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First off I am 73 years old and still working full time but I will retire before the end of the year.
Our total retirement income is $70,598.70 most of which is social security state/government pensions. Reason the social security is so high is I didn't take any benefits until age 69 so the wife and I could live on our social security alone ($4,153/Mo) if we had to. IMO the smartest move I ever did was delay taking benefits.
We have a small IRA where we are required to take $6,444/year and then there's other pensions that bring the total to where it is.
We live in the Midwest having moved 5 years ago from a very low cost of living area to a medium cost of living area. If you are curious the only reason we moved from the warm south to snowy Midwest was to be near family and grandchildren.
We purchased a condo but to get what we wanted we took out a mortgage. Not a huge one but still a mortgage.
If I work until October we would have enough liquid cash, liquid cash is money not associated with IRA's or retirement savings, to pay off the $60,000 but now I am thinking it might not be the smartest move. If we paid off the condo we would only have $25,000 in non-retirement savings left.
Our mortgage rate is 2.5%. Our total minimum payment is $779 but $354 of that is property taxes so the way I see it paying off the mortgage wouldn't be a huge boost.
With the interest running approximately $136/month I am thinking I would rather pay the minimum on the condo payment and keep the $60,000 in a safe account just in case we would ever need money.
In these uncertain times I like the idea of cash and we would always have the $60,000 immediately available to pay the condo off if we had to.
I also like the idea of the bank paying off the property taxes and insurance.... two things I don't have to worry about.
The mortgage on the condo is the only debt we have. We have two fairly new cars that are clear and I do plan on selling one when retirement hits.
I would keep paying the mortgage, especially at the rate that you have (assuming that it's a fixed rate). Housing is a very small percentage of your monthly funds. To build that $60k back up based on the monthly mortgage savings, you're probably already looking at well past your life expectancy. Considering your pension and social security relative to your small mortgage/taxes each month, I'd use that $60k on other things to increase life enjoyment now.
When I retired at 62 I paid off my mortgage. I also had an IRA and savings but never used them. We live comfortably on SS and my pension. I put the annual RMD from the IRA in the bank. I also cut up all credit cards and have had no debt for the last 14 years. That makes me feel secure. In addition to Medicare I also have good health and prescription insurance. When I got sick and was put in the hospital 6 years ago I took out $40K from my IRA, just in case. I took a small hit (about $4K) in taxes but it wasn't significant. I put the remainder in savings as I didn't need the money after all. My hospital bills were $375K but I only had to pay $1700 out of pocket. Based on your RMD it seems you have about $150K in your IRA. That plus $25K in savings should cover any emergency need for funds. Plus without the mortgage you are getting about a $4K tax free raise per year.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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With such a small mortgage, low interest rate and low property tax, I wouldn't worry about that at all. We are also about to retire, and recently went over everything with a financial advisor. Our house payment with interest is about $2,400 and the tax will be much more than the current $8,000 next year. The difference though, is that we have been here a long time and have $1.1 million in equity, so we will sell and pay cash for a smaller house in a less expensive area. We are budgeting to spend about $7,500/month, while maintaining a good amount invested but available if needed.
IMHO and FWIW, the classic dream about paying off a mortgage may have less to do with the actual final payment and burning the mortgage paperwork, than it does with knowing you can. Being financially sound enough to have the choice is really what that dream's all about.
Last edited by Parnassia; 05-27-2022 at 01:58 PM..
In a time of rising inflation, I certainly wouldn't hustle to pay off a 2.5% loan (unless it's an ARM). Why pay it off now, when you can pay it off over time with depreciating dollars?
I'd keep the 60k in cash, but any additional money beyond the 60K in savings I'd apply to the mortgage to pay it down faster. I think that's a good compromise.
In a time of rising inflation, I certainly wouldn't hustle to pay off a 2.5% loan (unless it's an ARM). Why pay it off now, when you can pay it off over time with depreciating dollars?
This is what we're thinking as well. I recently quit paying extra on the mortgage. We're using that money for projects around the house that are flying up in costs.
First off I am 73 years old and still working full time but I will retire before the end of the year.
Our total retirement income is $70,598.70 most of which is social security state/government pensions. Reason the social security is so high is I didn't take any benefits until age 69 so the wife and I could live on our social security alone ($4,153/Mo) if we had to. IMO the smartest move I ever did was delay taking benefits.
We have a small IRA where we are required to take $6,444/year and then there's other pensions that bring the total to where it is.
We live in the Midwest having moved 5 years ago from a very low cost of living area to a medium cost of living area. If you are curious the only reason we moved from the warm south to snowy Midwest was to be near family and grandchildren.
We purchased a condo but to get what we wanted we took out a mortgage. Not a huge one but still a mortgage.
If I work until October we would have enough liquid cash, liquid cash is money not associated with IRA's or retirement savings, to pay off the $60,000 but now I am thinking it might not be the smartest move. If we paid off the condo we would only have $25,000 in non-retirement savings left.
Our mortgage rate is 2.5%. Our total minimum payment is $779 but $354 of that is property taxes so the way I see it paying off the mortgage wouldn't be a huge boost.
With the interest running approximately $136/month I am thinking I would rather pay the minimum on the condo payment and keep the $60,000 in a safe account just in case we would ever need money.
In these uncertain times I like the idea of cash and we would always have the $60,000 immediately available to pay the condo off if we had to.
I also like the idea of the bank paying off the property taxes and insurance.... two things I don't have to worry about.
The mortgage on the condo is the only debt we have. We have two fairly new cars that are clear and I do plan on selling one when retirement hits.
So, what would you do if you were in my shoes?
You will never be able to borrow money at 2.5% again. Don't rush to pay off that mortgage. Your intuition about keeping $60,000 cash in the bank is correct. You should do that in case of some emergency. If you had more I would invest it, but that is a good amount to have for an emergency.
There is a thing I notice among many old people about having to have a "debt free home". Its much more emotional than it is logical. It causes them to pay off low interest rate loans early when this is actually a bad financial move.
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