How often do you think about paying off the mortgage? Retirement may be harder if you still have debt. Ideally, you should enter retirement as free from a mortgage as possible. Here's why and how.
Not having a mortgage reduces your overhead. That is to say, you need less money to live. You lower your personal break-even point. With limited income in retirement, this is always a good thing. Say your mortgage is $1,500 per month. If you pay it off before you retire, you have $18,000 more per year in your pocket.
You have more options. For me, a good financial plan is about having options. For example, you might not want to stay where you are. You might decide to sell your house and move to a less expensive part of the country. If you owe money on your house, you have fewer options. You might need to work part-time or draw additional amount from your savings. If you owe nothing, you can move and decide to work or not in retirement much more freely.
You are able to tap into your home's value. Too many people do not save enough for retirement. I hope you're not one of them. If you don't have enough, the equity in your house can be a source of additional funding. In retirement, you probably don't need as big of a home as you did. You can sell your house and move to one that's less expensive. By trading down, you can take some money and add it to your retirement savings. It probably doesn't suffice, but it surely helps. This can only happen if you have equity, and paying off your mortgage translates into more equity.
Think about doubling up payments. Paying off your mortgage isn't hard, you just have to consistently save and have discipline. The easiest way is to make two payments a month instead of one. You can drastically reduce the term and the overall cost of your mortgage. While you're at it, think about adding another $100 per month to that payment. If you do both, you can cut years off the time it takes you to clear your mortgage.
Becoming mortgage free is an important part of any retirement plan. When your mortgage is gone, you make your financial life safer. That's something I think worth the extra efforts. Be smart and spend some time thinking about the future.
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Josh Patrickis a founding principal ofStage 2 Planning Partners in South Burlington, Vt. He contributes to the NY Times You're the Boss blog and works with owners of privately held businesses helping them create business and personal value. You can learn more about hisObjective Review process at his website.
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