- When you reach retirement age, you can start to take distributions from your retirement account. If you have an account such as a 401(k) or an IRA, you can choose how big of a distribution you want to take. If you want to pay off your mortgage, you can simply take out enough money from your retirement account all at once to do so.
- Perhaps the biggest advantage of paying off your mortgage with retirement dollars is that you can eliminate your biggest payment. Most people who have a mortgage pay more towards this one cost every month than any other bill. Eliminating this can free up a large amount of your cash flow to use for other purposes. You could potentially get by with much less money every month.
- When you pay mortgage interest, you can get one of the biggest tax deductions available to the average person. The amount of money that you pay in mortgage interest is deductible when you file your taxes. If you pay off your mortgage early, you will eliminate this potential deduction. This will increase the amount of taxes that you have to pay during your retirement years.
- You also have to consider the amount of money that you could save in interest. If you have a mortgage with a relatively high interest rate, you might be better served paying off your mortgage early. For example, if the mortgage interest rate is higher than what you earn on your retirement dollars, it makes sense to retire the mortgage debt first. This can save you a substantial amount of money on your interest charges over the years.
- While it can work to your advantage to pay off your debt quickly, it can also negatively impact your retirement savings. If you have to use up a large portion of your retirement savings to pay off your mortgage, it can work against you. Looking at the amount of money that you have saved in a retirement account can provide you with important information when making the decision.
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