Welcome to how to retire on time, a show that answers your questions about all things retirement, including income taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon, or you can go to www.howtoretireontime.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial advisor, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much talk about it all. Now that said, please remember this is just a show.

Everything you hear should be considered informational, as in not financial advice. If you want personalized financial advice, then request your wealth analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today is my, esteemed colleague, mister David Fransen. David, thanks for being here. Yes.

Thank you for having me here. David's gonna be reading your questions, and I'm gonna do my best to answer them. You can send your questions in right now or anytime during the week. Just save this number, (913) 363-1234. Text them in, (913) 363-1234, or you can email them to heymike@howtoretireontime.com.

Let's begin.

Hey, Mike. Should you pay off your mortgage before you retire?

So it's a tricky question to answer because there's a lot of variability with the question. So as a general rule, we need to live within our emotional and economic limits. Mhmm. So if the mortgage payment is going to keep you up at night, maybe you do pay it off early.

Okay.

If the mortgage payment doesn't keep you up at night, but the house is getting kinda old, maybe you don't pay it out sooner, but you spend a little extra money prepping the house because this is a house that you expect to live in for the rest of your life. You know, like a nice rambler. The master bedroom's on the Main Floor with the kitchen and everything else. There's some stairs to worry about. You know, everyone's situation is gonna be different.

Maybe you intend to sell the house in retirement and downsize. If that's the case, then if you've got a lot of equity and the equity in the house is kind of what you expect to to use to buy the downside house, then maybe you don't need to pay it off early. So it's going to depend on the plan. Now there's a lot of debate over debt itself and is it good or bad. Debt's just a tool.

Let's stop ostracizing certain tools based on absolutes. The idea with debt is if you have debt associated with an asset that depreciates in value, you appreciate the debt. So there's a good chance that you're paying down your principal. Yeah. Right?

You're paying down your principal, which is great, which means the interest rate against you is less and less. So a 5% interest rate on half a million dollars has a lot more pain because you're paying a lot higher interest rate than a hundred thousand dollars at 5%. Yeah. There's also the consideration of how much interest is going against you versus how much you could make in the market. Okay.

Right. So one of the biggest disconnects when it comes to debt that I found is the argument, well, if you have a thousand dollars extra, should you put it in the market, or should you pay off debt? Well, if you've got a half a million dollars in debt, 5% against a half a million dollars against you is much worse than a thousand dollars earning 7% for you. The compounding difference between the two doesn't make sense. So there's a tipping point where you are saying, let's pay down the principal first until a certain point, and then you can make that decision.

Another way to say that is when you're retired, you have assets. So your your hundred thousand dollars that's in the market, let's say it's earning on average six or 7%, should probably stay in the market if your hundred thousand dollar mortgage that's left over

Yeah.

Is going against it, let's say, two or 3%. Right. Because you actually have all the money, you can make an apples to apples comparison. If you don't have the money, then you might pay down the principal a little bit faster. You see the difference there?

Yeah. Debt is a highly nuanced situation, but all things considered, first, follow your emotional comfort. If it's gonna keep you up at night, then get rid of it so you've got that peace of mind because once you own that house, there is a huge relief. It's just yours. Don't keep your mortgage for tax benefits.

If your mortgage is, like, let's say, a hundred thousand dollars left, you've got a million dollars you can put in the market or other assets, and your interest rate's, like, 3%, there's a good chance from a financial standpoint that you ought to just keep it in the market.

Mhmm. You stand more to gain from the gains of the market than what you would save in interest.

Yeah. So hundred thousand in the market versus a hundred thousand paying it off, that means that hundred thousand dollars, in essence, is either seven or 8%. Whatever the market's doing for you, you're getting money Uh-huh. As opposed to avoiding 3% against you. Uh-huh.

You've got around 5% positive arbitrage, which is a fancy way of saying Yeah. Your your net worth is growing 5%

Oh.

As opposed to going backwards.

I get that.

So everyone's gonna be different. But if you have money, that's the the correct calculation. And, your money's supposed to serve you. So if if you're gonna be better off emotionally by just paying off your house, then do it. That's not financial advice because you need to also consider the tax implications.

So if you paid off your house with after tax funds, it's a very different situation than paying off your house a hundred thousand dollars from an IRA. Mhmm. Because you still have to pay taxes on that. That's a huge tax bill. Yeah.

You're listening to how to retire on time. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist.

Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis. Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.