As retirement slowly creeps up, many people over 50 find themselves faced with a multitude of different questions and concerns about how they can best manage their money before they quit work. With children out of the house, education expenses paid, and fewer strains on the budget, those nearing retirement usually find themselves with some extra cash to consider using wisely. For many people, the question is whether they should use this additional money to pay off the mortgage or boost retirement savings.
Since mortgage payments make up the vast majority of one’s household expenses, doing away with it or cutting down on the monthly payments can seem extremely attractive; however, most people over 50 realize that this is their last chance to boost their savings before they retire.
What is the right answer? Honestly, there is no right answer. Instead, you simply have to weigh the benefits and downsides to each choice to discover which option is the best for your unique situation.
Paying Off the Mortgage
Over the years, Americans have seen a gigantic spike in mortgage payments with the average mortgage cost for those 65 years old 50% more than it was only 13 years ago. Since a mortgage is such a costly strain on the budget, getting rid of it entirely is a tempting option. In some cases, one’s mortgage payment might be a huge portion of their monthly income following retirement, making it difficult to consider living on such a limited budget. Also, mortgages may come with high interest; when paid off early, one can expect to save thousands of dollars by avoiding these additional costs.
Before you go start shoveling all your extra cash into the mortgage, it’s also important to consider the downside of putting your money toward this goal. Since most mortgage interest payments can be fully tax deductible, it may actually save you money if you choose to keep the mortgage but itemized it on a tax return. This tax benefit will not only lower the cost of the mortgage itself, but also helps to knock down tax payments. In other words, if you choose to pay off your mortgage, you may have to give extra to Uncle Sam.
Adding to Your Retirement Fund
While mortgage costs are at high, interest rates have actually decreased. Depending on the mortgage you have and how it was financed, you may not actually save as much money as you think by paying it off early. On the other hand, extra money in the retirement fund may be able to earn a good return if properly invested. Before making a choice about where to put your extra money, you should carefully consider if you will save more in interest by paying off the loan early or make more by investing. Since people are living longer than ever before, it’s important to have a good nest egg set aside that will last throughout retirement. Despite the fact that the retirement period is increasing, funds are not and many people may discover that they are running short on money after they retire. Depending on your age and plans for your retirement, it maybe wise to take additional savings and start investing them while there is still time to earn interest. Over the long run, investing in a retirement plan may save you the most money.
There is no one-size-fits-all when it comes to retirement and financial planning. Before you decide to take all your money and throw it into either the mortgage or savings, carefully consider your options and how each choice will affect your future. Hopefully it will be possible to contribute to both.