Should You Pay Off Your House Before Retirement?

Many people nearing retirement ask the same question: Should I pay off my house?

After decades of making mortgage payments, the idea of being debt-free can feel very appealing. But paying off the mortgage before retirement is not always a simple decision. The answer depends on several factors, including your interest rate, your liquidity, your tax situation, and where the payoff money would come from.

If you have a low-rate mortgage from a few years ago, paying it off early may not make mathematical sense. But if your rate is higher, it may be worth taking a closer look.

Liquidity is another major consideration. When you put a large amount of money into your house, that money is no longer easy to access. If something unexpected happens, you cannot simply pull money out of the walls to cover a medical bill or another large expense.

Taxes also matter. If you take a large distribution from an IRA to pay off the mortgage, you may create a bigger tax bill, make more of your Social Security taxable, or disrupt your retirement income plan.

That is why Keystone Financial Group looks at this decision through our TRIPP® Process, considering taxes, risk, income, principal preservation, and planning together.

In this video, Dan Lemens and Callee Berry explain why being debt-free is not always the same as being financially prepared, and why it is worth running the numbers before making a major mortgage decision. You can also explore more tax planning videos in our library, including topics like the tax torpedo and the widow’s penalty.