Boston College’s Center for Retirement Research recently published a brief which asked “Should You Carry a Mortgage into Retirement?” It states that although it remains the goal of many households to repay their mortgage by retirement, an increasing proportion are entering retirement with a mortgage.
This Issue in Brief considers whether households should use retirement or non-retirement wealth to pay down their mortgage. It first shows that it is unlikely that many retired households will be able to earn a return on risk-free investments such as bank certificates of deposit, Treasury bills, and Treasury bonds that will exceed the cost of their mortgage.
Liquidity considerations aside, the report finds that households holding such assets will generally be better off using them to pay down their mortgage. It then considers and (for most households) rejects the argument that households should retain their mortgage because they can earn a higher expected return in stocks and other risky assets.
An article from the Wall Street Journal recently covered the topic as well and says that while entering retirement without a mortgage used to be the norm, it no longer applies. "The mentality has really changed in the last few years," says Ronald Meyers, a Fort Lauderdale, Fla., financial adviser. "People were taking on mortgages when they didn’t necessarily need them."
While BC’s report doesn’t mention reverse mortgages, it does provide some interesting analysis. I know there are some financial planners and tax advisors that read RMD, what do you think?