Mortgage dilemma

Paying off your mortgage and paying for retirement

It’s an admirable, but not always feasible, goal to pay off a mortgage before you retire. Here’s what to consider: Tax implications Mortgage interest is tax deductible but does not benefit many in this age group. Retiree-aged homeowners may be many years into their loan, which means payments have switched from going mostly toward interest to mostly principal. Additionally, homeowners must itemize to get the break and far fewer will, now that Congress has nearly doubled the standard deduction. To cover mortgage payments, retirees frequently have to withdraw more from their retirement funds and that would trigger more taxes, while reducing the pool of money that retirees have to live on. This is why many financial planners recommend their clients pay down mortgages while still working so that they’re debt-free when they retire. Don’t make yourself poorer While some people may have enough saved to pay off their loans, doing so would take a sizeable chunk of their assets, leaving them short of cash for emergencies or future living expenses. They also may be able to earn more on that money elsewhere. “While there are certainly psychological benefits related to being mortgage-free, financially, it is only of the last places I would direct a client to pay off early,” says certified financial planner Michael Ciccone of Summit, New Jersey. Such big withdrawals also can shove people into much higher tax brackets and trigger whopping tax bills. When a client is wealthy enough to pay off a mortgage and wants to do so, CFP Chris Chen of Waltham, Massachusetts, still recommends spreading the payments over time to keep the taxes down. Minimize the mortgage When paying it off isn’t possible, consider other ways to minimize the mortgage. David Rae, a CFP in the Los Angeles area, suggests mortgage-burdened clients refinance before they retire to lower their payments. (Refinancing is generally easier before retirement than after.) That can spread your remaining mortgage balance out over 30 years, greatly reducing the portion of your budget it eats up. Another solution: downsize to eliminate or at least reduce mortgage debt. “Don’t fool yourself that your grown kids will be back visiting all the time,” said Kristin Sullivan, a Denver-based CFP. “Certainly don’t keep enough space and comfort for them to move back in with you!”