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The Journey: Paying off mortgage quickly is not always the optimal retirement strategy

McClathcy-Tribune Information Services

August 6, 2018


Q: I will soon make our final mortgage payment. My wife will retire in two years and I will work to age 67. We are both 60 today. Because I donít get a pension I really have been looking forward to this final payment. We bought the house 25 years ago, but I shortened the term of the loan by refinancing to a 15-year loan in 2003. Are we doing well to have the mortgage paid off by age 60? óT.M.

A: Paying off a mortgage before retirement is sort of the baseball-and-apple-pie of retirement. Itís a feel-good way to create a sense of security in your later years. Of course, without knowing the details itís tough to determine if youíre doing well in the larger sense. Assuming your previous mortgage was a 30-year loan, you knocked off five years of interest payments and presumably the 15-year loan was at a much lower interest rate because rates in general declined substantially in that decade. Plus, rates for 15-year loans are lower than those for longer terms. But did you take a bunch of cash out in the refinance or pay a lot in closing costs? Was the cost of the house itself more than you should have spent given your income?

More broadly, how does the rest of your retirement picture look? Plowing that mortgage payment into extra retirement savings now will certainly help over the next several years. But did the higher house payment for the 15-year loan result in you not saving much in retirement accounts? That money could have been compounding all these years. Second-guessing your decisions probably isnít in your best interest, so perhaps the best strategy is to enjoy the freedom of being done with those payments, but make the most of that new cash flow now.

Q: I applied for both survivor and work-related benefits simultaneously and realize now I probably shouldnít have, based on your column about survivors being shortchanged on their Social Security benefits. Iíd like to hear if there is anything I can do. óB.F.

A: Hereís one possibility: If someone applies for benefits and realizes it was a mistake to do so, the application can be withdrawn if done within 12 months of the original application. To do this, all benefits received have to be paid back to the Social Security Administration and the benefit is re-calculated when the person chooses to file again.

Unfortunately, we learned in a follow-up note that this reader was well beyond the first year of payments, so that is not an option. Weíd still like to hear from survivors who were misinformed about their benefit choices and may explore in a future column the extent of those foregone benefits and what strategies financial experts recommend in order to make up for the shortfall.

Q: Iím following up on a column about changes in 2015 to Social Security claiming rules. Iím divorced and my birthdate was in 1954. My former spouse was born in 1953. Can I still take one benefit at full retirement age and switch to the other at age 70? óR.O.

A: This option was eliminated for people born on or after January 2, 1954. So, assuming he or she meets the other eligibility requirements, it looks as though your ex would be able to file for just a spousal benefit at full retirement age and switch to work-based benefits at age 70 to collect delayed retirement credits. No such luck for you. Be aware, however, that you may qualify for survivor benefits when your ex dies, if those would be higher than your own, so keep that in mind as you decide on your strategy. Check out this link from the Social Security Administration: https://www.ssa.gov/planners/retire/divspouse.html.