Help Me Retire: I’m retired, my wife isn’t — how should we pay off our $60,000 mortgage before she retires?

My questions are: a) should I pay that off using funds from my savings or b) using funds from my 401(k) (which will incur tax), or c) a combination of savings and 401(k) or d) none of the above and continue with wife paying mortgage till she retires?

Uncertain in San Diego

See:We have $190,000 in retirement savings and want to use the COVID-related distribution rules to pay off $40,000 in debt — should we?

Dear Uncertain in San Diego,

Congratulations on your recent retirement, and the fact that your only major source of debt is your mortgage — that’s an accomplishment entirely on its own.

A $60,000 mortgage may seem like it needs to be repaid as soon as possible, but considering your monthly retirement income, your wife’s salary, your liquid savings and the retirement assets in your 401(k), you may not need to rush to pay it off, financial advisers said.

Debt itself is neither good nor bad, said Larry Luxenberg, principal at Lexington Avenue Capital Management. Debt only becomes bad when there’s a lot of it at a high interest rate and it is a struggle to pay off.

I will preface this with saying — these suggestions are based solely on what you told us. We don’t know your full financial picture, such as your monthly fixed expenses or your goals for retirement. These advisers are referring solely to how one could or should pay off a mortgage when approaching retirement, and they suggest you speak with a financial planner for a more comprehensive plan that incorporates all aspects of your financial lives.

However, here’s what the advisers I spoke with said: Paying off the mortgage before retirement is a noble goal, but having some sort of housing debt when entering retirement isn’t the worst thing in the world if your monthly income can handle it. In some scenarios, it may even be the better alternative to using your nest egg to repay the loan.

“I would say that 90% of the time, paying off the mortgage provides more of an emotional satisfaction than a financial benefit,” said Laurie Nardone, managing principal at Shira Ridge Wealth Management. “With mortgage rates so low, and possibly still a viable tax deduction, it can often help their entire financial situation to keep a mortgage.”

Why? A few reasons. Investments, such as those in a 401(k), are working for you. Even though you’ve passed the age where you would incur a penalty for withdrawing from your account (that was 59 ½ years old), you will still pay taxes on those assets, as you noted. And the rate of return for that portfolio is likely higher than your mortgage rate (worst case scenario, it’s roughly the same, and even then, you’d at least be breaking even). You shouldn’t take money out of an account that is doing well for you, especially because doing so would diminish the amount of money left to grow over the next few decades, said Michael Simmons, director of financial planning at Transitions Wealth Management. Taking money from a retirement account to pay off the mortgage when you have a decent income right now is not the best route, many advisers agreed.

You don’t want to be “house rich and cash poor,” said Joseph Romano, president of Romano & Romano Financial. You could pay off your entire mortgage right now with your liquid assets in savings, and that would leave you with about $70,000 in those assets alone. Is that enough for you in the event of an emergency, such as a medical procedure or a roof repair, or to meet some other sort of goal, like eventually taking a nice vacation or gifting that money to loved ones or a charity one day? Will you be able to repay yourself (in your savings account) so that you have a comfortable amount of money in there as you did prior to paying off your mortgage?

There are a few factors you should consider before determining if having a mortgage in retirement is a “bad thing,” said Kevin Gahagan, an adviser and principal at Private Ocean, such as: are the payments affordable (in retirement); is it “productive debt,” meaning is it building your equity?; how does the mortgage benefit you at tax time, such as any tax deductions it may offer; will keeping your savings in your possession give you financial flexibility should you need it?; and how much time do you have left with your loan? “The longer the remaining loan term, the greater the argument for retaining but restructuring the mortgage versus paying it off,” he said.

Refinancing the mortgage is one option, if you decided you were okay with having some sort of a home payment in retirement. It would be best to apply for a refinanced mortgage while your wife is still working, Simmons said. Banks and lenders prefer working with clients who are still earning income, even if they have a sizable amount of money in savings, he said. We’re also in a low-interest rate environment right now, said John Pilkington, a senior financial adviser at Vanguard, which makes it an opportune time to refinance the mortgage. There are additional costs associated with refinancing however, so you should weigh the pros and cons of that decision (and determine whether it’s even worth it based on what your interest rate is now versus what it would be when refinanced).

There are advantages for paying off a mortgage before retirement, of course. Taking that major source of debt off the table means you’ll need less income in retirement, and that would lead to less money distributed from retirement accounts, said Nadine Burns, president and chief executive officer of A New Path Financial. “The less you take out, the less in taxes due,” she said.

Also see:I’m a 32-year-old stay-at-home mom, and my husband earns $150,000 a year. Will I ever be able to enjoy a retirement?

Paying off the mortgage before or right at retirement is also an emotional decision. Even if the numbers suggest someone would be financially fine having some sort of a mortgage while retired, that path isn’t for everyone and could cause undue stress. Nobody wants that either.

“It can be financially practical for them and mathematically in their benefit, but if they can’t be comfortable with that, it doesn’t do them much good,” Romano said. If paying off the mortgage is a goal of yours, there are ways to do so.

You can ramp up your payments with excess savings from your monthly income. You could also take a chunk of your liquid assets to pay off most of that mortgage now and then pay off the rest while your wife is working, for example. If you do the latter, try to use money that’s earning a low rate of return, such as from a money market or regular savings account, Simmons said.

Remember: you’re in control of your mortgage, not your lender, and that’s an advantage, Romano said. Your payment is the same in the first month of having a mortgage as it is in the last, which means your inflation-adjusted dollars used for your cost of living and purchasing power is outpacing your mortgage payments. Being in control, instead of at the hands of your lender, also means you have the ability to ride the mortgage out until the very end or, in many cases, pay it off faster than expected.

If paying the mortgage off before retirement is something you think you have to do but you don’t necessarily want to do with your savings or retirement assets, the good news is: you can wait it out. But if you decide you’d really like that mortgage paid off before your wife retires, try to do it as painlessly as possible, such as using money that’s earning low rates of return and cash that won’t affect your near- and far-off retirement goals.

Letters are edited for length and style.

Have a question about your own retirement savings? Email us at [email protected].