I often get this question, and the answer can vary depending on the financial situation. Below are some simple examples that shed some light on the topic.

For example, Bob and Jane are age 70, have $600,000 in their IRA, and owe $250,000 on their mortgage with a payment of $1,671/month. In addition, they receive $5,000/month in SSI.

If they keep their mortgage:

$600,000 in savings with a 6% stock market return over 30 years = $43,589 per year growth. When they take distributions, they pay taxes, say 20%, for a net of $34,871 less $20,052 for mortgage payments, leaving $14,819 per year plus $60,000 SSI = $74,819 to spend annually during retirement. Of course, eventually, several years down the road, they will pay off their mortgage, and their cash flow will increase.

If they pay off their mortgage now:

$600,000 in savings, less than $250,000 to pay off their mortgage, leaves $350,000 with a 6% return over 30 years = $25,427 a year growth. When they take distributions they pay taxes, let’s say 20% taxes, leaving $20,341 plus $60,000 SSI = $80,341 to spend in retirement.

A third option is to convert their mortgage into a Retirement mortgage with no further payments:

$600,000 with a 6% return over 30 years = $43,589 per year growth; when they take distributions, they pay taxes, say 20%, which leaves $34,871 plus $60,000 SSI = $94,871 to spend in retirement. They have $20,052 more to spend and they are not depleting their savings.

Every financial situation is unique, and finding the right solution can make a big difference in retirement planning. If you’re curious about how a Retirement Mortgage might fit into your goals and improve your cash flow, let’s have a conversation.

Contact Summit Mortgage and Investment Company
Eric Rolph | (805) 358-3926