Ask Terry Questions Mortgage payoff in retirement

Mortgage payoff in retirement

By Terry Savage on July 14, 2019 | Financial Planning / Retirement

I’m 65 and retired that started as SS Disability in 2016. Have 147K parked in a 401k. Have 51K left on a mortgage till 2033 at $437/month. Should I use 401k money to pay off mortgage now and save 25k in interest?

Terry Says

No, I don’t think you should do that.  First of all, you will have to pay ordinary income taxes on the money you take out of your 40l(k).  That could make a real dent in your retirement funds, which you’ll need to withdraw slowly in the future to add to your Social Security.  Second, you will lose all future growth in the 40l(k).  But at this stage of your life, DO make sure you are invested conservatively — in the safest option inside your plan.

You didn’t tell me the interest rate on your mortgage.  If it is over 5 percent, then my answer might be a bit different.  If you are retired, you won’t be able to refinance your mortgage at a lower rate.   So you’d have to take out about half your money just to NET enough to pay off your mortgage after taxes.  A high mortgage rate makes this decision a closer call.  But before making a withdrawal to do this, you need to talk to a tax advisor about the actual tax cost. And be sure this withdrawal, which would be treated as ordinary income, doesn’t disqualify you from any senior low-income programs for which you qualify, including what you will pay for Part D drug coverage from Medicare.

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