Why Retiring Mortgage-Free Isn't Always Best

The idea of retiring without a mortgage was once considered the norm. Now, for many of us, it's just a dream.

Inflation, recession, and fluctuations in the housing market have caused setbacks for would-be retirees and those looking ahead to the future. While the thought of paying off one's mortgage and sailing off into the sunset is enough to bring anyone joy, there are benefits to retiring with your mortgage intact. Here are a few reasons why retiring mortgage-free isn't always the best option:

Choose Your Interest Rate Battles

As you start to look ahead to retirement, you'll want to start assessing the best way to pay down your debts. While your mortgage might be the most significant portion of your liabilities, chances are it isn't the most damaging. As you know, it's the interest payments that hurt the most.

Rather than focusing on paying off your mortgage, focus on removing high-interest credit card debt. Theoretically, by the time you approach retirement, your mortgage will be paid down to the extent that your premium is higher than your interest. Attack the debt that will do the most damage when you are no longer a part of the workforce.

Tax Implications

Upon retiring, you may decide to use a portion of your retirement savings to pay off your mortgage. The idea has merit: you're using your assets to wipe out a liability and start your next adventure off with an even playing field. That is until the tax bill comes in.

Depending on the nature of your savings plan, you may be charged income tax on the lump sum you withdrawal to pay off your mortgage. This total can end up being more substantial than simply carrying on with your current mortgage plan.

Furthermore, depending on your tax bracket, you could be forgoing your mortgage tax break during income tax season. So not only are you taking a hit on your initial withdrawal, you could be taking another hit when it comes to deductions. Be sure to consult your tax specialist before making any decisions.

You Might Need Those Savings

When you retire, you leave behind your steady income and any workplace medical plans you previously had access to. With proper planning and savings, you should be able to spend your remaining years enjoying your post-work freedom.

However, those savings can get used up quickly if a medical issue arrives. In fact, it's estimated that medical expenses after the age of 65 can reach up to $275,000 per couple. Withdrawing a large portion of your savings to pay off your mortgage reduces your available resources for when medical issues arise. You may end up having to borrow against your house to make up the difference, leaving you where you started.

The State of the Market

Before making any major decisions about whether or not to pay off your mortgage, you should assess the state of your local market and determine if you intend on staying there. How was your location impacted by the recession, and how has it recovered?

According to experts at mortgageloans.co, states like Massachusetts were devastated by the recession, while Texas was barely impacted at all. Before you decide to take steps toward retiring mortgage-free, you need to look at the bigger picture rather than just the various puzzle pieces.

What Works for You

Retirement should be a time to enjoy the fruits of your labor. Don't get caught up on someone else's idea of what should happen leading up to retirement. Decide what your goals are, consult with the experts, create a plan, and start your next great adventure.