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Dear MarketWatch,
My husband and I are both retired. Right now, we have an $800,000-plus IRA that is unused and $600,000 in sales. He has a pension and Social Security, about $9,000 a month, but two mortgages are unpaid. Our first mortgage is $42,000 with an interest rate of 2.5% and our second mortgage is $160,000 with an interest rate of 8%.
I would like to know if I should pay off my first and second mortgages by selling the shares. One third of my retirement savings goes to my mortgage alone, and if I add up all the expenses, that’s almost two thirds spent. I am now 70 years old and I was thinking of starting withdrawals from my IRA at 73. Should I wait or tap now?
Paying off both mortgages will bring us into the 22% estate tax bracket and ultimately increase our Medicare spending.
See: I’m 71 and can’t decide whether to pay off my mortgage or get a cheap joint venture – what should I do?
Do you have a question about your personal retirement account? Email us at HelpMeRetire@marketwatch.com
Dear readers,
You don’t have to pay off your mortgage by selling your stocks. There are a few ways to go about this.
One mortgage, but not two, can be very worrying for retirees, since many are on fixed incomes, and have a certain amount of money to save for the future. You don’t want to spend your savings too soon, because you need it to last you the rest of your life, but you also don’t want to have this big debt hanging over your head.
Your IRA and stocks are $1.4 million. It’s very interesting. It can certainly be a resource for you to pay off your mortgage, but before you do that, ask yourself what the goal is for that money. Your current retirement income seems to be meeting your needs, but when do you expect to rely on that money for your retirement, such as health care, long-term care, etc.?
And even beyond that – that money will be worth more if a spouse dies, since a portion of your current retirement income (like Social Security benefits) will disappeared.
Before making any decisions, do a financial “check” of your cash in and out, your expected retirement expenses now and 5 , 10, 15 or more years, and what your nest egg means. Make sure you have an emergency account outside of your IRA, shared with the account you use to pay your bills, which may be worth a year or more of your annual expenses.
Back to mortgages. Two popular approaches to debt management include the “snowball” and “avalanche” strategies. With the snowball plan, the goal is to pay off smaller debts first and then move on to larger debts. In this case, your first mortgage will be completely foreclosed and then your second. With the avalanche plan, you do the opposite – the first two, then the first level. In both cases, you pay the minimum payment for each, but send additional money to one or the other.
Some people will probably opt for the avalanche method in your case, because you have 8% interest on your $160,000 mortgage, while others will prefer the snowball method, since that debt it will be faster. Be sure to tell your mortgage lender that any extra payments you make must go directly to the principal, which will reduce the balance faster.
See also: We have $3 million in real estate, which brings in $70,000 a year. Can I earn the same income investing in stocks and shares?
Submit yourself do receive additional income every month from Social Security and pensions, this is a reasonable option. It takes time, but it allows your retirement assets to continue to grow, preventing any large tax bills.
If a plan is too slow for you, which is understandable, you can mix it with your investments. A large backlog will really put you in a higher tax bracket and may hurt your Medicare, as you know, but you can try a small backlog to help you to pay off the mortgage quickly.
Contact a professional and trusted certified financial planner or certified public accountant who can help you manage the numbers. A professional can give you a few ways to think about and see what is the best tax and reasonable way to pay your mortgage as you live your life.
It’s important to remember the big picture when looking to take a chunk out of your retirement assets. If you can afford your mortgage, and still have food on the table, lights and heat in the house and a little extra pillow to feel cozy, having a mortgage in retirement it’s not the worst thing in the world.
But I have two, and if you can bring it down to one, and knock it all out No damage your financial health in the future, you will feel on top of the world.
Reader: Do you have any advice for this reader? Add them to the comments below.
Do you have a question about your personal retirement account? Email us at HelpMeRetire@marketwatch.com