So, you’re 55 and looking forward to retiring in Upland. But in these final crucial years, how can you be sure that you are taking the right steps to ensure that your retirement will be all it’s supposed to be?
There are several key areas in your financial life that you must begin to seriously consider and manage. In today’s article we’ll consider the role of: Your Mortgage and how it affects your retirement in Upland.
Some things that you must think about are...
- Will my home be paid off when I retire?
- Do I want it to be paid off, or is there another better alternative?
- During my retirement, can I afford to lose the tax deduction that I am currently receiving from my mortgage?
- Is there a possibility I will relocate during my retirement years, perhaps to be closer to my children (or grandchildren) or even to be closer to the golf course? :-)
This is a problem. When you retire, you will still have expenses to pay for, things you will want to do such as go on vacation, visit the family, fund your favorite hobby and so forth. But these things cannot be paid for with your home value, unless of course you take out another mortgage- which will then defeat the purpose of you having worked so hard to pay it off.
Consider also that, if there is a likelihood that you will move during retirement, having a fully paid home puts you at risk of loss in a soft housing market. If all of your available cash during your retirement years is going towards accelerating your mortgage during your working years, then during retirement you decide to move, you will have to sell the house that you currently live in for whatever the house is worth at the time. If the housing market is soft, as it is currently, you may not be able to recoup the full value of the home immediately. Also, since you have been pouring all of your available cash into the home, you will have little flexibility in purchasing a new home and perhaps renting out your current home until home values improve.
It would also do you well to think about your actual retirement dollars and how that will affect your decisions with your mortgage. I have a client who is currently in her 80’s that, when I met her had already taken out a reverse mortgage on the home and was spending her available equity month after month to pay for her expenses. She was worried that she would eventually run out, and didn’t know what to do. How did she find herself in this predicament? Simply put, she was house rich and cash poor! Don’t put yourself in that situation! (Although a reverse mortgage can be a powerful and useful product, it should be used in a way that spurs more growth toward your wealth building if at all possible).
For those that think of over-funding their mortgage as a way to “invest” their money, ask yourself how you would rate the following “investment”:
*** The financial company sets the amount of your monthly “contribution.”
*** You can put in more than the minimum monthly, but you cannot put in less.
*** Making less than the minimum contribution puts your entire investment at risk.
*** Every contribution you make increases your income tax burden.
*** The only way to access the value of your investment is to either sell it at a profit (if the market is up), or borrow against it from the financial institution, paying interest and most likely fees for the privilege of borrowing.
When weighed against the rules of a wise investment, the mortgage on a home just does not add up to a wise decision when overfunding it. (See my series of blogs on “What Makes A Good Investment”)
So, now that I’ve been mortgage bashing for the entire article, am I saying that you should NEVER pay off your home in Upland? Not necessarily. If you can be absolutely certain that during your retirement years you will never move and you have enough in savings and a separate retirement fund to supply you with the lifestyle you want (and not run out if you live longer than you had planned), then by all means pay off your mortgage.
But if you find that either of these things may affect you, consider creating a more balanced plan. Design a plan that will allow you to GROW the money that you may otherwise be using towards paying “extra” mortgage payments thereby giving you more flexibility, liquidity, and security during your retirement years.
In my next article I’ll review another component to things that you should be considering as you approach retirement, “Where Should I Position My Investments?”
To learn more about your options call or email today, and I’ll be glad to review them with you! Also, leave me a comment on what your thoughts are on this topic to benefit others.
Also, if you have not read the book "Against The Grain" by Tim Rosen, I would suggest getting it on amazon today! So, plan well and retire happy by considering how your mortgage affects your retirement in Upland.