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?

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.

Invest in real estate without the headache of being a landlord

Imagine owning a portfolio of thousands of well-managed single family rentals or a collection of cutting-edge industrial warehouses. You can now gain access to a $1B portfolio of income-producing real estate assets designed to deliver long-term growth from the comforts of your couch.

The best part? You don’t have to be a millionaire and can start investing in minutes.

Learn More

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.”

For example, if you’re able to claim the mortgage interest deduction, the tax break may offer just enough relief without sacrificing your savings or investment growth opportunities.

The decision also depends on your individual situation.

If you don’t have investments and are relying solely on Social Security for income, then it can make sense to work a bit longer and try to pay down the mortgage for your peace of mind and the extra retirement cash flow this could bring.

If you’re heading for retirement and concerned you can’t carry a mortgage after you leave the workforce, then you may want to explore options such as working longer (either to pay it down or build up more savings), working part-time for the first few years of retirement, downsizing your home or even moving to an area with a lower cost of living.

You could also explore whether a reverse mortgage might be right for you, but this option also comes with a lot of pros and cons.

At 59, Brenda still has several options available to her, but she may want to consult with her financial advisor to determine the best path forward and create an updated plan for retirement.