Ask Terry Questions Retirement planning: use 40l(k) to pay off mortgage?

Retirement planning: use 40l(k) to pay off mortgage?

By Terry Savage on December 15, 2013 | Financial Planning / Retirement

Have already retired (4 years; 64 years old) and still maintain a mortgage on my home. Recently refinanced (HARP) for a 3.6 interest rate. Have a 401K and considering paying off home loan but would leave very little in the 401K account. No other excess debt and only one credit card. Pension being received from the State of Illinois. Would like to do more traveling but status of State of Illinois pension fund puts me in limbo for spending additional money and saving 401K as emergency fund.

Terry Says:  If you want my honest answser, you retired too soon!  Unless you have a health condition that you feel will materially shorten your life, you should at least find a part time job to supplement your income until your mortgage is paid off.  I would NOT withdraw money from your 40l(k) because you’ll lose all future tax-deferred growth.   And you’re likely to need that money in your old age.  Plus, you’d have to pay taxes on it to get the money to pay off your mortgage.  And that 3.6% rate is really a good borrowing rate.  Again, let me say that the real solution to your problem is more income — from another job!

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