Why you shouldn't pay off your mortgage before you retire

Baby boomers in their 50s and 60s are carrying much more mortgage debt than their parents did at their age. While some boomers may be willing to seek financing again to purchase another home, others are eager to get rid of their mortgage debt altogether.

A recent study by the Employee Benefit Research Institute found "the percentages of families whose debt payments are excessive relative to their incomes are at or near their highest levels since 1992." The report found that as a result, "even more near-elderly and elderly families are likely to find themselves at risk for severe changes in lifestyle after retirement than past generations."

Housing debt is a major concern. The median outstanding mortgage balance for a 50-to-69-year-old household grew 142 percent in 20 years, from nearly $49,000 in 1992 to $118,000 in 2013, according to data from the not-for-profit Demand Institute. Still some financial experts say racing to retire "mortgage-free" isn't always the best strategy, even as boomers try to lessen their financial burden before they retire.

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"A lot of baby boomers aren't on track for retirement, and rushing to pay off a mortgage could be problematic for a lot of them," said Thomas J. Anderson, author of "The Value of Debt in Retirement." Instead, "having a portfolio of cash and conservative, globally diversified investments gives you liquidity and flexibility," he said.

Before refinancing into a shorter-term loan or making extra payments to pay off their mortgage, Boomers should make sure they've taken these three steps:

Pay off high-interest credit card debt

Not all debt is "good," Anderson said. If your goal is to be debt-free, he suggested first paying off any credit card and other high-interest debt.

Paying bills on time and limiting using less than 30 percent of your available credit are also two ways to improve your credit score. An excellent credit score will help to ensure you get the best available rate on your mortgageif you do decide to refinance at some point.

Max out retirement savings contributions

While you're working continue to put as much as money as you can into your retirement savings and get a tax break.

Remember if you're 50 or older, you can make "catch-up" contributions to your 401(k) and IRA which will add thousands more dollars to your nest egg. With catch-up contributions, someone 50 or older can put up to $24,000 into a 401(k) this year and up to $6,500 in a traditional or Roth IRA.

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"Money tied up in the home is illiquid, and prepaying a mortgage makes no sense if you're not maximizing your tax-advantaged retirement savings options, including catch-up contributions," said Greg McBride, chief financial analyst at Bankrate.com.

Build your emergency fund

It's even more important to keep stashing money in an emergency fund in the years leading up to retirement. "Money in the bank will pay the bills, home equity will not," McBride said.

You want to have enough cash on hand so you're not forced to dip into retirement accounts to pay for unexpected expenses in retirement. "It's like an insurance policy; nothing gets you through a crisis like cash," Anderson said.