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Should Retirees Pay Off Their Mortgages?

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Updated December 05, 2024

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Paying off the mortgage after 30 years was a rite of passage for Americans approaching retirement age, but this once-common scenario is no longer the norm. According to research from Fannie Mae's Economic and Strategic Research Group, baby boomers, those born between 1946 and 1965, are carrying more mortgage debt than earlier generations and are less likely than earlier generations to own their homes at retirement age.

This is confirmed by Federal Reserve data showing that those 75 and over own more mortgage debt than previous generations. According to separate research, approximately 40% to 50% of Americans in their 60s no longer have a mortgage, which leaves a big chunk that still does.

Whether it makes financial sense for retirees or those nearing retirement to pay off their mortgages depends on factors such as income, mortgage size, savings, and the value of the 澳洲幸运5开奖号码历史查询:mortgage interest deduction.

Key Takeaways

Paying off a mortgage can be smart for retirees or those who are just about to retire if they’re in a lower-income tax bracket.
It can also benefit those who have a high-interest mortgage or who don’t benefit from the mortgage interest tax deduction.
It’s generally not a good idea to withdraw from a retirement account to pay off a mortgage. That could reduce your retirement income too much.
There are other options to consider if you have a hefty mortgage, such as downsizing to a home that fits your retirement budget.

Two men standing looking at nettles together at a residential home in the North East of England. — SolStock / Getty Images

When to Continue Making Mortgage Payments

Making monthly mortgage payments makes sense for retirees who can do so comfortably without sacrificing their standard of living. It’s often a good choice for retirees or those who are just about to retire and who are in a high澳洲幸运5开奖号码历史查询:-income tax bracket, have a low-interest mortgage under 5%, and can benefit from 澳洲幸运5开奖号码历史查询:the deduction on mortgage interest.

This is particular𝓀ly true if paying off a mortgage would mean not having a savings cushion for unexpected costs or emergencies such as medical expenses.

At What Age Should You Pay Off Your Mortgage?

There is no specific age to pay off your mortgage, but a common rule of thumb is to be debಞt-free by your early to mid-60s.

It may make sense to do so if you’re retiring within the next few years and have the cash to pay off your mor𓄧tgage, particularly if your money is in a low-interest savings account. Again, this works best for those who have⛎ a well-funded retirement account and enough reserve funds for unexpected emergencies.

Paying off the 澳洲幸运5开奖号码历史查询:mortgage ahead of retirement can be a real stress reducer. Your monthly expenses will be cut, leaving you less vulnerable to a sudden property tax increase, an emergency repair, or the impact of inflation. You’ll save on the interest you would owe by keeping the mortgage.

Entering your retirement years w🍌ithout monthly mortgage payments means you won’t have to use your retirement funds to pay for them.

Note

Continuing to make monthly mortgage payments makes sense for retirees who can ꧑do it comfortably and benefit from the interest tax deduction.

Avoid Tapping Retirement Funds

Generally, it’s not a good idea to withdraw from a retirement plan such as an 澳洲幸运5开奖号码历史查询:individual retirement account (IRA) or a 澳洲幸运5开奖号码历史查询:401(k) to pay off a mortgage. You’ll incur both taxes and early-payment penalties if you withdraw before you reach age 59½.

Important

The tax hit of taking a large distribution from a retirement pla🐻n could push you into a higher tax bracket for the year even if you wait until you’re older than age 59½.

It’s also not a good idea to pay off a mortgage at the expense of funding a retirement account. Those nearing retirement shou💮ld be making maximum contributions to their retirement plans. Research shows that the majority of people are not saving enough for retirement.

According to Pew, 51% of Americans worry they'll run out of money once they stop working and 70% of retirees wish they had started saving for retirement earlier. Additionally, the report states that 56 million private-sector workers don't have a retirement plan at work; employees who don't have retirement plans, save less.

The report goes on to state that those earning less than $75,000 but above the poverty line will fall short of their retirement income target by approximately $7,050 a year.

Strategies to Pay Off or Reduce Your Mortgage

You can use certain strategies to pay off your mortgage early or at least reduce your payments before retirement. Making payments every other week instead of once monthly means that you’ll make 26 payments in a year instead of just 12. You might also just 澳洲幸运5开奖号码历史查询:pay a little extra each time you make a monthly mortgage payment t👍o whittle down your l✱oan.

Another option is downsizing if you have a larger home. You might be able to buy a smaller home outright with the profit from the sale if you structure the♐ sale correctly, leaving you mortgage-free. The pitfalls include overestimating the worth of your current home, 🌄underestimating the cost of a new home, ignoring the tax implications of the deal, and overlooking closing costs.

Should I Refinance My Mortgage to Lower the Monthly Payment?

This would have been an option during the years when mortgage rates were below 5%. Interest rates began to climb steadily in 2022 as the Fed fought inflation. Anyone who 澳洲幸运5开奖号码历史查询:obtained a m�🎉�ortgage or refinanced one in the years of low interest rates is unlikely to get a better deal in the foreseeable future, even though the Fed made a rate cut in 2024 after many increases.

Are Many Retirees Still Paying Off Mortgages?

According to the Federal Reserve's "Survey of Consumer Finances," individuals 75 and over are carrying more mortgage debt now than they did in previous decades: 5% in 1995, 21.2% in 2010, and 25% in 2022 (most recent information).

Is It Worth Keeping the Mortgage to Get the Mortgage Interest Tax Deduction?

Federal tax law changes implemented in 2018 nearly doubled the standard deduction and eliminated many itemized deductions. Since then, fewer Americans have found it worthwhile to itemize their taxes, even if they have mortgage interest to deduct꧟.

The standard deduction for 2025 is $15,000 for single filers (up from $14,600 in 2024) and $30,000 for joint filers (up from $29,200 in 2024). If your interest payment (plus any miscellaneous deductions you might have) is less than that, you’re better off taking the standard deduction anyway.

The Bottom Line

Paying off a mortgage and owning a home outright before you retire can provide peace of mind, but it’s not the best choice for everyone. It’s best to consult a financial advisor if you’re a retiree or a few years away from retirement and have them carefully examine your circumstances to help you make the right choice.

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