I’m Retired. Should I Pay Off My Mortgage? – Kiplinger’s Personal Finance

It’s 5 p.m. on a Tuesday, and you tune in to The Ramsey Show as you sit in gridlocked traffic.  Dave Ramsey is going on about the best ways to pay down debt and why it’s imperative to be debt-free.  You have two things working in your favor: (1) You have the money to do just that.  (2) You only have to commute in rush-hour traffic for a few weeks longer, as you will retire at the end of the month.

The next day you start to do some research on paying off your mortgage, and you come across Ric Edelman, the founder of one of the largest personal finance companies in the country.  His advice is just the opposite of Ramsey’s:  You should stretch out a big mortgage for as long as possible, he maintains.  

I’m guessing this leaves you a bit confused.  The truth is that personal finance is just that: personal.  The right answer for you won’t come from someone speaking to a million people and giving one answer.

If you have the money necessary to pay off your mortgage and you are retired, or nearly retired,  this article will allow you to place yourself in one of three groups, to get closer to the right answer for you. 

1. You have the money in cash because you are scared of the market

Should you pay your mortgage off? Yes. In this case you should pay it off.

Why? There is a term we use in this profession: arbitrage.  Applied in this context, you have negative arbitrage.  The bank is paying you 0.25% on your savings account (if you’re lucky) and charging you 3.75% on your mortgage.  So, you are losing 3.5% every year you hang on to that loan.  This is oversimplifying, of course, but you get the idea. 

What’s the downside? First and foremost, you are losing liquidity.  When you pay off a mortgage, you are essentially putting money into a piggy bank that you can’t get back out unless you sell the home or tap the equity.  Second is the tax consideration.  Paying off your mortgage may mean that you fall below the standard deduction threshold because you don’t have the mortgage interest to write off.  This could raise your effective tax rate, but likely not significantly.  Last, but especially relevant today, holding a loan is an inflation hedge.  Because your principal and interest payment stay flat in a fixed-rate loan, your housing expense is likely to inflate much more slowly than CPI-W. 

2. You have the money in a brokerage/taxable account

Should you pay your …….

Source: https://www.kiplinger.com/retirement/604813/im-retired-should-i-pay-off-my-mortgage

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