April 17, 2024

COLUMBIA, S.C. (WIS) – When it comes to preparing for retirement, should you pay off your mortgage or invest?
Josh Bradley from Capital City Financial says both would be the simple answer. However, most people cannot do both.
For people who are retired, are close to retiring and even those who are many years away from retiring, paying off your mortgage and investing are two very important things.
Typically if you’re a conservative investor, and have a lower mortgage balance and higher interest rate, paying off your mortgage is best.
If you are more of an aggressive investor and have a higher mortgage balance and lower interest rate, investing is usually the best course.
What are the financial benefits of paying off your mortgage first?
The biggest benefit is that you get a guaranteed rate of return and when it’s paid off, that’s more income that you have because you don’t have a mortgage payment to do it. That means more cash flow to spend on fun things.
Bradley says be careful. A lot of people use their qualified accounts like IRAs and 401ks to pay it off. Then they are surprised by a massive tax bill that they did not budget for.
Is there a best-of-both-worlds scenario?
With interest rates rising, conservative investments are becoming more attractive. If you are several years away from paying off your mortgage, we recommend you put that extra money into a short-term savings account and once you build up enough money, then you pay it off. This allows you to have a cushion of cash in case something happens between now and when you pay off your mortgage.
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