Talked to 2 Retired Neighbors .. They didn't pay off mortgage, but both have pensions

[cyber888]

Is it common among people with pensions - that they're not too worried about paying off their house upon retirement, especially now that interest rates are low?

As I doing my daily walk/jog this morning, I met a neighbor. And he asked me if I was retired, and I said 'not yet, but maybe in 1-2 years'. Turns out he's been retired for 7 years since 2014 and worked in the same workplace as I have but I joined that workplace in 2017, after he left. He retired at age 62 and immediately got Social Security and has a Pension, so he's 69 yrs old now. I asked if he paid off his mortgage when he retired, and he said 'Nope, and I still have more than $100,000 at 3.25%'.

Another neighbor I talked to the other day who retired at 61 years old and is now around 67 years old also told me she didn't pay off her mortgage and didn't even make a big payment. Still has more than $100,000+. She said she's comfy with her Social Security and her pension. She says her pension, SS, and seasonal income from her family's small farm makes her comfy leaving her mortgage as is.

I don't have a pension and just rely on SS, 401K and IRA, so I feel like I need to pay off my house .. I have a Heloc now and I've been accelerating payments. I also read in some articles that more and more seniors are now retiring with a mortgage. I have a feeling that none of my retired neighbors have paid their homes.

 

[stepford]

This has been discussed here many times, but there's often no compelling financial reason to pay off one's mortgage. If your time horizon is long and your mortgage rate is low then usually you can make/save more money by investing rather than paying off the mortgage principal.

All that said, I paid mine off when I retired. But I did it just because it felt good - knowing full well I'd have probably made at least $2-5K per year more if I'd just left the money in index funds instead. My investment philosophy is more conservative than most around here, though. So just because it felt right for me doesn't mean I'm recommending a premature mortgage payoff for anyone else.

 

[ivinsfan]

Why does it matter what your neighbors do, you aren't them and no two people have the same sets of numbers.


Are you second guessing trying to pay off your house?

 

[friar1610]

After I retired we remained in our house and continued to pay the mortgage for 2 more years. Then we sold that house, moved to a different state for 8 years and paid cash for our house there. Made one more move to our present location where we’ve been for 8 years and also paid cash. So, no mortgage after the first 2 years of retirement.

Began drawing a pension from first career at 50. Retired for good at 58. Now 76.

 

[Bigdawg]

Is it common among people with pensions - that they're not too worried about paying off their house upon retirement, especially now that interest rates are low?

Don't know the answer. We are FI but still sort of working. We have 500K left on a house worth 900K at 2.87%. But, we will have a total of 5 pensions. 2 military, one government and 2 SS when everything is said and done. Those pensions (2 as of now) pay us over 100k/yr now and will eventually pay us over $160k/yr. No desire to pay early other than I throw an extra 1-8 hundred on prinicpal each month depending on how I'm feeling. Don't know exactly when we will pay it off but after 17 months the mortgage is down to under 27 years left. I am assuming this 30 yr mortgage will be paid in 16-19 years or less.

 

[SnowballCamper]

We paid our mortgage off about the time we retired, and live off pension income (both under 50). Paying off the mortgage isn't consistent with maximizing returns, but it goes with minimizing expenses.

 

[skyking1]

If you pay 3% interest and make 4~5% on investments, how does the math work to pay off your home?
That said, we did it and many people do, and it is nice not having the debt seemingly hanging over you.
When we double payed our way out of a 15 year @ 5% mortgage, I knew nothing about investing, it was 20 years ago.

 

[RetiredHappy]

We have been retired for 5 years. Paid cash for our 2 prior relatively expensive homes. This January we bought a "new" home and decided to take a 30-year mortgage because interest rates were too low to pass. We have no intention of paying off in the next 8 years or so. By then, we should have more income than expenses, we will likely to make extra payments then.

 

[rodi]

There's no rule saying you need to pay off your house. Especially if you have a steady stream of secure income.

There are so many threads here about whether to pay off the mortgage... good arguments on both sides.

I chose to pay ours off when I retired just because it made me more comfortable with cash flow. My sis chose to leave hers in place, because her cash flow is better than mine with pension/ss/etc. (My savings are better but my baby pension barely covers the utility bills.)

 

[RobbieB]

Easy question. If you are making more in investments than the mortgage interest, why pay off the mortgage? If you have a lot of cash yeah why not?

I paid off mine early, but mine was 8.25%.

 

[1242Vintage]

I have a pension and paid off the mortgage a few years prior to my retirement 18 months ago.

Paying off the mortgage might not have been the best decision from an investment or tax standpoint, but it sure feels good when that monthly pension deposits hits the checking account and there’s no mortgage payment to make.

 

[GravitySucks]

Had one the first 4 years and paid off the last 4 years. No pension. Nothing wrong with keeping it or paying it off.
Feels good to not have it anymore but I'm taking another out next month for a real estate purchase. Tax smoothing is the biggest advantage for me.

 

[MC Rider]

Dad is 85 and has a mortgage that he could pay off but sees no need to.
We are not retired yet, but thinking to sell high and buy lower for cash and bank the difference. Maybe. Dad has a pension, I wish we had one. Or more.

 

[martyp]

I had two years remaining on my mortgage when I retired. I ER’d at 55 with a generous work pension. With only two years remaining I never considered paying it off early. In any case what difference does it make if the mortgage payments are accounted for in your budget?

 

[rk911]

we paid off our mortgage before retiring at 55. we have three defined benefit pensions between us and we both took SS at 62. i believe strongly in zero debt and eliminating risk on that side of the ledger.

 

[street]

we paid off our mortgage before retiring at 55. we have three defined benefit pensions between us and we both took SS at 62. i believe strongly in zero debt and eliminating risk on that side of the ledger.

So do I. I'm not saying it is bad not too, but my plan has always been to have 0 debt.

I haven't had a home mortgage since I was ~ 29 years old. I built it and paid it off a few years later. I have added on and have done improvements but had no loans to do that work.

I credit having no loans made ER, which gave me more to invest early and compounded for all of those years.

 

[RetiredHappy]

I went back and looked, our mortgage is 6.5% of our expenses, hardly noticeable in the grand scheme of things.

 

[ProGolferWannabe]

We recently purchased a new house and took on a mortgage after being mortgage free for a number of years. We are both retired now. I had considered paying off the note ($260,000 at 3.00% for 30 years) as we have the resources and I am generally more comfortable not carrying any debt. But with inflation ticking up a it recently, I have wondered if it would make more sense to keep the mortgage...my payments would be constant (in nominal dollars), but potentially less (maybe significantly so) in real dollars as time marches on. Seems like a pretty decent inflation hedge.

 

[jollystomper]

It all depends on the size of the mortgage payment relative to the size of one's pension, and the desire to simplify one's financial life.

I retired with a mortgage whose monthly payment was about 10% of my monthly pension income, at a 2.875% interest rate, with 10 years to go. I had not decided to pay it off, I would just evaluate things yearly.

I paid it off after two years of better than expected investment returns and lower than expected cash flow out. En the midst of the pandemic it was clear that we would end up with even less cash flow out. At that point, I figured why not pay it off. That gives me one less financial item to deal with, aligning with my retirement goal of simplifying my financial life.

There is a very well known personal finance radio personality in the DMV area who advocates never paying one's mortgage off in retirement, if one can afford the payments. Perhaps those neighbors are following his guidance.

 

[kgtest]

I am 40, and I will be mortgage free in 10 more years. We refinanced about 3 years ago at 2.75% 15yr and I never regretted it. I will end up saving tons on interest charges.

But we want to ER at 50 with options, and being able to take all the equity out on a sale would be ideal since this is not our "forever" home.

Since I will need to pay for private healthcare for over 15 years I basically wouldn't be able to afford both. For us it makes sense.

I will have a small pension, decent SS when it kicks in, but we will rely on our investments to bridge the gap between those other "legs of the stool".

My dad was able to pay his own mortgage off at age 45 with the help of his investment property cash flow. I am taking his lead, which is only natural because as they say "the apple doesn't fall far from the tree".

I think it just depends on a lot of factors really. I don't like the idea of 15 years of extra interest payments but I doubt I will downsize which means maybe we do take a small note out in ER... time will tell.

 

[bada bing]

I retired last year with 20 years remaining on a 30 year fixed 2.625%. I'm not drawing SS or pension yet, maybe in another 8 years. I'm living off of savings and hobby job in the interim. I'm not about to pay $1 early on the mortgage. I shoulda done a cash-out refi at similar rates prior to retiring. The house equity has grown in the last 10 years and it would have been nice to to put it to work. I don't think I could get the same rates or nearly as easily since retiring.

 

[street]

We recently purchased a new house and took on a mortgage after being mortgage free for a number of years. We are both retired now. I had considered paying off the note ($260,000 at 3.00% for 30 years) as we have the resources and I am generally more comfortable not carrying any debt. But with inflation ticking up a it recently, I have wondered if it would make more sense to keep the mortgage...my payments would be constant (in nominal dollars), but potentially less (maybe significantly so) in real dollars as time marches on. Seems like a pretty decent inflation hedge.

That makes perfect sense. It isn't always best to pay off a debt and are benefits to having debt.

 

[Koolau]

Since money is fungible, it really comes down to the details and has little to do with whether you have a pension or not. If you pay off the mortgage, you have less "other" assets. So it's what you are comfortable with AND the little things like mentioned above: (Repaying debt with inflated dollars is one potential reason to keep the mortgage and your growing non real estate assets.)

Always remember, YMMV.

 

[Romer]

It is a personal thing. I did the math and I would come out ahead if I hadn't paid off the house, but for me it was an accomplishment and one of 3 pillars I needed to achieve to build a successful retirement

Pillar 1 - Pay off House Dec 2020
Pillar 2- Start receiving Pension - July 2021
Pillar 3- Achieve investment balance to retire- I actually achieved this last year and dint realize it Now I am just working a good transition for me and my co-workers

When I paid off my house I felt a HUGE sense of accomplishment. This is my dream house and I plan to die here, well maybe not in the house but I dont plan on moving again.

We have zero debt. It may or may not be the best financial move, but for me its a big part of financial independence. I don't owe anything to anybody except for taxes

 

[ERD50]

Why does it matter what your neighbors do, you aren't them and no two people have the same sets of numbers. ...

Right. Plus, what does having a pension have to do with it? Different people will have different amounts from different sources.

I wasn't taking my pension, and I kept my mortgage (until I sold the house this year). I'm planning on getting a mortgage again at these low rates.

-ERD50