Retirees Should Think Twice About Paying Off the Mortgage

Indeed, mortgages consume 20 percent to 30 percent of the typical household’s fixed expenses.

While some maintain that using savings to pay off one’s mortgage is unwise, as it leaves you less cash on hand for unexpected expenses, such as medical costs and home repairs, Anthony Webb, the research economist who authored the Center for Retirement Research study, believes that argument lacks validity.

Households “need to consider what they would do if the bad event actually happened,” he writes. To wit, how they “would maintain their mortgage payments once their financial assets had been spent.”

Remember, too, says Bedel, you can always take out a home equity line of credit on your paid off home, which can satisfy the need for cash reserves.

If you can’t pay off your mortgage in full without depleting your nest egg, says Fierstein, at least shoot for a more manageable monthly payment.

“I strongly advocate trying to pay down your mortgage, so when you reach retirement you’re not faced with a standard of living crisis,” she says. “There is some wisdom to paying off a portion of your mortgage so you have minimal payments and some left over in an emergency fund.”

A generation ago, retirement planners often started with the premise of a paid off home, using Social Security , company pensions, and other income sources to help their clients cover living expenses.

Today, however, with interest rates at historic lows and many retirees chasing returns to offset losses incurred during the market meltdown, a mortgage-free retirement is not necessarily the long-term goal.

Deciding what makes sense for you depends on your financial profile, interest rate, and your ability to stomach risk.