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Older Americans have big stocks
As current and potential retirees consider how to handle their assets, their homes constitute one area where they may have a significant amount of restricted equity, prompting the question: “Should I pay off my mortgage?”
Homeowners ages 65 and older had a median homeownership of $250,000 as of 2022, up 47% from 2019, according to the Joint Center for Housing Studies at Harvard University.
As some retirees move elsewhere, they are turning to those stocks rather than taking out a new mortgage.
“We're seeing more all-cash buyers,” said Jessica Lautz, deputy chief economist for the National Association of Realtors.
In its 2023 annual report on home buyers and sellers, the trade association found that about a third of younger baby boomers ages 59 to 68 recently purchased homes with all cash. For older baby boomers ages 69 to 77, this percentage rises to 43%, and for the Silent Generation, this percentage rises to almost half.
Some experts say owners of older homes may also benefit from lowering their mortgage debt balances, which could free up more monthly income.
“If you can reduce your ongoing spending, it can provide a lot of peace of mind and give you more wiggle room to be flexible with your portfolio withdrawals,” Benz said.
Mortgage rates may affect the calculus
The mortgage payoff calculation may change based on whether people can beat their mortgage rates with safe and secure investments, Benz said.
Benz and her husband paid off their mortgage more than a decade ago. The correct answer at that time may not be the case today, she said.
Whether or not you want to pay off your mortgage — whether you're retired or not — depends on whether it makes sense financially and how you feel emotionally, J.L. Collins, a financial blogger and best-selling author, tells Benz in her book.
For mortgages yielding 3% or less, it doesn't make sense to pay them off, as better returns are available in the stock market, Collins said. For mortgage rates of 6% or higher, paying off this balance will provide a guaranteed return. For rates between 3% and 6%, it depends on what borrowers are most comfortable with, he said.
Benz said she recently saw the other side of the debate when she suggested to a friend that she use his inheritance to pay off her mortgage. She said her friend was completely against the idea.
“It's like, 'Well, why don't you get rid of this regular monthly bill?'” Benz said. “And her point was: 'No, seeing my wallet shrink that much would be terrible.'
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Ted Jenkin, certified financial planner and CEO and founder of oXYGen Financial, a financial advisory and wealth management firm based in Atlanta, tells CNBC that he typically recommends clients pay off their mortgages when it makes sense, even if they're not retired.
“There are a lot of people I help with their mortgages who say, ‘It's so great to drive home and know I own this property,'” said Jenkin, who is also a member. No one can take it from me.” From the CNBC FA Board.
Eliminating mortgage debt can also provide professional flexibility to start a business or achieve other goals, he said.
Admittedly, the debate over mortgage repayment “is more emotional and psychological than financial,” Jenkin said.
In other words, there is no single correct answer. The same applies to other topics Benz touches on in her book.
Emotional questions to prepare for retirement
It is worth noting that the content of the book is divided equally between financial and non-financial content. The big money questions people ask themselves to prepare for retirement are just as important as the emotional questions.
What brought you happiness while you worked may change in retirement, Michael Finke, a professor of wealth management at the American College of Financial Services, tells Benz. As such, you shouldn't think of retirement as just relaxation, because you need something to relax from.
While goals like playing golf or visiting your kids may take a few days, ask yourself what a full 365 days of the year will look like in retirement, Jamie Hopkins, chief wealth officer at WSFS Bank, tells Benz.
Ultimately, retirement provides individuals with a new opportunity to reinvent.
It's an opportunity to ask yourself, “What will I regret?” Often, it's the opportunities we don't take that haunt us on our deathbeds, Jordan Grummett, a hospice physician, author, and podcast host, tells Benz.
