This week, I’m talking about index card personal finance. If I could sum up the best advice on personal finance onto an 3x5 index card, what would be on there? 

That’s what we’re covering this week. I would change a few of these have different pieces of advice for people in their 20s or 30s, but since most of you are in your 50s and 60s, this week’s tips focus on the best advice I can give you at your stage in life. 

Today’s rule is to pay off your mortgage before retirement. 

Mortgages tend to be big debts. You might still owe $100,000 or more on your house by the time you enter retirement, so it’s no small feat to pay off your house. 

Now, many people say that the mortgage interest tax deduction helps them with their taxes. That may be true, but you are still handing over your hard-earned money - principal and interest over to the bank every year and the tax deduction is just a portion of that, so it just isn’t that compelling when you compare it the flexibility in your finances with not having a monthly mortgage payment at all. 

So yes, I think it’s wise to pay off your mortgage before retirement if you can make that happen. Especially if you’re like most American households where your mortgage is your largest monthly expense and it makes up about a third of your monthly expenses.

If you can free that up in retirement by paying off your mortgage, imagine what kind of breathing room it will give you with your finances?! What would you be able to do because you no longer have that mortgage? Could you travel more? Enjoy life more? Give more? 

Rather than paying off your mortgage with a big lump sum, it’s almost always preferable to pay it off gradually. To do this, you’ll need an amortization calculator which you can find easily online. 

An amortization calculator will tell you how much you would need to add to your monthly payment to pay off your mortgage the same month that you plan to retire. Or maybe if that’s not possible, but you can pay off your mortgage within the first few years of retirement, you can enter extra payment amounts to figure out how much you would need to add to your mortgage every month to pay it off early by a certain date. 

When you actually run the numbers with an amortization, you might be surprised to learn that knocking 5 or 6 or 10 years off your mortgage is totally doable, and not as burdensome as you might have expected.

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip.

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