Should you pay off your mortgage before you retire

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Sometimes it makes sense to keep your mortgage in retirement.

Paying off your home mortgage before you retire is a major financial achievement, but you don't necessarily have to eliminate all housing debt in order to retire well. Low mortgage interest rates mean it can make financial sense to continue to make mortgage payments during your retirement years. "Interest rates are changing the game," says Bryson Roof, a certified financial planner for Roof Advisory Group, a division of Fort Pitt Capital Group, in Harrisburg, Pennsylvania.

1. You are earning a better rate on your investments than you pay on your mortgage

If you have high interest rate student loans and credit cards, you are better off prioritizing reducing that high interest debt versus a low interest rate mortgage.

— Bryson Roof, Roof Advisory Group

A mortgage can help you come out ahead if you earn more on your investment portfolio than you are paying for mortgage interest. "My mortgage was 3.6%," Roof says. "If I can earn 6% on my portfolio and pay interest of 3.6% on my mortgage, I'm better off letting my portfolio grow."

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Here are

major scenarios

where you can come out ahead by keeping your mortgage going into retirement:

2. You would be paying off your mortgage with savings

3. You have other higher-interest debt

4. You can qualify for a tax deduction by saving elsewhere

5. You're making an emotional rather than financial decision

Deciding whether to pay off your mortgage before retirement depends on how much you've saved for retirement, your cash flow and how your investment accounts are doing. Here's a look at when it makes sense to continue making mortgage payments during your retirement years.

You are earning a better rate on your investments than you pay on your mortgage

It's important to run the numbers for the interest you are paying on your mortgage and compare it to your expected investment returns. "Do the math," says Barry Bigelow, lead advisor at the Duluth, Minnesota, branch of Great Waters Financial. "Make sure if you can't do the math yourself, someone is helping you."

Sometimes it may not make sense to pay off the loan, but it could be beneficial to refinance. "If they have a variable rate, in retirement rates could begin to rise," Roof says. "It makes sense to lock in a fixed rate today."

You would be paying off your mortgage with savings

You don't want to use all your savings to pay off your mortgage and then be unable to cope with other expenses in retirement. "If you pay your mortgage off and don't have money set aside for emergencies, now you have to get a loan or home equity line of credit to put on a new roof or get a new car, whatever that may be," Roof says. An emergency expense could force you to take on higher interest debt, which would eliminate the benefit of paying off your mortgage.

Using your retirement savings to make mortgage payments could also trigger taxes. If you withdraw $60,000 from your IRA to pay off your mortgage, you might end up with less than $50,000 after taxes. It might not make sense to pay off your mortgage from your retirement accounts.

"I do discourage it for those who have not been disciplined enough and want to reduce what they save for retirement to pay off a home," says Nicolas Abrams, a certified financial planner for AJW Financial Partners in Baltimore, Maryland.

"If you have a retirement shortfall, all your money is in your house. You will have to get a line of credit." Sometimes paying off a mortgage can also impact other retirement objectives, such as requiring you to work longer.

You have other higher-interest debt

Consider paying off the debt with the highest interest rate first. "If you have high interest rate student loans and credit cards, you are better off prioritizing reducing that high interest debt versus a low interest rate mortgage," Roof says.

You can qualify for a tax deduction by saving elsewhere

Remember to consider taxes when deciding whether to pay down your mortgage or maintain investments. The 2017 Tax Cuts and Jobs Act changed the rules for the mortgage interest tax deduction. Due to the new tax law, many people can't necessarily deduct mortgage interest because of the higher standard deduction, and if you don't have enough deductions, you can't itemize.

However, you may be able to qualify for a tax deduction by putting money into retirement accounts. While it can be emotionally gratifying to pay off your mortgage, sometimes you can come out ahead by saving elsewhere instead of paying off your house. "By not paying off your mortgage, you can divert that money into 401(k)s, 403(b)s and IRAs, and reduce your taxes," Roof says.

Instead of paying off a home mortgage, Abrams often recommends that clients put more money in their retirement account or IRA. "You will have access to that money," Abrams says. "If you have taken the cash and paid off the mortgage, that is not liquid money. If you do access it, you have to pay it back with interest."

By not paying off your mortgage, you can divert that money into 401(k)s, 403(b)s and IRAs, and reduce your taxes.

— Bryson Roof, Roof Advisory Group

You're making an emotional rather than financial decision

There are some people who want to pay off their mortgage just for peace of mind in retirement. "If a client wants to have the mortgage paid off, it's not a bad thing," Abrams says. "I have some clients who have their mortgage paid off before retirement. Their finances are structured, and they still have enough to fund their retirement."

Some people want to pay down their mortgage, even when mortgage rates are low and their portfolio is earning more. "What I like to talk to people about is understanding the emotional components and understanding mathematical components," Roof says. "It's a unique question per each individual. There is no dead set answer. You need an action plan that fits each person's unique circumstances."

Certain people are just not comfortable having debt in retirement, whether it's how they were raised, an aversion to risk, a nagging feeling about owing money or the sense of accomplishment of living without debt. "If you have done the math, it makes it less of an emotional decision," Bigelow says.