I’m 59 years old, single and dreaming of retirement — but I’m still carrying an $81,000 mortgage balance. Do I have to wait to leave the workforce until it’s fully paid off?

By 2022, that number jumped to 41%, according to a report from the Joint Center for Housing Studies of Harvard University (JCHS).

In 2022, homeowners aged 65 to 79 had a median mortgage debt of $110,000 — more than a 400% increase from 1989, according to JCHS. The picture is even more drastic for those over 80, whose median mortgage debt ($79,000) increased more than 750% from 1989 to 2022.

So, should Brenda keep working to avoid lingering debt in her later years?

Pros and cons of paying off your mortgage before retirement

Whether or not you choose to pay off your mortgage before retiring often comes down to personal choice, regardless of whether it’s the best financial move.

For some, the peace of mind that comes from not having a large outstanding debt in retirement outweighs any financial downsides.

After all, as long as you’re carrying a mortgage, there’s always some risk of foreclosure — and if you’re out of the workforce, this can be much harder to recover from.

The decision isn’t clear cut. Since housing costs are lower when you no longer have a mortgage, paying it off may free up cash for other expenses.

On the other hand, using a large chunk of your retirement savings to pay off your mortgage may reduce the monthly amount you can draw from in retirement and hurt your cash flow more than having a mortgage payment would.

The money you use to pay down the mortgage goes toward your home equity, which isn’t easily available for cash flow. Also, taking a large withdrawal from a 401(k) or other tax-deferred plan can raise your tax rate for the year and potentially increase your Medicare Part B premiums.

You may want to avoid taking a lump-sum pension payout to pay down the mortgage. If you don’t roll the payment directly into an IRA or employer-qualified plan, then it will be taxed as income. Even worse, if you do this before you turn 59 ½, you’ll face a 10% early withdrawal tax penalty.

Relative returns play a big part

It may not make sense to pay off your mortgage if your potential investment returns are higher than the interest on your mortgage. In other words, you may not want to pay down a 5% mortgage with money that could be earning 8% if it stays invested, advised Dana Anspach, founder of a financial advisory firm in an interview with U.S. News & World Report.

However, “while it’s possible to make more money in the market than paying off your mortgage, it’s not guaranteed,” Jay Zigmont, founder of Childfree Wealth in Mount Juliet, Tennessee, told U.S. News. He tells clients to “look at paying off their mortgage as a tax-free, risk-free return of the interest saved.”

But not all advisors agree. “Paying off the mortgage at retirement is rarely beneficial,” David M. Williams, director of planning services for Wealth Strategies Group, told MassMutual in March. “Maintaining and managing a mortgage may actually improve retirement cash flow.”