Experts advise paying off mortgage before you retire

BOSTON — Time was when everyone retired debt free, or at least without a mortgage. Now many people retire while still paying that monthly home-loan bill. But should you? The short answer, according to a new Boston College Center for Retirement Research report, is no, no, no.

It’s better to pay down your mortgage than to carry it into retirement. Or at least it is if you have the money set aside in a taxable or tax-deferred account. The reasons are several but boil down to this: In the current environment, your mortgage provides a better return on your money than other risk-free assets. “It is unlikely that many retired households will be able to earn a return on risk-free investments, such as bank certificates of deposit, Treasury bills, and Treasury bonds, that will exceed the cost of their mortgage,” says Anthony Webb in the CRR report.

That, by the way, is the typical analysis most financial experts would do if you asked them whether you should carry your mortgage in retirement. Can you earn more on your mortgage than on another investment, risky or not? At present the answer is clear: A 5 percent mortgage offers a bigger bang for your buck than a 2 percent CD.

It’s also better to pay down your mortgage if you have to borrow to invest in risky assets, such as stocks that invest in China and your brother-in-law’s latest hot tip. And another good reason to pay down your mortgage: You don’t want or need a mortgage payment should calamity strike and you’ve already spent down your nest egg going to the 1,000 places you must visit before you die. In that case, you might die homeless.

By the way, four in 10 households ages 60 to 69 in 2007 have a mortgage, and, of those, one in two have enough to pay down their mortgage. In other words, one in five households has a mortgage and the dough to pay it down. “These households could, if they wanted, be mortgage-free simply by selling some of their investments and mailing a check to the lender,” Webb wrote.