I will retire in 2018 with $210,000 in my 401(k), a $3,000 pension payment and social security benefits; should I use my 401(k) to pay off my $85,000 mortgage, which will cut my living expenses in half?

I’m retiring in October of 2018 at 60 years old. I will have approximately $210,000 in my 401(k). I will be collecting a pension of $3,000 a month, and then social security later when I need more income. I owe $85,000 on a 30-year fixed rate mortgage at 4.3 %. My mortgage payment for my condo is $800. If I didn't have to make that $800 payment every month, my living expenses would be cut in half. (My monthly expenses are currently $1,650). I have $30,000 in savings and no credit card debt. Should I consider paying off my mortgage with my 401(k)? 

Debt, Retirement, Pensions, Social Security, 401(k), Real Estate
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4 weeks ago
82% of people found this answer helpful

It really depends upon how you invest your money & what your return expectations, and if you deduct your mortgage payments because you itemize on your tax return.  But the real tradeoff is the use of the $85k that you now don't have net of taxes. In other words, how much could you have made on that money and can you make more than the difference in your mortgage rate of 4.3%.  Also, I like having the flexibility of having that money compounding tax deferred & away from creditors.  Remember also that if you take out the money, it is all taxable all in one year which can push your tax rate higher thus reducing the net for your pension & all other income.  Your pension is more than enough to cover the $800 payment.  I would lean toward no, but somethings aren't all about money but about comfort & lifestyle.  Either way, you live fairly meagerly & are set based upon the facts you provided.  So it may just come down to a value judgement, but these are the main pertinent facts you need to answer.

Hope this helps and best of luck, Dan Stewart CFA®

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