why have it if you can just pay it off? Having lots of wealth can cover up some poor financial choices. If you do not have enough assets to weather a 50% stock market drop, then get your mortgage paid off before you retire.
Why have the extra budget expense in retirement when you are trying to enjoy your golden years? Besides adding risk to your retirement plan, the added mortgage payment can keep you from being outrageously generous during these years. Put yourself in a position to have fun, volunteer, and give generously during your retirement years.
You get there by getting on a plan right now to build wealth. Don’t wait until you think you are ready to retire. Get your house paid off so that you don’t have a mortgage in retirement.