Home ownership has changed significantly in recent years. Supply and demand are no longer in balance, and home prices continue to rise. In Florida, the median single-family home is selling at about 4% higher compared with a year ago.
Another change is the likelihood you’ll take your mortgage into retirement. Maintaining your mortgage wasn’t a common practice. About a generation ago, maybe a quarter of homeowners older than 64 still had a mortgage. Today that figure’s about 40 percent.
As some people reach retirement age, they focus on paying off their mortgage. Since mortgages typically compose a significant portion of monthly expenses, having that cost off the books can bring a lot of confidence in financing retirement.
But if your mortgage is in around 3% or maybe even less than that—maybe you refinanced just before inflation took off—it might make sense to continue paying your mortgage instead of paying it down. Here’s the thinking: You borrowed money at a 3% rate. What if, instead of using extra cash toward that mortgage, you invested it instead? Today, for example, you could put the money into a CD and earn perhaps 5% or so. Meanwhile, you can get a tax deduction for the mortgage interest paid.
This probably isn’t a question at higher mortgage rates. In early April, the average rate nationally for a 30-year fixed mortgage was just under 7%. The average in Florida is a little higher than that.
The decision-making on whether to pay off your mortgage or let it ride is complex. I’d suggest working with a financial professional who knows your particular financial situation well and can give you a breakdown of the costs and benefits. Your employment status, retirement funding, comfort carrying debt into retirement—these are just some of the factors.
Very generally, I don’t think you can underrate the sense of security from having a mortgage paid off in retirement. You’re past your prime working years, and your margin for error regarding finances is smaller. Debt can feel a lot heavier during a stage of life meant for more relaxation and fun.
Based on recent numbers, it’s more likely that you do have debt in retirement. Among those between 65 and 74, 65% reported having debt in 2022. That’s up from 50% in 1989. More people 75 and above also have debt.
If you’re trying to work down debt, either out of necessity or preference, the good news is that you have more options than in the past. The gig economy is here, with plentiful options for side jobs.
Not all debt is bad. When used strategically, it can enhance finances. Even fiscally conservative companies will take advantage of debt when the market presents an opportunity. Unless you’re the chairman of Berkshire Hathaway, however, you don’t have that many financial levers at your disposal in retirement. So be very intentional about the debt you decide to take into retirement.
Sources:
https://themortgagereports.com/61853/30-year-mortgage-rates-chart
https://www.bankrate.com/banking/cds/cd-rates/
Evan R. Guido is the Founder of Aksala Wealth Advisors LLC, a 2018 Forbes Next-Gen Advisors List Member, and Financial Professional at Avantax Investment ServicesSM. Evan heads a team of retirement transition strategists for clients who consider themselves the “Millionaire Next Door.” He can be reached at 941-500-5122 or eguido@aksalawealth.com. Read more of his insights at https://finance.heraldtribune.com/category/ask-guido/. Securities offered through Avantax Investment ServicesSM, Member FINRA, SIPC. Investment advisory services offered through Avantax Advisory ServicesSM, Insurance services offered through an Avantax affiliated insurance agency. 6260 Lake Osprey Dr. Lakewood Ranch, FL 34240. The views and opinions presented in this article are those of Evan R. Guido and not of Avantax Wealth ManagementSM or its subsidiaries. Past performance does not guarantee future results. The S&P 500 is an index of 500 major, large-cap U.S. corporations. Standard & Poor's is a corporation that rates stocks and corporate and municipal bonds according to risk profiles. The S&P 500 is an index of 500 major, large-cap U.S. corporations. You cannot invest directly in an index. An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. CDs are FDIC insured and offer a fixed rate of return. They do not necessarily protect against a rising cost of living. The FDIC insurance on CDs applies in case of insolvency of the bank, but does not protect market value. Other investments are not insured and their principal and yield may fluctuate with market conditions. Investments are subject to market risks including the potential loss of principal invested.