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

Today, I’m answering the question of should you save more for retirement accounts in your last working years leading up to retirement, or should you focus instead on paying off your mortgage? 

According to 2019 US census data, the median monthly mortgage payment is $1,609. That’s $19,308 mortgage expense per year. If you have 15 years left on that mortgage, you’re going to need about $289,620 to pay that off. 

For most Americans, housing is their largest expense, making up about ⅓ of all household expenses for the average American family. So if you keep that mortgage expense into your retirement years, that’s going to mean a good portion of your fixed monthly cash flow is going to pay the mortgage. 

Let’s say you’re 6 years out from retirement, you have 15 years left on your mortgage. If you really get aggressive with your mortgage payments, maybe you can pay it off in 8-10 years. This means that you won’t have a mortgage anymore a couple years into retirement. That will free up the $1,609/mo you were paying toward your mortgage and leave you with a lot more breathing room with your finances and your expenses. 

Most of the time, even if it means cutting back on your retirement savings in your final working years, the math will pencil out better for you in retirement if you can eliminate your mortgage vs. saving more in your 401k.

And the closer you are to retirement and paying off your mortgage, the better off you’ll likely be if you pay off your mortgage and focus on that, rather than saving more for retirement. 

The reason is that you need so much more in assets and income in retirement if you keep that mortgage, and because you’re only a few years from retirement, you’re not going to have as much growth on the money you save today, compared to the growth on the dollars you saved in your 30s and 40s. 

If you’re not yet convinced because the interest rate on your mortgage rate is so low, or you like that tax deduction, or you think you can earn better returns by investing the money instead - those are all valid objections, so tomorrow I’ll talk about my top 3 reasons why you should pay off your debt - especially mortgage debt as soon as possible if you’re nearing retirement. 

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