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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

Is it Best to Pay Off Mortgage Before Retiring?

Updated: Jun 16, 2022

Should you pay off your mortgage before you retire? Is it best to pay of your mortgage before retiring? What are the pros and cons of keeping your mortgage? What does the latest happiness research say about mortgages and happiness?

By the end of this episode you should have insight into the plusses and minuses of paying off your mortgage.

In this episode we talk about when retirees should not pay off their mortgage, the pros and cons of paying of your mortgage before retirement, and what the latest research shows about happiness and mortgages.

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Bridget: Conventional wisdom says you should pay off your mortgage before you retire. In this episode, we'll dissect that and help you figure out by the end of this episode what's best for you. We'll be talking about the pros and cons, as well as the latest research on happiness as it relates to mortgages. Hi, I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer. I have a fee-only financial planning practice in Middleton, Wisconsin. And before we get started, Bridget, I wanted to remind viewers to hit that subscribe button. By subscribing, you help other people find this valuable information. So I appreciate that. Go ahead and punch the subscribe button there and then let's get on with talking about mortgages.

Conventional wisdom says that you need to have your mortgage paid off by retirement. And we have some different viewpoints on that. And I'm just interested to hear what you have to say. Tell me a little bit. You've done some research. What I love about these conversations is I get to find out what you actually say to clients. This is really interesting and fun for me. So, what do you tell your clients about having a mortgage paid off?

Bridget: Well, I tell people that there are two elements to this decision. There's an emotional element and there's an intellectual element. And I can make intellectual arguments all day long—all day and all night—about why keeping a mortgage while you're retired is the best thing to do. And for some people, they think, “Okay, great, I'm being smart. I'll do it.” And then we just call it a day.

John: Right. Mortgages are great. Good. Problem solved.

Bridget: Yeah. And again, I can go over all the numbers and show you why it's better. But for some people, they aren't going to sleep at night if that's what they have. They just want their mortgage paid off. And I have stopped trying to convince them. And I have just said, “Okay, great, how are we going to do this?”

I think it's better to wait as long as possible to pay off your mortgage, so I'm happier to have somebody pay off their mortgage when they're 65 versus when they're 45, but people should pay it off then if it helps you sleep at night. I'm okay with that now. The other thing is that I've recently been doing some research on subjective wellbeing and retirement and net worth, and it turns out…

John: This is what you do for fun. I just need to pause there. Really? Okay. All right. Subjective well being. Let's talk about that.

Bridget: Subjective well being, otherwise known as happiness.

John: Okay.

Bridget: So the researchers have found that having a mortgage paid off makes people feel better. It increases their happiness. And even if the same person has this house and for non-financial reasons, decides to move and rent instead, their wellbeing is happier. They try to take out all the other variables. And there's something about owning a home and not having a mortgage that makes people feel happier.

John: That's interesting. I love that idea. And we take maybe a little different tactical approach to how we advise clients on this, but I love that idea of what does it mean for you. And money. As you were describing this, Bridget, I thought, “Well, of course.” Money is a tool. Money doesn't make me happy. It's being able to take a vacation that makes me happy or having a house that's paid off. It's just this tool to get there. I think that's a really important factor in all this. As I think about this discussion, should I pay my mortgage off? It’s a math decision; it's an economic decision. What are the merits of paying off versus not? And there's a lot of debate in our world about should you, or shouldn't you?

And I think that we're on the same page, that mathematically I can prove to you that it is not a question of whether it's a better financial deal or not to have a mortgage. A long-term fixed mortgage is way better financial deal. And what I say to people is that spreadsheets don't sleep at night. Listen, you want to have a math debate about how this goes. It's irrefutable in my mind that having a long-term fixed mortgage makes sense. I think that my clients and people and our viewers should understand that math. People think that I should have my mortgage paid off. Why? Well, because you're supposed to pay off your mortgage.

Why? Because they say you're supposed to pay off your mortgage in retirement. No, let's look at the math and think about it. Here are the facts. Here's how this thing works, and we can talk about that. And then if you decide, yes, those are the facts; that's great, but I'd still like to have my mortgage paid off. Totally cool. But you know what the decision means. My problem is that so many people make this decision, saying, “I want to get my mortgage paid off as quickly as possible.” You mentioned that it's different at 45 than 65.

And without thinking, “Here are the alternatives,” I'm being the math guy, “I've got a long-term fixed mortgage. I’ve got a 3% mortgage, and for the next 25 years or however long it goes, I'm paying 3%.” So, some of this math behind it is important. Look at inflation today. I bonds are some of our favorite investments these days. I've got I bonds that are now paying me 9.6% and my mortgage costs me 3%. So instead of taking that money and putting it into my mortgage, I'm earning 9% here. I'm paying 3% there, and I'm still 6% ahead. That makes sense to me.

Bridget: Right. That adds up over decades.

John: Right. So this is the economics and inflation. My mortgage is $1,000 a month. It's going to be $1,000 a month in five years and $1,000 a month in ten years, and in 20 years. And what's the price of a gallon of gas? What's the price of a loaf of bread going to be in 20 years? More than it is today probably. So there's these economic reasons why it makes sense. From my standpoint, I go, “Great, I embrace that. It makes sense; I want to get into that.” For other people to say, “Oh, yeah, that makes sense. That's really nice, but that’s not what makes me feel good.”

All these decisions are like buying a vehicle. You can spend $100,000 on a car or $20,000. It still gets you from here to there, but how do you value these things? It’s about making what we call intentional decisions in our world. If you're being intentional about saying, “I want to pay my mortgage off. Here's the math. That's great. I can incorporate that into my thinking. Here's my math and here're my feelings. Which is more important to me?” That to me is the ultimate thing. And that's what I heard you describing. It’s important to consider how it works for you and not just how the spreadsheet works.

Bridget: Right. And I think another interesting aspect is that sometimes spouses disagree. Because it comes down to this question of are you willing to assume the risk of having money in the stock market. Even though we, as financial advisors, will tell you, yeah, but if you go over decades, even if you're 65, we think you're going to live till 85, probably, the risk is really much lower. But again, it doesn't necessarily make people sleep at night. Some people think, “Great, that means I'll be able to spend more when I retire if I don't pay off my mortgage.

According to the calculations, we say, “Yes, you'll be able to spend more if you do that.” Then they say, “Okay, great! I'll do that.” But other people think, “I don't care. It doesn't make me feel right. I don't feel comfortable with it.” The other thing is that this is debated in our industry. When we get a bunch of financial planners together, this is something that we debate about. And interestingly, people's attitudes can change as they get older. Does that make sense?

John: Absolutely.

Bridget: I know one person whom we're both friends with whose attitude changed, and that person actually started approaching retirement, and they had multiple properties and they wanted it all paid off.

John: Yeah. I'll give a personal example on this. We owned a duplex here in town, and we still own a farm west of town where we do some hunting and different things and a few years back I sold the duplex—I was ready to get out of that business—and mathematically having a long-term fixed mortgage on my farm property makes sense for all the same reasons I have a mortgage on my house at 3%. And I was in a spot where our kids were younger, and I just took the profits and paid off the farm mortgage. That does not make economic sense, but I just did not want to deal with it. It was a personal choice. Even people like me who always say, “Let's optimize our portfolio and taxes, blah blah,” sometimes say, “No.” There are other factors that make a difference.

Bridget: Yeah, well the other thing is that you have to be if you're married or have a partner you need to have an agreement with your spouse.

John: Right.

Bridget: So you can have a situation where two people have different points of view on this. One person says, “Of course, keep the money in the market. Who cares if we have a mortgage?” And the other person says, “What are you talking about? Now that I'm over 60 I know that the market goes down, and I don't want to do that with my retirement. I’ll take the least risk possible.” So then you have to kind of come to an agreement or some sort of compromise on it. And one potential compromise can be that you’ll have a 30-year mortgage but it'll be low. You don't have to have your house fully leveraged. It can be a smaller amount.

John: That makes sense.

Bridget: So it doesn't have to be an all or nothing situation. That's what I’m saying.

John: The other thing I just like to address when it comes to the public perception of the conventional wisdom is that if you don't have a mortgage payment your cash flow is so much greater in retirement and all these things and there is certainly some validity to that. The example I always use is my parents. They bought the house—that we just sold for my dad—back in 1978. And the payment was $155 a month, but when you're a teacher making $8,000 or $10,000 a year, it was a boat load of dough. And they got in right before interest rates got really high in the 80s.

My wife and I were living here in Middleton in the mid-1990s, and we were paying $750 for a two-bedroom apartment, which was a decent deal at the time. And my dad was retiring at this time, so what was his mortgage payment in 1995? $155. And you talk about and again, your mileage may vary. It's just one situation. If you're going to be in this house for a long time, that makes a difference. Are you planning to move every five years? That's another of those decision factors that go into it. But if you're going to be someplace for a long time that changes things.

Was my dad really worried about having $155 a month in mortgage when a current two-bedroom apartment goes for $750? No, because of the inflation factor. So my $1,000 a month mortgage today in 20 years will seem very cheap, when my kids are renting an apartment for more than $1,000 a month, or whatever the math is on that. And so, it's not just automatic to say, “Oh, who wants that burden?” I think that's the common feeling to say, “We have this burden of having a mortgage payment.” Yes, you might not want to have it for various reasons.

Bridget: Right.

John: And if my alternative is, “I'm going to spend this money or pay off my mortgage.” That's another decision factor. But it's one of those things that the conventional wisdom doesn’t always suffice. And I really appreciate that idea. Maybe the biggest takeaway is spreadsheets don't have to sleep at night. You need to be able to feel comfortable with your decision and know your options.

Bridget: Great way to wrap it up. I’m Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer. I run a fee-only financial planning practice in Middleton, Wisconsin. If you like what you hear on our show, Friends Talk Financial Planning, please check out the Alliance of Comprehensive Planners (ACP). Both Bridget and I are members of ACP, and you can find other advisors in your area who think like us by visiting

Bridget: And don't forget to subscribe. And with that will wrap it up.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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