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Should Retirees Pay Off Their Mortgage?

As retirement approaches, there’s a common questions people ask. Should they pay off their mortgage?

The answer depends on one’s financial situation and priorities.

A Kiplinger article looked at the subject recently and created three common scenarios to help retirees decide.

1. You Have the Money in Cash

If you’ve kept your savings in cash because you’re wary of market risks, the decision comes down to the interest rates:

    • Pay it off if your mortgage rate is higher than your savings account interest rate.
    • Keep the mortgage if your savings account earns more than your mortgage costs, allowing you to benefit from “positive arbitrage.”

    However, paying off your mortgage reduces liquidity, meaning the cash you use is no longer easily accessible unless you sell your home or borrow against it. Additionally, mortgage interest often offers tax benefits, which you might lose.

    2. You Have the Money in a Brokerage Account

    In this case, it’s usually better not to pay off your mortgage. Historically, stock market returns have far exceeded typical mortgage interest rates. Over time, this can create positive arbitrage, where your investments earn more than your loan costs. That said, market volatility is a risk. If your portfolio takes a downturn, your returns may not cover your mortgage interest. Balancing potential gains against risk tolerance is key.

    3. You Have the Money in a Retirement Account

    Paying off your mortgage with retirement savings is generally a bad idea. Withdrawing large sums from pre-tax retirement accounts triggers significant tax penalties and can push you into a higher income tax bracket. The financial hit is rarely worth the emotional comfort of being mortgage-free.

    The Bottom Line

    There’s no one-size-fits-all answer to whether you should pay off your mortgage in retirement. It boils down to your financial situation, goals, and personal values. While some prioritize peace of mind and freedom from debt, others focus on maximizing investment opportunities.

    The article’s author says the good news is that few people ever regret not having a mortgage in retirement.

    Taking the time to weigh the pros and cons carefully will help you make the best decision for your unique circumstances.

    >>Click here to read the article in its entirety.

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    2 Social Security Changes for 2025

    Social Security remains a critical financial resource for millions of retired Americans, with over $1.5 trillion in benefits projected for 2024 alone. However, retirees should be aware of two major changes to Social Security coming in 2025 that could impact their benefits.

    GoBankingRates.com recently wrote about the changes which are:

    1. Smaller COLA Increase: The 2025 Cost of Living Adjustment (COLA) is expected to be only 2.7%, a drop from recent years due to lower inflation. Unfortunately, these adjustments often fall short of actual retiree expenses, further eroding purchasing power.
    2. Later Full Retirement Age (FRA): For those nearing retirement, the FRA is set to increase. Individuals turning 66 in 2025 will need to wait until 66 and ten months to avoid early filing penalties. This change emphasizes the importance of strategic planning around benefit claims.

    To offset these changes, retirees can prepare by building an emergency fund, reducing unnecessary expenses, and even considering a side hustle to boost their financial stability.

    >>Read the full article on GoBankingRates.com.

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    How “tax friendly” is Georgia for retirees?

    Baby-boomers and seniors want to retire and move to a tax-friendly state. So, how tax-friendly is Georgia? An Atlanta Journal Constitution article looked at that and found that it ranks pretty well for the following reasons:

    • There is no tax on Social Security retirement benefits.
    • Anyone 65 and older is offered a maximum deduction of $65,000 per person on all types of retirement income.
    • Sales taxes and property taxes are relatively moderate. The 4% sales tax puts Georgia in the bottom 20 of the country. Georgians pay below-average for property taxes. It’s around $870 per year in property taxes per $100,000 in home value.
    • There are no inheritance or estate taxes. 

    >Click here to read the full article written by Kiersten Willis with the Journal Constitution.

    >Click here to read a related article: Lack of inheritance and estate taxes makes Georgia a popular place to retire.