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Older Americans have significant wealth
As current retirees and future retirees consider what to do with their assets, their home is one area where a significant amount of capital may be tied up, and the question “Should I pay off my mortgage? ‘The question arises.
According to Harvard University’s Joint Housing Research Center, the median home equity for homeowners 65 and older was $250,000 in 2022, an increase of 47% from 2019.
Some retirees are relocating and relying on their equity instead of taking out new mortgages.
“We’re seeing more all-cash buyers,” said Jessica Lautz, deputy chief economist at the National Association of Realtors.
In its 2023 annual report on home buyers and sellers, the industry group revealed that about a third of young baby boomers aged 59 to 68 recently purchased a home with all cash. Among baby boomers aged 69 to 77, this proportion rises to 43%, and rises to about half among the silent generation.
Some experts argue that legacy homeowners can also benefit by reducing their mortgage debt balances and increase their monthly income.
“If you can reduce your recurring expenses, it gives you a lot of peace of mind and gives you more flexibility with portfolio withdrawals,” Benz said.
Mortgage interest rates can affect payoff calculations
Benz said mortgage payoff calculations could change based on whether people can beat mortgage rates on a safe, guaranteed investment.
Benz and her husband paid off their mortgage more than 10 years ago. But the right answer then may not be the right answer today, she said.
Whether you’re retired or not, whether you pay off your mortgage depends on whether it makes financial sense and how you feel emotionally, says financial blogger and bestselling author J.L. Collins. told Benz in his book.
Collins said it doesn’t make sense to pay it off when mortgage rates are below 3%, as you can get better returns in the stock market. If your mortgage interest rate is 6% or higher, paying off that balance will give you a solid income. And when interest rates range from 3% to 6%, it depends on what the borrower is most comfortable with, he said.
Benz said he recently saw the other side of this argument when he suggested to a friend that he use his inheritance to pay off his mortgage. Her friends were completely against the idea, she said.
“It’s like, ‘Well, why don’t we just get rid of this recurring monthly bill?'” Benz says. “And what she meant was, ‘No, I’m going to feel terrible to see my portfolio shrink this much.'”
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Ted Jenkin, a certified financial planner and CEO and founder of Atlanta-based financial advisory and wealth management firm oXYGen Financial, told CNBC that typically, even if you’re not a retiree, you’ll be able to find a time that makes sense. He said he is encouraging customers to pay off their mortgages in full.
“Some of the people I help pay off their mortgages say, “It’s so nice to be able to drive home and know that I own that property. There are a lot of people who say, ‘You can’t take that away from me,”’ said Jenkin, who is also a member. CNBC FA Council.
Eliminating mortgage debt also provides career flexibility to pursue entrepreneurship or other goals, he said.
Indeed, the debate over whether to pay off a mortgage is “much more emotional and psychological than it is a financial issue,” Jenkin says.
In other words, there is no one right answer. The same goes for other topics that Benz touches on in the book.
Emotional questions to prepare for retirement
What is noteworthy is that the content of this book is almost evenly divided between financial and non-financial content. The big money questions people ask themselves when preparing for retirement are just as important as the emotional ones.
Michael Finke, a wealth management professor at the American College of Financial Services, told Benz that the things that brought you joy while working may change in retirement. So you don’t have to think of retirement just as relaxation, because you need something relaxing.
Goals like playing golf or visiting the kids may take a few days, but ask yourself what the full 1365 days of your retirement will look like, says WSFS Bank’s Chief Wealth Officer Jamie Hopkins told Benz.
After all, retirement provides an opportunity for individuals to reinvent themselves.
This is your chance to ask yourself, “What will I regret?” Often, it’s the missed opportunities that haunt us on our deathbeds, hospice physician, author, and podcast host Jordan Grumet told Benz.
