The benefits of a mortgage-free retirement
Retirement is often likened to “financial independence.” However, as pointed out in a USA Today story last week, many retirees are finding themselves very dependent, very despondent, and, well, screwed. These are retirees with mortgages they can no longer afford. Pretty sad stuff.
Of course, this wouldn’t be a problem if these folks owned their homes outright before they retired, but that’s not the case for many (if not most) retirees. For years, the standard advice has been to keep a mortgage so you could have more money to invest. After all, if you’re paying 6% on your tax-advantaged mortgage and earning 10% in your tax-advantaged 401(k), why pay off the debt?
Well, now that we no longer take that 10% average annual return in stocks as a G-given right (insert the “G” of your choice — God, Greenspan, Geithner, GM, GE, Gumby) it’s time to question the wisdom of maintaining a mortgage and investing the extra cash.
For someone like me — who is almost 40, won’t retire until age 70 if ever, and can personally stand a lot of volatility and market uncertainty — I think it still makes sense to invest rather than make extra mortgage payments. But for more conservative investors or those closer to retirement, paying off the mortgage might be the better bet. This is especially true if their surplus funds are going into “safe” investments, such as CDs or Treasuries, which are just paying 1% to 4% these days.