AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

I am thinking again of paying off my mortgage considering that the current slipping economy and fluctuating stock market means that my retirement IRA is not making the 6.4% rate of my mortgage.

I am 61, retired for 1 year, with a retirement IRA worth approximately $700K.  Other investments of approximately $200K.

My house is appraised at $204K with a market value of approximately $225K.  The remaining balance is only $27K with monthly payment of $842. 

 What say you?
 

Let's be conservative and assume that you take $27,000 out of a non-IRA account and that there are no tax implications of withdrawal from that account.  This withdrawal would pay off the mortgage and put $842 extra in your pocket each month.

 If you left the $27,000 in the account and used the somewhat accepted safe withdrawal rate of 4-5% you could withdraw $1080 - $1350 per year or $90-$110 per month.  You would have to withdraw $10,100 from your account to equal the $842.  This would be a very UNSAFE rate of withdrawal.

The loss in tax deductions from mortgage interest will be very small, because by now you are paying mostly principal on the mortgage and not much interest.

 This analysis may be skewed because you are already very close to paying off the mortgage anyway.

Pay it off. Look at it this way--- what return could you get on an investment of comparable safety? Short term treasuries are yielding under 3 percent. The only way to get that return would be to take substantial risk, as in buying shares of bank stocks. You might want to do that, but there's a big difference in risk.

If you take the money to pay off the mortgage you can probably do it with minimal additional taxes by taking the money from your taxable account. Before doing that, however, you should also check how much additional money you can take from your IRA account and still be in the 15 percent tax bracket. In my book, we should realize as much income as we can at the 15 percent rate because future rates are likely to be higher and IRA accounts REQUIRE withdrawals after age 70 1/2.

Scott

 Thank you, sir.  I'm thrilled you've confirmed my thinking.