Planning Basics 7 min read
Should I Pay Off My Mortgage Before Retiring?
It's the question that splits financial commentators in half. Here's how to think about it without ideology.
R
Ruth Calderón
Contributor, Retirement Straight Talk
If you've been saving for retirement and you still have a mortgage, you've probably had this debate in your kitchen at least once a year. Let's lay out the honest trade-offs.
The case for paying it off
- Cash flow drops. A paid-off house means lower required income, which means lower withdrawals, which means lower taxes.
- Sequence risk drops. You don't have to make a mortgage payment in the year the market falls 30%.
- Emotional dividend. Many retirees describe it as the single best financial decision they made.
The case for keeping it
- You locked in a low rate. A 3.1% mortgage is a near-gift in an environment where Treasuries pay more than that.
- Liquidity matters. Money in your house is hard to get back without selling or borrowing.
- Tax efficiency. Pulling $300,000 from a traditional IRA to wipe out a mortgage can trigger a brutal tax bill and IRMAA.
A middle path
Many retirees end up somewhere in between:
- Refinancing or recasting to a lower payment instead of paying off in full.
- Pre-paying gradually from taxable accounts, never from IRAs.
- Timing the final payoff for a low-income year (e.g., between retirement and Social Security).
The right answer isn't the one with the highest expected return. It's the one that lets you sleep through a recession.
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