My wife and I are retired. We currently have an untouched IRA worth over $800,000 and stocks worth $600,000. We receive about $9,000 a month in pensions and Social Security, but have an unpaid mortgage. Our primary mortgage has $42,000 remaining at an interest rate of 2.5%, but the secondary mortgage has $160,000 remaining at an interest rate of 8%.
I want to know if I should pay off my first and second mortgages by selling stocks. A third of my retirement money goes toward mortgages alone, and when you add up all the expenses, about two-thirds are spent. I’m 70 now and have been thinking about withdrawing from my IRA at 73. Should I wait or press 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 I should pay off my mortgage or get a cheaper joint pension – what should I do?
Do you have a question about your retirement planning? Email us at HelpMeRetire@marketwatch.com
Dear Reader,
You don’t have to pay off your mortgage by selling your shares. There are several possibilities for that.
Having one mortgage, let alone two, can be worrying for retirees, as many of them are on fixed incomes and have only a limited amount of money saved for the future. You don’t want to use up your savings too quickly because you’ll need them for your entire life, but you also don’t want that huge debt hanging over your head.
Your IRA and stocks total $1.4 million. that’s great. Of course, it can be a resource for you to pay off your mortgage, but before you do that, ask yourself what this money is for. Your retirement income currently appears to adequately cover basic needs, but do you ever anticipate that you will need this money for your retirement, such as healthcare, long-term care, etc.?
And furthermore, will this money be more useful if a spouse dies since some of your current retirement income (e.g. Social Security benefits) will be eliminated?
Before you make a decision, do a financial “study” of your cash inflows and outflows, your expected expenses in retirement now and in 5, 10, 15 or more years, and what that means for your nest egg. Make sure you have an emergency savings account outside of your IRA, your stocks, and the account you use to pay your bills, which could be equal to a year or more of your annual expenses.
Back to mortgages. Two common approaches to debt management include “snowball” and “avalanche” strategies. With the snowball strategy, the goal is to first pay off smaller debts and then take on larger debts. In this case, that would be processing your entire primary mortgage and then your secondary mortgage. With the avalanche strategy you would do the opposite – the secondary first, followed by the primary. In both cases, you pay the minimum payments, but then spend more money on one or the other.
Some people will probably choose the avalanche approach in your case because you have an 8% interest rate on your $160,000 mortgage, while others will be happier with the snowball approach because that debt will be reduced more quickly. Be sure to let your mortgage lender know that any additional payment you make will go directly toward principal, reducing the balance more quickly.
See also: We have $3 million worth of real estate, which earns us $70,000 a year. Can I earn the same income by investing in stocks and bonds?
Because you are again Getting extra money each month from Social Security and pensions is a viable option. It may take time, but it will allow you to continue to grow your retirement savings and avoid high tax bills.
If that’s understandably too slow for you, you may mix up your investments. A larger withdrawal will certainly put you in a higher tax bracket and will probably affect your Medicare, you know, but you can try a smaller withdrawal, which will just help you pay off your mortgages faster.
Contact a qualified and trustworthy certified financial planner or accountant who can help you crunch the numbers. A professional can give you some ways to consider and figure out the most sensible and tax-efficient ways to pay off your mortgage during your lifetime.
It’s important to keep the bigger picture in mind when considering withdrawing some of your retirement savings. If you can afford your mortgage and still have food on the table, lights and heat in the house, and a little extra cushion to keep you comfortable, then taking out a mortgage in retirement isn’t the worst thing in the world.
But you have two, and if you can reduce it to one, you eliminate that completely without Harming your future financial health will leave you feeling like you’re on top of the world.
Reader: Do you have any suggestions for this reader? Add them in the comments below.
Do you have a question about your retirement planning? Send us an email at HelpMeRetire@marketwatch.com
2023-12-09 15:42:46
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