September 19, 2021

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Mind on Money: Consider using assets to pay off mortgage before retirement | F. Marc Ruiz: Your Mind on Money

Please don’t be shy, I assure you that I don’t want anyone in retirement to drive a 1978 Toyota or eat cat food, but math is math and if a family’s expenses can be “optimized” before or early retirement, everything just gets better over time. Part of this optimization can be to eliminate a mortgage payment using assets. Let’s examine a hypothetical scenario.

Mom and Dad both want to retire at the end of September at the age of 64. Prior to retirement, the family brought home (the key number, not the salary) $ 7,500 a month after tax and wage deductions. They have college expenses behind, they have no consumer debt or home loans, and a nice savings account of $ 50,000 that they have saved over time.

These numbers tell us as planners that the couple is likely to be spending nearly the amount of their after-tax income every month. Although they haven’t applied yet, they plan to start social security at age 64 and collectively receive $ 3,300 in pre-tax monthly social security. A spouse receives a small pre-tax pension of $ 400 per month. After tax, there remains an income gap of $ 3,800 per month. Between 401 (k) s and IRAs, the couple has amassed $ 725,000 in retirement assets. The models built for this plan work, but not great, the model shows that some spending will decline over the next several decades.