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What a difference having a mortgage payment makes regarding your retirement plan affordability!
Did you refinance your home loan for thirty years to take advantage of historically low mortgage rates? If so, you may be locked into a mortgage payment into your 60’s, 70’s or 80’s. Ouch!
As you do your retirement planning, one of the computations includes figuring out how much monthly take-home income you need or desire. The biggest component of that monthly figure is likely to be your mortgage payment, if you still have a home loan to pay.
Did you realize that you may need a:
$500,000 portfolio just to pay $1,500 Mortgage Bill!
If you have $500,000 in an investment account and withdraw 4% per year or $20,000 less $2,000 (10% tax) = $18,000 or $1,500 per month. That JUST covers your mortgage payment! You better start planning for this sooner rather than later.
If you want to work around this issue, here are some ideas to consider for your planning:
- Refinance your loan for a shorter payoff to match your retirement age.
- Make extra payments to your current mortgage company.
- Set up an investment account and make monthly additions so you will eventually be able to use that money to pay off your mortgage.
- Downsize or relocate at retirement. In either case, you get rid of the home loan. The downsize or relocate strategy might also help reduce the cost of utilities and property taxes.
Doing this could potentially allow you to:
- Retire at a younger age
- Afford two homes (sell an expensive home and use the proceeds to buy smaller homes or homes with lower property and state taxes). Buy a less expensive home within a half hour in any direction you live now and then buy a winter home in a no tax state such as Florida or Texas.
In summary, being mortgage-free at retirement is ideal. This is especially true when returns on fixed investments are this low.
What is YOUR plan? Will/Do you have a mortgage to pay at retirement?
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Hey Brad, what are your thoughts on reverse mortgages? I don’t know anything about them, other than what I’ve seen advertised on TV – which, naturally, makes me skeptical.