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Should I pay my house off with the money that I have or keep the money in my investment accounts?

I am 69 years old and I make $100,000 a year. I have $1.3 million in cash and investments. I have a 30-year fixed mortgage on my house that I owe $95,000 on. The house is worth $195,000. I am still working but I want to retire. Should I pay my house off with the money that I have or keep the money in my investment accounts?

Debt, Social Security, Investing, Real Estate
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May 2018

Great question.  We certainly advise our clients to eliminate all debt if possible prior to retiring, but keep a few things in mind here.  I don't know your annual expenses, but you'll want to talk with an advisor to see how much you'll need from your investments to cover expenses.  At $1.3 million, and assuming a 4% withdrawal rate, your current portfolio should be able to generate $52,000 a year.  Then add in Social Security, but remember Medicare will come out of that.  If that income isn't enough for you then you probably don't want to dip into your retirement funds to pay off the mortgage, and you may have to consider working an extra year or two (but make sure to turn your Social Security on at age 70).

Look at how eliminating your mortgage would impact your cash flow versus refinancing to a 15 year mortgage.  You mention you have a 30 year mortgage, but I'm not sure how much is left on it.  The point here is to eliminate that debt as quickly as possible.  A financial advisor should be able to show you cash flow analysis entering retirement, and whether the right solution is to pay the mortgage off now, refinance to a shorter term, or maintain your existing payments. 

Final thought, if paying off your mortgage would require you to tap into IRA or 401(k) money then I would advise against it.  You are over 59 1/2 so you wouldn't be penalized, but it would significantly increase your taxable income.  If you have post-tax dollars available, and your cash flow situation looks good, then I would say go ahead and pay it off.

Hope that helps, but let me know if you'd like to see a more in-depth analysis.

Matt Ahrens, CIMA®

May 2018
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May 2018