Yes, It Pays to Complete Your Mortgage Before Retiring! And This Is Why…
Retiring while still having a mortgage can be a tricky affair. That’s because very few individuals will be given any tax benefits with this kind of debt, and it will get harder to make the payments, especially on fixed incomes.
Unfortunately, being able to complete your mortgage before you stop working isn’t always the case for all people.
Indeed, most financial analysts and planners advise their clients to create a Plan B to ensure that they don’t wind up spending a fortune on their mortgage and end up being poor during the most work-free years of their lives!
Why Is a Mortgage-Free Retirement Essential?
As you know, mortgage interest is regarded as tax deductible. However, taxpayers must prioritize to get a break, and honestly, very few will be able to.
Indeed, Congress has currently increased the standard deduction to twice its value.
In fact, the Congress’ Joint Committee on Taxation has deduced that there are over 13.8 million households that are poised to receive benefits from this year’s mortgage-interest deduction. This is in stark difference from the 32 million that received the benefit last year.
That being said, here are some of the reasons why you should pay off your mortgage before you retire.
Providing You with a Peace of Mind
It’s okay to be riddled with some debt as long as you are receiving a steady paycheck. However, when the paychecks stop coming, wouldn’t it be better to be debt-free when this happens? Indeed, for most families in America, the largest bill in terms of monthly expenses are mortgage payments.
If you have the power to complete your mortgage payments before retiring, then the better. It will be much easier for you to meet all your monthly payments when you have a reduced income.
Not having to worry about mortgage deductions being made at the end of the month can make your nights much easier.
Social Security Benefits Tax
For a majority of retirees, they rely on the plan and structure of their Social Security Benefits as well as making withdrawals from their 401(k) or their IRA.
That being said, the Social Security tax has its complexities. Indeed, if you only have the Social Security as your income source, then chances are high that you won’t have to worry about any kind of tax.
Nevertheless, the more you make withdrawals from these retirement accounts, the higher the chance of your Social Security benefits becoming taxable.
So if you are still troubled with your mortgage, chances are high you will be taxed on your Social Security benefit as a result of the large sums of money that you will be withdrawing to make the mortgage payments.
However, when you have no mortgage payments to make, there are no large withdrawals to make and hence, you will have a greater chance to avoid being taxed from your Social Security checks.
Last but certainly not least, your home can be used a safety net during retirement in case things go south. If you have already completed the mortgage payments to your house, you always have the option to make a reverse mortgage.
That is, you can be able to have an equity on your house while you continue to reside in it.
The benefits of having a reverse mortgage is that it does not have to be repaid until the time that you decide to move elsewhere. Moreover, a reverse mortgage also gives you the ability to use your home as a safety net when you are broke and have a minimal income from retirement.
That being said, you should first do a background check on the product that you would like to get in terms of a reverse mortgage because some fees might be through the roof.
Conclusively, here are some smart ways you can ensure to stay mortgage-free before retiring. First things first, you need to determine the date of your retirement and harmonize with completing the mortgage beforehand.
Indeed, this can be the best option especially if you have already maxed out your 401(k) and do not have any consumer debts to worry about. Additionally, you should aim to downsize when nearing retirement. Perhaps you can sell your home for a great price and eliminate the whole mortgage affair.
If you are well structured financially, you might get enough equity to buy a more affordable home in a great location.
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