September 24, 2014
If you're currently retired or considering retirement in the near future, you may want to take a long, hard look at your mortgage. I'll admit that, it may make sense to continue making mortgage payments into retirement; one benefit, for instance, would be that you may be able to deduct mortgage interest from your taxes. However, for the majority of people out there, carrying mortgage debt into your retirement years can be an unnecessary financial burden.
Even though mortgage costs are currently low, a crucial component to feeling financially comfortable in retirement is the ability to control your cash flow. Owning a home free and clear of debt can help add to that security. According to a recent report from the Employee Benefit Research Institute, home-related expenses are currently the largest spending category for senior citizens, even surpassing healthcare expenses. Another report, from the Harvard Joint Center for Housing Studies, found that one-third of adults aged 50 and older paid more than 30% of their income for housing expenses and nearly half of that number paid more than 50%.
The higher the amount of housing debt you have, the more restricted you are from adjusting your spending in any given year. Retirees who are free from mortgage debt have a higher degree of spending flexibility, which allows them to adjust accordingly so that they are able to mitigate the pressure they feel from a poorly performing market. For example, an individual without any mortgage debt wouldn't need to withdraw as much from their retirement accounts in order to cover their daily living expenses. The less money the retiree withdraws from the account when it's already down, the better chance that individual has at making up the losses when the market turns around. Additionally, the more equity one has accumulated in their home, the greater the opportunity that individual has at tapping into an additional source of income via a reverse mortgage, should they need it.
Now, I understand that paying off a mortgage early may not always be easily attainable for many folks, and liquidating other assets in order to pay off the mortgage may not make sense. It does, however, make sense to consult a financial advisor so you can uncover the potential benefits and drawbacks of paying down your mortgage early. In most cases, the solution may be a simple tightening up of your budget and separating the wants from the needs in your spending budget. Please feel free to contact me if you have questions or concerns regarding your retirement plan.
Angelo A. Costanza, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).