Where retirement planning is at issue, among the biggest questions that tend to come up is, should you pay off your mortgage early or save more for your retirement funds? The response is not the same for everyone, but understanding the trade-offs can prove useful in deciding on the best solution for your own financial health.
The cost of having a mortgage in retirement
A study by Harvard in 2023 found that older Americans with a mortgage pay a median of $1,470 a month for housing, compared with just $520 for those who own their home outright. That’s over two and a half times as much.
Having that kind of expense in retirement can be daunting. For some, it may even be a signal that they are not ready to retire at all. But there’s more behind this decision than just desiring to cut the monthly payment. The way you manage your mortgage has ripple effects on the rest of your funds.
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Why paying off a mortgage early isn’t always best
It would initially appear wise to toss more money at your mortgage. You eliminate one bill and enjoy greater peace of mind because you’re paying it off ahead of schedule. But there’s an unseen disadvantage: a dollar invested in your mortgage sooner is a dollar you can’t put towards retirement.
It’s significant because of the compound effect. Money that you invest earlier in life has more time to compound, so you’ll save less overall to get to your retirement goals. If you can eliminate your mortgage over many years instead of putting that money into your retirement accounts, you’ll have to sacrifice a lot later—or fall short.
For example, if you bail on years of appreciation in the market to only concern yourself with your mortgage, you could be desperately trying to recover lost ground when contribution limits on retirement plans catch up with you.
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The role of interest rates
Most likely the biggest consideration in making this decision is your rate on the mortgage.
If you’ve fixed a low rate in the past, say 3% or less, it doesn’t pay a lot to try to pay that down aggressively. That’s because the investments of the stock market typically bring more money back in the long run.
On the other hand, if your mortgage rate is higher—you’re nearer that 6% of 2025—paying it off ahead of schedule might save you more dollars than you’d likely make investing.
Your own financial picture is also a factor. If you owe high-interest debt elsewhere, like credit cards with rates of 15% or more, paying those off should be your top priority before even considering extra mortgage payments.
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Don’t forget about Taxes and retirement accounts
The other piece of the puzzle is how your retirement savings are invested. If you’re in a Roth, for example, the money you withdraw in retirement will be tax-free. That can make it easier to live on mortgage payments later if need be.
Even some retirees find it financially advisable to use their Roth distributions to retire their mortgage balance. Since that money has been compounded tax-deferred, it may stretch further than they realize.
In the end, the decision usually comes down to personal choice. For some, the idea of retiring with a mortgage-free home is worth any expense—regardless of the fact that the figures suggest they would have been better off investing. Others prefer to carry the loan and put more money into the market.
The key is balance. You don’t necessarily need to go one way or the other. Success is achieved by many individuals by keeping up mortgage payments with regularity as well as maxing out retirement savings. This way, you repay your loan in the long term and give your savings room to expand.
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