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

Hello Scott--

 I have read many of your previous answers to mortgage pay off questions, but still have my own to consider.  I recently retired at age 59.  I am not anticipating going back to work at this point.  As of now, I have pensions that will pay me $52,000/year and investment income of between $55-70K/year from approximately $3 million in investments, 2/3 of which is in taxable accounts.  I have 24 years remaining on a 30 year 6% fixed rate mortgage, with a balance of $310,000. The house has an approximate value of $700,000. I currently make 13 payments of $3900/month and will add an additional $300/month to the payments going forward. 

Is it more prudent to pay off the mortgage now with money from our taxable investment accounts, or keep the mortgage as a tax deduction (our property taxes are approximately $13,000/year)?  Is there any advantage to waiting a few years to pay off the loan, when the return on our investments might increase? Of course, I know there is no way to predict this, but I am also reluctant to remove such a large amount from my invested assets.

Thank you,

JohnMc 

John,

Basically, you are right on the cusp. At your age or younger it makes sense to keep a mortgage because the real dollars you will return are constantly decreasing and you're paying the mortgage out of labor earnings. Retirees generally should pay off their mortgage because it's a risky arbitrage--- betting that your portfolio will earn enough to make the mortgage payments.

You're on the cusp for several reasons. First, you're young enough that making long term payments of depreciating dollars is pretty attractive. Second, unlike many retirees every dime of interest will be tax deductible for you, reducing the effective cost of the mortgage still more. And third, your mortgage is only 10 percent of your investments and even less of your net worth. For you, having a mortgage is modest leverage--- what some would call a good business risk.

Scott

Thanks so much...we have been sweating this question for weeks.  There may come a time when it will be much more necessary to pay the mortgage off.  For now...we will leave things as they are. 

John Mc