One of the reasons that so many people want to have their mortgage paid by the time that they retire is that trying to make mortgage payments when you are living on a retirement income can be very difficult. Though paying off your mortgage before you retire may be exactly the right thing for you to do, it may be better to invest that money in other ways.
Before you decide if you should pay off your mortgage, there are a few things that you may want to consider, such as the return on your money. Will your money earn more by investing it than it would if you used it all to pay off your mortgage and eliminate interest payments? You may be able to obtain a much higher return by investing the money than by paying off the mortgage. This is only true if you will actually save the money and invest it rather than spend it. This is one important consideration.
You will also want to consider how much money you will lose in tax savings by not having the mortgage interest rate deduction, though this deduction may not have the advantages that they did before you retired. One reason for this is that after you retire, your tax rate is likely to be lower than it was before retirement. In addition to this, you will likely be paying less interest and more toward the principle by the time you retire. And with lower state taxes, you may elect for the standard deduction instead of itemizing.
Although having your mortgage paid for by the time you retire will leave you with one less financial burden to worry about, you may have less in assets than you would if you had invested instead. Plus, you will have less cash on hand, which increases the risk of a financial crunch.
Consider your options carefully before you decide if it is best to eliminate your mortgage payments before retirement. Talk to a qualified professional concerning any investment decisions, but we can help answer many of your other questions as part of comprehensive estate planning. Just give us a call at (704) 944-3245 (Charlotte, NC and Huntersville, NC) or for individuals in Kentucky, at (606) 324-5516 (Ashland, KY) or (859) 372-6655 (Florence, KY).