The most recent analysis from the Federal Reserve Survey of Consumer Finances stated that over 40% of 65-74 year old homeowners were still paying on a mortgage. In 2004, that number was 32%. Many Boomers and Seniors had bought larger houses and figured the values would continue to rise as would their incomes. With the housing bubble bursting, we all know that this was an assumption that backfired for many.
This is a very important trend for retirement income planning. Many seniors and advisors plan on living on roughly 70% of their pre-retirement income. However, much of this assumption is based on certain expenses, like a mortgage, being dramatically less than in your working years.
There’s no magic answer to whether you should pay off your mortgage in lieu of investing that money for future retirement income. There are many arguments, pro and con. On one hand, the income requirement at retirement would be substantially less with no mortgage payment. However, at a historically low interest rate environment, some feel you can invest what you would have saved in paying off your house and make a better rate of return than the mortgage interest owed. Many are finding though, that the rocky returns of the market and the pitiful bank rates make that harder than presented. The truth is you need a plan. A plan that takes into account your income needs and retirement nest egg used to pay for that income in retirement. Make sure your advisor and you have considered those options within your retirement income plan. If you aren’t sure or don’t have an advisor, click “Find a Retirement Income Advisor” below.