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When to take social security when paying mortgage

By Terry Savage on November 06, 2013 | Financial Planning / Retirement

Terry, both my wife and myself look forward to your advice and consider you as our goddess of financial planning. We are full aware of your encouraging waiting to take social security at its maximum.

I am 61 years old (62 in august, 2014); retired with $13K annual pension from AT&T; taking 4% from my 401K to supplement my pension; and working part-time. My wife, who is 57, with her plan to continue working as a Nurse till she turns 66 and 4 months when she retires with full social security and small pension. My wife would like me to take my social security next year at 62 and to use a majority of that money to pay off our mortgage. We’re currently paying $2K month on our mortgage,, which is 3.75%, and has 12-13 years to go with the principal at $180K so we estimate with a $600 additional payment (from my $1300 monthly SS) beginning in Sept. 2014, we’d have it fully paid off by the time by wife retires with full pension in Nov. 2022. Do you suggest that we do this strategy with me taking my social security next year at 62?

SAVAGE SAYS: Let me give you some simple math.   Every year you delay taking your SS, it is equivalent to an 8% increase in benefits, upon which you will later receive a cost-of-living increase.  If you give that up to wipe out a 3.75 percent deductible interest expense you are coming out on the losing end of this proposition!

I can well understand wanting to have your mortgage paid off at the time you retire.  But this is not the way to do it.  Now, pardon me after all those wonderful compliments, but the way I see your situation (without knowing details), the real problem is that you retired too soon!  The gap in your planning seems to occur because you are withdrawing money from your plan that should still be inside the plan growing until you are age 70-1/2! Assuming your health permits, you should try to go back to working full time –or cut your expenditures so you don’t have to withdraw from your plan for at least 9 years!

Now, I think this makes sense to you in a general way.  But if you really want to do the numbers, I suggest you contact T. Rowe Price and go through their Retirement Income Modeling service.  (It’s a “monte carlo” modeling scenario that they will do for you.)  Only by doing that can you get the specifics — and the likely results if you continue along the path you are on.  It’s far better than guessing, or crossing your fingers! Try it and let me know what you think.  And, you have to call them, not use the online calculator, but actually talk with one of their financial planners.

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