Editors' pick: Originally published Sept. 29, 2016.
By now it should be well established that financial planners don't like you to carry debt into retirement.
But in this day and age, more retiring couples than ever are entering retirement with debt. The biggest culprit -- mortgage debt. Those memories of our parents and grandparents and the mortgage-burning parties are now distant and fading
The Consumer Financial Protection bureau says the number of homeowners 65 and older with mortgages increased from 22% in 2001 to 30% in 2011, the last year for which data is available. For homeowners 75 and older, the numbers more than doubled, from 8.4% to 21.2%.
When it comes to debt, financial planners say the lower the better. But when it comes to mortgages, they say it depends.
"For some people, we recommend that they pay off their mortgage," says Larry Rosenthal, president of Rosenthal Wealth Management in Manassas, Va. "For others, we don't. It depends on cash flow, if they will stay in that home or not, and how much money they have in retirement plans that have never been taxed before."
Rosenthal says he's a fan of "as little debt as possible in retirement." But, "We tell some clients they need a small manageable mortgage, some we show they should pay it off and some need a big mortgage in retirement."
He says there are times when it doesn't just doesn't make sense to pay off your mortgage. For example, if you have a $700,000 mortgage and $700,000 in your retirement savings accounts. If you use that $700,000 to pay off your mortgage, "Then you are house rich and cash poor," he says.
A better option would be to use $200,000 to pay down the mortgage and keep the half million in your retirement savings.
Rosenthal says most people are retiring with mortgages these days. But also, many are increasingly opting to pay off their mortgages before they enter those Golden Years.
Reid Abedeen, at Safeguard Investment Advisory Group in San Diego, Calif., says most of his clients who retire these days are mortgage-free.
"I would say 90% of the families that we are working with on a retirement plan choose to have their mortgages paid off prior to retirement," he says. "I have very strong feelings that they should walk into retirement with as little debt as possible, especially high interest debt, such as credit cards and student loans."
"In my planning, we will actually take a distribution from a retirement plan in tax efficient manner that allows them to pay down their debt before they retire," he adds. "They didn't want debt going in. We said take a distribution. Take $15,000 distribution this year and a $15,000 distribution next year." Then you have more money available for leisure and other activities, he says.
Rosenthal says he looks at the mortgage issue through the lens of a financial plan.
"We will run a (financial) plan with them paying down the mortgage, and with them not paying it down," he says. "Then we ask if you want to retire and stay in same house and look at cash flow. Sometimes the mortgage is so low they are not getting tax benefit, and they may want to pay it off."
But he cautions, you should not be keeping a mortgage in retirement solely for the tax benefit.
"It's not a tax credit, it's a deduction," Rosenthal says. "There are not as many benefits as one may think if they only carry a mortgage for the tax benefits," he says.
"Moving into retirement years, managing the mortgage is a question that you need to sit down and take a good look at -- how you want to do it and what you want to do," he says.