40% of those over 65 yrs old have a mortgage

[shotgunner]

I saw and read this article this morning and wondered what the author's angle would be given the headline. It says essentially too many baby boomers will enter retirement with a home mortgage and will be servicing that debt with a reduced income. I have to think people who put themselves in this position gave little to no thought to retirement much less an early retirement. Aesop's grasshoppers vs. the ants fable come to life perhaps.

How Baby Boomers' Homes May Become Liabilities

 

[Senator]

And I wonder, of the remaining 60%, are still paying rent by necessity, not by choice?

Rent is like a mortgage, if it is a necessity.

 

[athena53]

We'd planned to retire mortgage-free; in 2003 we took out a 15-year mortgage and refinanced it in 2010. I still wanted it to be paid off in 2018, the year I turn 65, but I paid the regular payment and put the remainder (old payment minus new payment) in a mutual fund, which was doing far better than the mortgage interest rate. The plan was to pay the mortgage off with a lump sum in 2018.

Our plans were derailed a bit when I ER'd this past May. We're planning to downsize in the spring. We may be able to buy a new house with the equity in this one; we may not. If it comes down to taking the extra (I estimate less than $100K after all the moving, realtor, fixups on this house are paid) out of the investments or getting a small mortgage, I may go for the mortgage. Depends on where the market is and how interest rates look. If the markets have just had a huge drop and interest rates are reasonable, I'll go for the mortgage.

So, it can be a strategic decision. Sadly, for many seniors it's probably a requirement because they did cash-out refis or used it to make improvements that don't have a great payback. And when I see commercials for reverse mortgages (don't know if those are in that stat), I shudder.

 

[ERD50]

... I have to think people who put themselves in this position gave little to no thought to retirement much less an early retirement. Aesop's grasshoppers vs. the ants fable come to life perhaps. ...

I believe you should think again.

Many of us have decided to hold a mortgage in retirement. We have the money to pay it off at any time, should we choose to do so. I've given plenty of thought to retirement (too much!), and am definitely an ant.

You are painting with a broad brush - the issue is not 'mortgage' versus 'no mortgage', it is 'total net worth', plus the ability to pay off the mortgage if you wanted.

-ERD50

 

[athena53]

Many of us have decided to hold a mortgage in retirement. We have the money to pay it off at any time, should we choose to do so. I've given plenty of thought to retirement (too much!), and am definitely an ant.

Yep. If we do apply for a mortgage I'll send the bank/broker the clear message that they better make it worth my while or we'll just ante up the extra cash to buy the place. I've been in the position of supplicant (can't buy the house unless they approve the mortgage) and it is SO luxurious to be able to say I'll take it or leave it!

 

[gauss]

I specifically timed the mortgage to be paid off when DW finally joins me in ER in a few years. My thinking was that psychologically this would help with a smoother cash flow transition. Our income will be lower than working (based on pension) but the mortgage payments will go away at the same time. I hopped on the PenFed 1.9% fixed 5-year HELOC bandwagon several years ago, so there is no significant financial penalty for not paying it off early even though we could.

-gauss

 

[Bikerdude]

I still have a mortgage and see no financial reason to pay it off although I understand some may feel better without one.

 

[Gabieta]

I still have a mortgage and see no financial reason to pay it off although I understand some may feel better without one.

Me too, FIRE does not require no mortgage!

 

[Telly]

Me too, FIRE does not require no mortgage!

Yes it Does! Turn it over and look at the fine print on the back of the card!



Mortgage-free, since 33

10% rate mortgage, after a few years accelerated payments with cheaper dollars due to high inflation.

 

[shotgunner]

My guess would be the author did not take into account how many in the 40% had a mortgage of convenience that they could pay off. The story seemed to be directed to those who were still carrying mortgages into retirement on a reduced income without the assets to pay it off. So the question is how many in the 40% with a mortgage are grass hoppers.

 

[nun]

Mortgage or no mortgage is a very old question, but if you have the capital to pay it off I really don't see much difference. The question should be "is it better for MOST people to enter retirement mortgage free"? I think the answer to that is probably yes. Most people are not the retirement and investments geek that you get on this forum so the simple strategy of paying down the mortgage builds up equity and reduces their need for income in retirement. If you have equity investments, investing in your home is also a nice diversifier.

 

[nun]

My guess would be the author did not take into account how many in the 40% had a mortgage of convenience that they could pay off.

The assumption was probably that not many people have that much cash available if you ask outside the rarefied world of ER forums.

 

[imoldernu]

Sounded odd at first, but what was strange about taking out a 30 year mortgage at age 35 or 40, or refinancing at 5% in 2005? Also, not everyone came out of 2008 unscathed.
The other part is the question of whether renting would cost less than owning. This does vary. I didn't see any in depth analysis about the financial situation of the people who made up the statistical base.
Mortgages aren't always bad... tax brackets stc.
And... just the fact that the analysis speaks to those who "own" says a lot about the income brackets that have been left out. 35% of households were not included in the survey.

 

[timo2]

I still have a mortgage and see no financial reason to pay it off although I understand some may feel better without one.

+1 DW and I made a conscious decision not to try to pay off the mortgage when we purchased the home. Just as we don't include our home equity in our retirement funds. Mortgage is just another form of rent to us.

If we had planned to stay put (been her 20 yrs) paying off the mortgage might have been considered, but we never had any intention of staying in our house when we retired.

 

[Andre1969]

I'll most likely still have a mortgage by the time I retire. My HELOC is going to convert to a 20 year mortgage early next year, and by the time it's paid off, I'll be almost 65. I intend to be retired long before 65!

I could afford to pay it off now, but the rate is only 3.5%, so it almost seems foolish to. If the rate starts creeping up too much though, I'll pay it down more quickly.

However, in the next 5-6 years, I'm thinking about moving, and for that I'll be taking out a mortgage. Probably retire soon after that, if the numbers jive up. I just need to make sure I don't end up like that "Broken Eggs" movie couple who bought the nice house in San Francisco at a fairly old age, and ended up falling on hard times

 

[MichaelB]

Sounded odd at first, but what was strange about taking out a 30 year mortgage at age 35 or 40, or refinancing at 5% in 2005?

The article linked in the OP is about mortgages and high housing cost. The Harvard study it references (here) is much broader, and asks if the current stock of housing meets accessibility and location needs as well. It's an interesting study, and raises the type of issue we would typically discuss here.

 

[dtbach]

I ER'd a couple of years ago and still have a mortgage. At 3.25% I don't really see a reason to pull money out of investments and pay it off. It will be gone in about 6 years and we have plenty of income to pay it.

 

[daylatedollarshort]

I believe you should think again.

Many of us have decided to hold a mortgage in retirement. We have the money to pay it off at any time, should we choose to do so. I've given plenty of thought to retirement (too much!), and am definitely an ant.

You are painting with a broad brush - the issue is not 'mortgage' versus 'no mortgage', it is 'total net worth', plus the ability to pay off the mortgage if you wanted.

-ERD50

+1. I would think key metrics to look at for personal financial health in retirement would be common amounts and ratios like total net worth, monthly retirement income, income to debt etc.

Household A could have a $100K mortgage at 3%, offset by 100K in Treasury bonds at 4% and be worth $10M. Household B could have no mortgage and a total net worth of $100K. Which household is better prepared for retirement?

 

[highlow65]

For the average American not the average person on this board there is a definite advantage to having no mortgage in retirement as they haven't saved as diligently.

 

[travelover]

For the average American not the average person on this board there is a definite advantage to having no mortgage in retirement as they haven't saved as diligently.

Good point. It is easy, but wrong to extrapolate to the general population from this select group.

 

[Al in Ohio]

I cant imagine retiring myself without having retired my mortgage first. But then I cant imagine having a mortgage past age 45. The whole idea of long term 30 year mortgages and easy credit is just one way of throwing financial shackles on the populace if they are willing to drink the coolaide.


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[ERD50]

I cant imagine retiring myself without having retired my mortgage first. But then I cant imagine having a mortgage past age 45. ...

Up to that point you were OK, IMO, because you just expressed how you feel about holding a mortgage. You're free do do as you see fit. But then...

... The whole idea of long term 30 year mortgages and easy credit is just one way of throwing financial shackles on the populace if they are willing to drink the coolaide.

I'm not 'shackled' by my low interest loan. And I use that easy credit (assuming you meant credit cards here) every month as much as I can (and pay it off each month). That's EZ. If we 'fixed' this, responsible people who would prefer to hold a mortgage or use credit wisely would not be allowed to. I would not like that. That would be 'shackling' me to be the same as the lowest common denominator. Not the kind of world I want to live in, we already have too much of that.

-ERD50

 

[timo2]

I cant imagine retiring myself without having retired my mortgage first. But then I cant imagine having a mortgage past age 45.

That's great if you are lucky (or unlucky) enough to stay in one location your entire working career. And also remain steadily employed. Many people, if they want to advance in their profession have to relocate, either voluntarily or by their employer. That makes the chances of having a paid off mortgage on any specific property really slim. It is better for many of us to consider a mortgage as a tax deductible form of rent and invest the money instead.

 

[Al in Ohio]

Easily done in any of those situations really. You can easily advance any mortgage and wuicken the payoff as long as your not tempted to refinance a larger amount each time and reach beyond your means with each move.


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[RetireBy90]

+1. I would think key metrics to look at for personal financial health in retirement would be common amounts and ratios like total net worth, monthly retirement income, income to debt etc.

Household A could have a $100K mortgage at 3%, offset by 100K in Treasury bonds at 4% and be worth $10M. Household B could have no mortgage and a total net worth of $100K. Which household is better prepared for retirement?

+1 here also - we plan to retire in 2 years, and just did a refi at 3.5% last year for 30 years.

First, as mentioned several times, this is an individual decision that needs some thought and planning depending on your own personal situation. I think it is crazy not to take 3.5% funds when I average more than that in low risk investments over the last 10 years, but that is my decision and I have to bear the risk. I could pay off the mortgage but most of my net worth is in IRA/401K accounts, so would have to pay taxes to use. I also have 2 army retirement checks (mine and DW) which more than pay the house note. So, I can afford the payments with low risk.

Second, I don't think it is very smart to generalize about an individual decision like this. If you don't have the smarts or desire to figure out for your self, then you may want to follow the general rule to pay off the house before you retire.

Third, seems that there may be a point to consider once we get past the discussion of is it ok to have a mortgage in retirement. There are many more people that are unprepared for retirement than in the past. There have been many reports about low levels of retirement accounts, people planning to work till they die, and other indicators that point to the fact that many are not prepared to fund their retirement. We as a people are not willing to let those that haven't saved eat cat food so we will be paying for the retirement they can't afford, at least some of it. That is a fact. We can discuss as a country how much we support them, if they should get free cell phones or not but we will be supporting them. I don't like it but to rail against facts is just crazy. Well it can be fun for a while, but it doesn't change facts.