wisdom says you need 70 percent of pre-retirement income
to keep the same lifestyle after you stop working.
makes sense if youíve been putting away more than 20
percent of your income in your final working years. With
those savings, and no more work-related expenses for
commuting and dry cleaning, youíd probably get away
with a lower income.
if you werenít saving heavily to the end, itís hard
to see how youíll reduce expenses 30 percent instantly
at retirement unless youíve paid off the mortgage.
2010, the most recent data available from the Federal
Reserve Survey of Consumer Finances, 40.5 percent of
households nationwide where the head was between 65 and
74 years old were paying a mortgage. But while thatís
down slightly from 2007 (42.9 percent), itís up from
2004 (32.1 percent) and substantially higher than a
really started to uptick around í95, and itís gone
pretty much consistently upward since then," said
Craig Copeland, an economist at Employee Benefit
Research Institute in Washington, D.C.
then, donít more people make paying off the mortgage
before retirement a priority?
said a lot of things changed. Housing values went up and
credit loosened at a time when many baby boomers were in
their 50s. Many families did cash-out refinancings to
help pay for kidsí college tuitions, or renovations.
see a lot of people in their 50s buying bigger houses,
new houses, as their incomes went up," he said.
Cecala, publisher of Inside Mortgage Financing, said in
his parentsí generation, a lot of people planned to
pay off their houses before they retired, then sell it,
move to a smaller house in a warmer climate, which they
would buy with cash and use the rest of the proceeds to
parents, they had a house in Connecticut," he said.
"They viewed that as their retirement, their nest
egg. You donít hear people doing that anymore."
as the mortgage numbers show, a majority of people own
their houses free and clear by 65 ó people like Jim
and Sallie Cappadora.
63, and Sallie, 60, paid off their Ellington, Conn.,
house eight years ago. If they had let their 30-year
mortgage run its standard course on the house they
bought in 1986, theyíd have three years left to pay.
the very first mortgage payment, we paid an extra $50 a
month toward our mortgage, and after five years, we had
paid off 10 years of principal," she said.
1986, they sold the first house for $104,000, and bought
a $158,000 house, with a $90,000 mortgage.
stayed home with their kids for eight years, but later,
after she started working full time as a real estate
agent, she and her husband started putting $100 a month
toward the principal.
in 2003, her husband lost his manufacturing job, when
they had two kids in college. He had covered the family
with benefits, so they had to pay $1,360 a month for
me, it wasnít easy when he was laid off," she
said. Before he lost his job, their annual earnings were
roughly equal. He was out of work for several years.
kids borrowed some of the money it cost to go to
University of Connecticut, but Cappadora said she only
missed five months of putting extra toward the principal
in the 29 years they had a mortgage.
last years of the mortgage, when it was $800 a month,
Cappadora put far more than $100 extra in a month. Some
months she would pay $2,200 toward the mortgage.
the years, they have done a kitchen remodeling and other
interior upgrades, but when asked if they paid for the
projects with a home equity loan, she replied, "Oh,
no, no, no. Itís always been: If you donít have the
money, then donít spend it. Itís the same thing with
said itís possible someone in his 50s could build
assets faster in his 401(k) if he made the right
investments than he would putting money toward mortgage
principal. But, he said, "Even if you think youíre
investing properly, itís impossible to predict (the
said anyone who has a 401(k) employer match should be
putting enough in to get that match.
once thatís done, he says the wisest thing for a
person whoís 55, who has just $30,000 in a 401(k) but
also has 17 years left on a mortgage, would be to try to
reduce the remaining years. If someone had a $130,000
balance at 55, at 4 percent interest, and paid an extra
$175 a month, the mortgage would be paid off in 13 years
and three months.
easier to work two years longer than five years
longer," Copeland said.
the value of the house drops or not, owning a house free
and clear has the same value.
you can get rid of something thatís 20 percent of your
budget, that is enormously beneficial," he said.
"To be able to get rid of that expense is Ö a key
choice they can make that will allow them to have an
her family paid off the mortgage well before retirement,
Sallie Cappadora said theyíve been able to make up
financial ground lost during the layoff. The money she
used to put toward the mortgage now goes into retirement
said not just because of the recession, but generally in
the last decade, one in three people who retire do so
before they planned to, either because they were laid
off and couldnít find another job again, or because
their health prevents them from continuing to work.
you can get your debt paid off before you retire, that
certainly makes life easier if things donít quite work
out like you thought," he said.
Clemens Sr., who owns a Greater Hartford, Conn., real
estate brokerage, is still working full-time at 67, and
has no plans to retire any time soon. He has not paid
off his mortgage yet ó there are five years left on
the loan, and a vacation property also still has a note.
But if he needed to, he has enough investments he could
pay the loan off.
the moment, Clemens is putting more money into stocks.
But he says he plans to have the house free and clear
when he and his wife, an attorney, stop working.
basic financial planning. When you retire, typically
your income drops," he said. "Typically your
single largest payment is your mortgage."
says heís astonished by the number of people in his
generation who have not saved much for retirement.
a lot of people that are going to be in for a rude
awakening," he said. "You canít survive on
Social Security. Wal-Mart can only hire so many
greeters, you know."