The question of paying off your mortgage comes up quite often as folks wonder whether the monthly burden of a mortgage payment is worth the effort. Some have asked if they should use their retirement accounts to do so. Here’s why one shouldn’t pay for the other and both are bargains worth holding on to for the long-term.
Retirement money benefits from the length of time it remains untouched, the regular (and hopefully robust) contributions you make on a regular basis, assuming the right amount of risk for your age and working horizon. Keeping it working, no matter what is key to any chance you have at good retirement. Failing to do so will create a future that might be less comfortable than you had hoped for.
Your mortgage however, if manageable and if you don’t have a loan around the 5% range or lower, you should consider one, offers you a unique opportunity. One, the payment is fixed. As long as there is inflation, this payment will be worth less in real dollars with each successive payment. Two, you will always need somewhere to live. Having someplace you can afford is critical if you are, like so many people who are close to retirement have suggested, planning on staying in your own home as long as possible. Three, it might be centrally located to the services you need and the family you cherish.
But paying it off using those retirement accounts can lead to economic trouble you may not have anticipated. Once your retirement accounts are depleted, you may own your house but if you should run into financial hardships soon after retiring, the house becomes the tool in which to go back into debt. While reverse mortgages are a good option for some, they are not the most cost efficient means to finance your retirement or leave something to your heirs.
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