Home Sweet Home

Home ownership is something that many people can relate to. Over time, we pour ourselves into our dwellings to make them fit us better and keep them functioning. And thankfully we have HGTV to show us what it’s supposed to look like when all that hard work pays off.


The work and love that goes into making a home can make them of high sentimental value. Apart from this, our homes also represent another large actual value, making up around 30% of the average homeowner’s net worth. This inevitable mixture of business and pleasure can make our homes a particularly tricky thing to deal with when we start to approach retirement.


Below are some common questions we get about how


Q: Should I take money from my retirement savings to pay off my mortgage?


A: This is by far our most common question and is one of the trickiest. The question you have to ask yourself is why are you looking to do this? Paying off your mortgage does two things for you; it eliminates debt on the books and frees up monthly cash flow.


Freeing up cash flow is usually a good thing to do, but not necessarily when you use up some of the source of that cashflow to do it. You also have to consider the tax implications of such a move as there may be other more opportune things to do in low income years, especially with qualified money.


To that end, paying off a mortgage just to say it’s paid off is far from an automatic yes. It takes analysis of what other goal you are working toward in doing this to see if it makes sense. If you really are intent on paying it off, don’t forget that you don’t have to do it all at once. You can do simple things like paying more on your home when markets are good to pay it off more quickly.  


A2: Another side of this answer involves looking at your house for what it is; an asset. In paying off your mortgage you are effectively just reallocating your portfolio; moving liquid money into your home. Before making this move you should consider the prospects of your investment. Is your home in good repair and likely to fetch full value? Have housing sales been strong in general and in your neighborhood? What are the factors doing that influence price like interest rates? These are all considerations you should make when evaluating whether or not to contribute more to any investment and they hold true for your home as well.


Q: Should I downsize?


A: Downsizing can be and effective means of utilizing the home value going into retirement. Selling a more valuable home to buy one that is more aptly sized for your current needs can have multiple benefits.

  1. It typically results in a smaller/no mortgage
  2. It makes upkeep more manageable, so your asset doesn’t lose value
  3. It can unlock some of your home equity for liquid use which can strengthen your cash flow. To access even more of your home equity in a downsizing you can look at products like reverse mortgages to keep even more of that asset liquid and ready for use.


On the contrary, the decision to downsize is a tough one and should not be rushed into. Just like paying off a mortgage, whether this is the right move depends on how it contributes to your other retirement goals. It may be the key to you living the retirement you want, or it may be an unnecessary hassle, it all depends on your plan.


The main thing to keep in mind when thinking about your primary residence and retirement is that you actually have many more options that it may seem like. Your decision on if and how your home should play into your retirement plan will rely on both practical and personal factors, but it is not a topic you need to be afraid of exploring.