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“Make sure you retire debt-free.” This is a common piece of advice you’ll find on the Internet for people approaching retirement and trying to get their finances in order.
Of course, it’s easy to see why experts recommend trying to pay off all your debt before you retire. When you stop working, your income may be limited, including Social Security benefits and retirement plan withdrawals. If that income isn’t dominated by debt payments, you’ll have more leeway.
But while paying off debt is generally a smart move to make before retirement, your mortgage may be an exception. Here’s why it’s not such a bad thing to keep paying for a home at that stage in your life.
1. Liquidity may improve
You may be tempted to withdraw your savings before retirement in order to retire completely debt-free. However, it is important to remember that a home is a relatively illiquid asset. Also, keeping too much money locked up at home when you’re not working can make it difficult to deal with unplanned expenses.
Let’s say you have an IRA balance of $250,000 and you spent half of it paying off your mortgage. Then, if you have a series of big expenses like home or car repairs, you could deplete your savings, which isn’t ideal.
2. You may be eligible for a tax deduction on your mortgage interest.
When you itemize your taxes, your mortgage interest may be deductible. And while you have that loan, your total IRS bill may be lower.
Of course, if you’re nearing the end of your mortgage repayments, your monthly payments may go more toward principal and less toward interest. However, you may still get some tax savings.
3. Affordable payments can work perfectly within your budget
A big reason why many retirees want to get rid of their mortgage is to have one less bill to pay. But if your mortgage payment is reasonable and fits comfortably within your budget, it doesn’t have to be a source of stress.
Of course, it’s a different story if you can’t manage your payments. However, in such situations, downsizing may be the preferred solution in order to fully pay off the home.
As it turns out, retiring with a mortgage isn’t necessarily a bad thing. And if paying off your mortgage means meaningfully dipping into your retirement savings, it may not be worth it.
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