In today’s Two-Minute Retirement Solution, I’m following up on a topic I covered in my July 19 segment. The question is, should you pay off your mortgage before you retire?

I received so many great comments a few weeks ago that I wanted to address some of them and dive a little deeper into this topic. I think you’ll find it helpful.

Members raised questions about factors like…

  • The amount you owe on your mortgage and how that affects the question
  • The interest rate on your mortgage versus how much you’re earning on your investments
  • The percentage of your assets set aside to pay your monthly nut and whether it’s enough
  • Deflation and how the housing market does after we retire.

These are all excellent points.

[ad#Google Adsense 336×280-IA]The short answer is, from my perspective (my new perspective, that is), you should pay it off before you check out of the work world.

Now, let’s talk about some of these ideas.

First up…

Whether it’s a small mortgage or a big one, it’s all about peace of mind and security.

Yes, you might earn more on money properly invested than your mortgage will cost you.

But that assumes your investments will be there and that they’ll pay the same return (or greater) for the life of your mortgage.

Depending on how much money you have, that can be one heck of a high-risk bet for a retired person.

This position also assumes you can ride out the market’s ups and downs without panic-selling, which most folks cannot do. And it only gets harder as we age.

In fact, despite the fact that I am the king of the “leave it alone; do nothing in sell-offs” philosophy, I wonder if I will be able to do so 15 or 20 years from now.

The older we get, the more we fear running out of money and losing our money. And fear drives losses. The one thing we can’t afford after we quit working is losses from panic-selling.

When I consider betting on the markets to stay in my home, the “what ifs” start piling up in the back of my head. That’s a big red flag for me.

Next point…

Some of you voiced concerns about the dip in home values, but that isn’t an issue for me.

As I have said before, your primary residence is not an investment. You can’t sell it and use the money for something else. You have to have a place to put your head at night.

Even if my home dips in value (which I consider very unlikely in the long haul), I’m not taking a loss on it.

This may be an issue for my heirs, but considering how much I’m leaving them, they can afford a few problems.

And at current yields, generating enough to pay a $1,000 or $2,000 mortgage will tie up a lot of assets. Yes, you can get 3% to 4% on dividend-paying stocks, and more on some corporate bonds, but volatility plays a big role here.

Holding on through rough patches will be more difficult as you get older.

If you choose the “keep paying your mortgage” route, and if you use interest and dividends to pay your monthly bills, you better be one disciplined investor.

The bottom line is that there are so many sides to the mortgage/primary home question that you have to decide what works best for you.

Paying it off may not be the best choice for you, but I’m paying off mine as soon as possible to enjoy what one reader called “the freedom of peace of mind.”

Finally, keep the feedback coming in! I really appreciate you folks taking the time to respond with your thoughts, so make sure to weigh in by leaving a comment below. See you next week.

Good investing,

Steve

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Source: Wealthy Retirement