The theme this week on the Retirement Quick Tips Podcast is: Save More or Pay Off Debt Before Retirement?

Today, I want to talk about a common question I get from clients. The question goes something like this: Ashley, I’m 5 years from retirement, I have $100,000 left on my mortgage. I want to take that money out of my retirement accounts and pay off my mortgage, wipe it out all at once. 

Usually my response is: bad idea. We don’t want to take a big haircut on your total portfolio value, and plunge that money into an illiquid asset right before retirement. Unless you have the assets to take out a large lump sum, which most people don’t, you’re going to be better off paying off the mortgage gradually, even if that means you can’t pay off your mortgage before retirement. If you can pay it off within 5-10 years of retirement, because you accelerate payments now, you’ll still be better off than having that mortgage for the next 20+ years. 

I actually ran the numbers on this for a client just the other day. In their case, it was about $400,000 in retirement account withdrawals to pay off their mortgage before retirement. They could instead use rental income they have from an investment property to pay off their mortgage in the next 5-7 years. They’re planning to retire well before that, but when I ran the numbers in their situation, and we looked at the side by side scenario of paying off their mortgage gradually vs. in a lump sum, they had about 10% more in assets at the end of their retirement, because they didn’t siphon off that money just before retirement to pay off their mortgage in a lump sum.

Tomorrow, I’m going to talk about how you can calculate how long it will take for you to pay off your mortgage if you do it gradually. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance