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Many people think of retirement as a time free from the worry of mortgage payments. But for the past several decades, the percentage of people carrying a mortgage into their sixties has steadily increased—from 34% in 1980 to 45% in 2000. (1) The percentage of people in their sixties reporting a second mortgage in 2000 was 20%, up from 5% in 1990. (2)
The low interest rates of the past several years helped fuel a boom in the home financing industry. Many home–owners took advantage of the attractive rates to refinance and take out second mortgages. This period also saw a rise in the popularity of creative home-financing options, such as interest – only mortgages.
As a general rule of thumb, retirement experts suggest that retirees will need 70% to 80% of their pre–retirement incomes to maintain their lifestyles. But this guideline assumes that retirees aren't making mortgage payments. With the demographic shift toward carrying mortgages later in life, this figure may need to be much higher. In fact, in a recent survey, 55% of current retirees reported that they needed at least 95% of their pre–retirement incomes to maintain their lifestyles. (3) Deciding whether to pay off your mortgage involves examining a number of variables, including your current portfolio, risk tolerance, and mortgage balance. Unfortunately, there is no easy, one-size-fits-all answer. It is important to consider your overall retirement savings and desired lifestyle. As the trend of carrying mortgages into retirement continues, some of the old formulas for calculating retirement income may not be as applicable. Call today to discuss how mortgage debt could affect your retirement. 1–2) Journal of Financial Planning, September 2006
Mortgages and Retirement: The Choice Is Yours
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