We are in our 70s. Should we pay off our 2.5% mortgage or build up our savings?
“Let’s say 10 years from now, when I’m 84, we need a substantial amount of cash.”
For many retirees, managing debt and savings is a delicate balance. In this case, the couple has a low-interest mortgage at 2.5%, which is a relatively favorable debt obligation. Paying off the mortgage would eliminate a fixed expense, providing a sense of security and reducing their monthly outgoings.
However, depleting their savings to pay off the mortgage could leave them with limited liquidity and flexibility to meet unexpected expenses or cover potential long-term care costs. As the couple mentioned, they anticipate needing a substantial amount of cash in 10 years, at age 84. This suggests that preserving their savings and investments might be a more prudent strategy, allowing them to maintain access to funds when needed.
Going forward, the couple should weigh the pros and cons of paying off their mortgage versus building up their savings. They may consider consulting a financial advisor to determine the optimal strategy based on their individual circumstances, expenses, and income. Key factors to watch next include their overall financial situation, projected expenses, and potential sources of income in retirement, such as pensions, Social Security, or investments.
Originally reported by marketwatch.com. FundNews adds analysis for finance & markets readers.