A Mortgage: Burdensome in Retirement?

One of retirement’s great promises is the thrill of kissing that monthly mortgage payment goodbye. But don’t start puckering up just yet.

Lately, Forbes writes, there has been a shift in thinking that has seen many U.S. financial planners suggest that retirees continue to carry a home mortgage into and throughout retirement.

Reinvest the money from your home equity, and suddenly that new income is making your golden years a little more golden. A brilliant strategy, no?

Well, there can be some drawbacks. Carrying a mortgage in retirement can be a good idea in certain situations, but it is certainly not a one-size-fits-all solution for increasing retirement income.

The basic concept behind this strategy is “you can’t eat your home.”

In other words, your residence produces no income for you and home equity is useless unless you borrow against it. Historically, in the long term, homes provide rates of return below those of diversified investments.

Because home equity typically makes up a substantial portion of a retiree’s net worth, it can arguably serve as a drag on income, net worth growth and overall quality of life in retirement.

So, logically, the next move is to shift assets from your home by taking out a home loan and investing the money in a diversified portfolio that should outperform the after-tax cost of a mortgage, thereby enhancing net worth.

Additionally, investments such as most mutual and exchange-traded funds are easily liquidated and can be sold piecemeal to meet extra spending needs.

This all sounds great, but it’s not that simple, and anytime you introduce more leverage (a mortgage loan) into your finances, there are a lot of things you need to consider. So, what are the benefits and drawbacks of this strategy?

Continue reading this interesting Forbes article on retirement and mortgages …