Should Retirement Planning Include Paying Off Your Mortgages Early?

Should Retirement Planning Include Paying Off Your Mortgages Early?

June 06, 2023

An article in AARP Magazine (Our Big Mortgage Debate) discussed whether to pay off or continue a mortgage during retirement.

That is an important financial planning question. One aspect is mentioned in the article: the guaranteed rate of return from paying off the mortgage compared to the non-guaranteed potential return of investing funds that would have been used to pay off the mortgage.

However, there are other issues that need to be considered before making this decision, including:

  • The effect of the decision on retirement income. Most retirees will need to supplement guaranteed income (Social Security and any pensions) with funds from investments, including bank accounts. Home equity, including money used to pay off a mortgage, cannot be used to supplement guaranteed income without taking out another loan or selling the house. So paying off the mortgage could force retirees to sell other investments or withdraw additional amounts from deferred accounts (IRAs, 401ks, etc.).
  • Home equity has a zero percent (0%) rate of return. Home equity does not generate income in any way. The value of home equity only increases if the home increases in value. And a home’s value is not affected by the amount of home equity. Why would retirees want an even larger portion of their net worth in an asset that has no investment return?
  • Mortgages are a way to counteract inflation. The mortgage payment is fixed while Social Security is fully indexed to inflation. When inflation increases Social Security payments, retirees pay mortgages with cheaper and cheaper dollars.

Consider all these issues when making your decision about a mortgage.


This is for educational purposes only. To learn more about the topics mentioned and if they are suitable for you, consult an appropriate professional. Tax laws can change at any time.

Any information provided in this presentation has been prepared from sources believed to be reliable, but is not guaranteed and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for information purposes only and does not constitute a recommendation.

Arthur Stein and Arthur Stein Financial, LLC are not authorized to give legal or tax advice. For information on your specific situation, please consult your tax advisor regarding any tax implications and your attorney for legal implications. As required by the US Treasury Regulations, you should be aware that this presentation is not intended to be used and it cannot be used for the purposes of avoiding penalties under federal tax laws.

Keep in mind that:

  • Past performance is no guarantee of future performance;
  • Investments involve the risk of loss of principal and earnings;
  • ETFs, mutual funds, money market funds, etc. are not guaranteed by the US Government, the FDIC, a bank or anyone else.
  • “Average annual return” evens out variations in the actual year-to-year returns.
  • ETFs, mutual funds and individual stocks and bonds fluctuate in value and there will always be times when they lose value.
  • None of the information provided is necessarily relevant to anyone’s personal situation. Circumstances differ among individuals and you should not assume that these generalizations or information apply to you.
  • Investments mentioned may not be suitable for all investors.