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A 65-year-old couple with $1.6M in retirement assets and $260K remaining on a 5.5% mortgage should compare that rate against their portfolio’s expected after-tax return.
Retirees should model the full tax cost of mortgage payoff before acting, as fixed-rate mortgages on stable payments help offset inflation while the mortgage-interest deduction is unavailable for most retirees under current standard deductions.
Paying off the mortgage over 3-5 years using taxable accounts and Roth conversions is often preferable to a lump-sum IRA withdrawal that could trigger a higher tax bracket.
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Many retirees have portfolios that look healthy on paper.
But don't forget about outstanding mortgages.
Consider a couple turning 65 this year with $1.6 million in combined retirement assets and $260,000 left on the house at a 5.5% fixed rate.
With roughly 25 years to go, the instinct might be to pay it off.
But what does the math say? The analyst who called NVIDIA in 2010 just named his top 10 stocks.Get them here FREE.
Our hypothetical couple is retiring with what most planners would call a comfortable nest egg.
But their housing payment is sized for a working household, not a retired one.
Principal and interest run about $1,597 a month, and once you add taxes and insurance, total housing is roughly $2,297 a month, or $27,564 a year.
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