3 Reasons Retiring With a Mortgage Isn't All That Bad

"Make sure to retire debt-free." It's advice you'll see all over the internet if you're nearing retirement and are trying to solidify your financial plans.

Of course, it's easy to see why experts recommend trying to shed all debt prior to retirement. Once you stop working, you may end up with a limited income that consists of Social Security benefits and retirement plan withdrawals. Not having that income monopolized by debt payments could give you a lot more breathing room.

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But while paying off debt is a generally smart thing to do ahead of retirement, your mortgage may be the exception. Here's why continuing to owe money on your home at that stage of life isn't so bad.

1. It could give you better liquidity

You may be inclined to raid your savings ahead of retirement to enter your post-working years totally debt-free. But it's important to remember that homes are relatively illiquid assets. And at a time when you're not working, tying up too much money in a home could make it harder to cope with unplanned expenses.

Let's say you have a $250,000 IRA balance and you spend half of it paying off your mortgage. If you then run into a series of big bills, like home and car repairs, you could end up draining your savings, which isn't ideal.

2. You may be able to get a tax deduction for mortgage interest

If you itemize your taxes, mortgage interest could serve as a deductible expense. And that could lead to smaller total IRS bills while you're carrying that loan.

Of course, if you're toward the tail end of your mortgage, your monthly payments may be going more toward principal and less toward interest. But even so, there may be some tax savings to reap.

3. Affordable payments could work perfectly well for your budget

A big reason so many retirees are eager to shed their mortgages is that it's one less bill to pay. But if your mortgage payments are reasonable and fit into your budget pretty seamlessly, they don't need to be a source of stress.

Of course, if your payments aren't manageable, that's another discussion. But in that situation, downsizing may be a preferable solution to pay off your home completely.

All told, retiring with a mortgage isn't automatically a terrible thing. And if paying off your mortgage means raiding your retirement savings in a meaningful way, it may not be worth doing.