Dear Market Watch,
My wife and I are retired. As of now, we have an IRA worth over $800,000 that is untouched and stocks worth $600,000. We receive pensions and Social Security of about $9,000 a month, but we have an unpaid mortgage. Our primary mortgage has $42,000 remaining at 2.5% interest but the secondary mortgage has $160,000 remaining at 8% interest.
I want to know if I should pay off my first and second mortgage by selling stocks. A third of my retirement money goes to mortgages alone, and if you add up all the expenses, roughly two-thirds are spent. I am now 70 and was thinking about starting to withdraw from my IRA at 73. Should I wait or press it now?
Paying off both mortgages would get us into the 22% tax bracket and ultimately raise our Medicare premium.
be seen: I’m 71 and can’t decide whether I should pay my mortgage or get a cheaper joint annuity – what should I do?
Do you have a question about your retirement savings? Email us at [email protected]
Dear reader,
You don’t have to pay off your mortgage by selling your shares. There are several ways to do this.
One mortgage, let alone two, can be worrying for retirees, since many of them are on fixed incomes and have a limited amount of money saved for the future. You don’t want to deplete your life savings too quickly, because you’ll need it to last you your whole life, but you also don’t want to have this huge debt hanging over your head.
Your IRA and stocks total $1.4 million. This is amazing. Sure, it can be a resource for you to pay off your mortgage, but before you do that, ask yourself what the purpose of that money is. Your retirement income currently seems to cover necessities well, but do you ever expect to rely on this money for your retirement, such as health care, long-term care, etc.?
And even beyond that – will this money be more useful when one spouse dies, as part of your current retirement income (such as Social Security benefits) will disappear.
Before making any decision, do a financial “examination” of your cash inflows and outflows, your expected expenses in retirement now and in 5, 10, 15 or more years, and what that means for your nest egg. Make sure you have an emergency savings account outside of your IRA, stocks, and the account you use to pay your bills, which may equal a year or more of your annual expenses.
Back to mortgages. Two common approaches to debt management include “snowball” and “avalanche” strategies. With the snowball strategy, the goal is to pay off smaller debts first and then move on to larger debts. In this case, that would be processing your entire primary mortgage and then your secondary mortgage. With the avalanche strategy, you would do the opposite – the secondary first, followed by the primary. In both cases, you’ll make the minimum payments for each, but then spend extra money on one or the other.
Some people will likely choose the avalanche approach in your case, because you have an 8% interest rate on your $160,000 mortgage, while others will be happier with the snowball approach, as that debt will be crushed faster. Be sure to tell your mortgage lender that any extra payment you make will go directly toward the principal, which will reduce the balance faster.
See also: We have $3 million worth of real estate, which brings us $70,000 a year. Can I make the same income investing in stocks and bonds?
Because you are Do Getting extra money each month from Social Security and pensions is a viable option. It may take some time, but it allows your retirement assets to continue to grow, and avoid any large tax bills.
If this is too slow in the plan for you, which is understandable, you can mix up your investments. A larger withdrawal will certainly put you in a higher tax bracket and likely affect your Medicare, you know, but you can try a smaller withdrawal that will just help you pay off your mortgages faster.
Consult a qualified and trustworthy certified financial planner or certified public accountant who can help you run the numbers. A professional can give you some ways to consider and figure out the best reasonable and tax-affordable ways to pay off your mortgage while you live your life.
It’s important to remember the bigger picture when you’re looking to take a chunk of money out of your retirement assets. If you can afford your mortgage, and still have food on the table, lights and heat in the house and a little extra cushion to keep you comfortable, then taking out a mortgage in retirement isn’t the worst thing in the world.
But you have two, and if you can reduce it to one, eliminate that completely without Damaging your future financial health, you will feel like you are on top of the world.
Readers: Do you have suggestions for this reader? Add them in the comments below.
Do you have a question about your retirement savings? Email us at [email protected]
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