My wife and I are both retired. Right now we have an IRA worth over $800,000, which is intact, and stocks worth $600,000. We receive pensions and Social Security, which amount to about $9,000 a month, but we have two mortgages that are not being paid off. Our primary mortgage has $42,000 remaining with an interest rate of 2.5%, but the second mortgage is at $160,000 with an interest rate of 8%.
I want to know if I should pay my first and second mortgages by selling stocks. A third of our retirement funds are spent on mortgages alone, and if I add up all of our expenses, almost two-thirds are spent. I am now 70 and was thinking of starting to withdraw from my IRA at 73. Should I wait or touch it now?
Paying off both mortgages would put us in the 22% tax bracket and ultimately increase our Medicare premium.
See: I’m 71 and can’t decide whether to pay off my mortgage or get a cheaper joint annuity. What should I do ?
Do you have a question about your own retirement savings? Email us at [email protected]
Dear reader,
You do not have to pay off your mortgage by selling your shares. There are several ways to do this.
One mortgage, let alone two, can be a source of anxiety for retirees, as many are on a fixed income and have a limited amount of money available for the future. You don’t want to deplete your savings too quickly because you’ll need them for your entire life, but you also don’t want to have this huge debt hanging over your head.
Your IRA and stocks total $1.4 million. It’s fantastic. These can certainly be a source for you to pay off your mortgages, but before you do, ask yourself what the purpose of this money is. Your retirement income currently seems to cover necessities just fine, but do you plan to rely on your investment funds for things like health care, long-term care, etc. at some point? ?
And will that money also be useful when one spouse dies and part of your current retirement income – like Social Security benefits – disappears?
Before you make a decision, take a financial look at your cash inflows, outflows and expected retirement expenses now and in five, 10, 15 or more years, and think about what it all means for your nest egg. Make sure you have an emergency savings account – enough to cover a year or more of your annual expenses – aside from funds in your IRA, stocks and the account you use to pay your bills.
Now, back to your mortgages. Two popular methods of debt management are the “snowball” and “avalanche” strategies. With the snowball strategy, the goal is to pay off small debts first, then move on to larger ones. In this case, that would mean tackling your primary mortgage and then your secondary mortgage. With the avalanche strategy, you would do the opposite: secondary first, followed by primary. In either case, you’ll make the regular payments for each and then spend additional money on one or the other.
People who would go for the avalanche method in your case would point to the 8% interest rate on your $160,000 mortgage, while others would be happier with the snowball approach because that debt would be crushed faster. Be sure to tell your mortgage lenders that any extra payments you make should go directly toward principal, which will reduce the balance more quickly.
Also see: We have $3 million in real estate, which brings in $70,000 a year. Can I earn the same income investing in stocks and bonds?
Since you have extra money each month from Social Security and pensions, this is a viable option. It would take a little time, but it allows your retirement assets to continue to grow and avoid big tax bills.
If this plan is too slow for you, which is understandable, you can mix up your investments. A large withdrawal will absolutely put you in a higher tax bracket and potentially affect your Medicare costs, as you know, but you can try a smaller withdrawal that will just help you pay off the mortgages faster.
Consult a qualified and trustworthy certified financial planner or certified public accountant who can help you do the math. A professional can suggest some avenues for you to consider and will advise you on the most tax-efficient and reasonable ways to repay your mortgage while still living your life.
It’s essential to look at the big picture when considering withdrawing part of your retirement assets. If you can pay your mortgage and still be able to put food on the table, keep the lights and heat on in the house, and have a little extra cushion to make you feel comfortable, having a Mortgage in retirement isn’t the worst thing in the world.
But you have two, and if you can get that number down to one and then eliminate it completely without harming your future financial health, you’ll feel on top of the world.
Readers: Do you have any suggestions for this reader? Add them in the comments below.
Do you have a question about your own retirement savings? Send us an email at [email protected]
2023-12-29 17:02:19
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