How To Plan For Retirement If Your House Isn’t Paid Off
Written by
Jordan Rosenfeld
Edited by
Jenna Klaverweiden
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Paying off a house before retirement can seem like a wise move. But today’s retirees are leaving the workforce with historically low mortgage rates, higher home values and longer life expectancies, which could change the picture.
For retirees or soon-to-be retirees mulling over the burdens and advantages of a mortgage, financial experts offer some considerations.
Consider Cash Flow and Income Streams
The real question to ask if you retire with a house payment is whether your retirement income can comfortably support the payment without jeopardizing your long-term security.
“Retirement is about cash flow, not simply eliminating debt. A mortgage with a fixed rate and payments that won’t change can be compatible with a rock-solid income plan,” said Greg Reese, CEO and estate planning and investment advisor for AmeriEstate. Retirees need to project whether their payment falls in line with guaranteed income streams, such as Social Security or pensions.
Flexibility is also important. “Eliminating that payment reduces fixed expenses and lowers financial pressure,” said Andrew Thake, owner and mortgage broker at Andrew Thake.
Compare Your Mortgage Rate With Realistic Investment Returns
Some retirees assume they should keep a mortgage if their investments earn more than the interest rate. But that comparison must be realistic.
“Consider conservative, risk-adjusted return expectations rather than stock-market averages. A 3% fixed mortgage is not the same as a 7% adjustable loan,” Reese said. He said clients should compare any returns with their portfolio’s “realistically achievable retirement income,” not past market highs.
The math works only if the returns are dependable enough to offset the guaranteed cost of the loan.
Understand How a Mortgage Changes Your Retirement Income Needs
A mortgage increases your overall monthly spending, which directly affects how much you need saved.
As Reese explained, every $1,500 monthly mortgage payment requires roughly $18,000 each year in after-tax income, which will increase the pressure on your portfolios. “Using withdrawal assumptions, this may necessitate an additional $350,000 to $450,000 of invested assets to support indefinitely,” he said.
That added obligation can intensify sequence risk — the danger of withdrawing from investments during a market downturn. Paying off a 6.5% loan effectively delivers “a guaranteed rate of return equal to that rate.”
When Paying It Off Makes Sense
There are scenarios where eliminating or restructuring the loan makes more sense.
“If cash reserves are strong, it makes sense to pay off a high loan rate, as that reduces the required income,” Reese said.
Refinancing may also be easier before you retire, when you’re still employed, Reese noted, because “underwriting is based on income documents and tends to be more restrictive after retirement.”
Don’t Forget Taxes, Insurance and Emotional Factors
Even without a mortgage, retirees still have to contend with other housing costs, including property taxes, insurance and maintenance, Thake said. “These costs should always be included in retirement planning, not just the mortgage payment,” he explained.
In some states, new valuations can increase taxes, Reese said, so be careful if you’re retiring to a different state. He recommended calculating the costs of housing 10 to 15 years into the future, including any necessary improvements.
For some, tapping equity may also be an option. “A reverse mortgage can be appropriate for some retirees, particularly those with significant home equity and limited monthly income,” Thake said. This allows access to equity without selling the home or making required monthly payments, but it should be evaluated carefully as part of a broader plan.
Finally, numbers are not the only consideration. “Many retirees value the peace of mind that comes with having no mortgage payment. Even if keeping a mortgage makes sense mathematically, emotional comfort and reduced stress often play a meaningful role in the final decision,” Thake said.
Retiring with a mortgage requires a realistic assessment of both your finances and your peace of mind.
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