A mortgage can really weigh us down – or can it? As we come close to retirement, what is the best approach to take where our house is concerned? Join us in discussion with financial expert Pam Krueger who has some important tips to share. Enjoy the show!

 

Margaret Manning:

My guest today is Pam Krueger who is a financial and investing expert. She is an author and television personality. She co-hosts the PBS show MoneyTrack, and has also created a really cool online tool called WealthRamp which connects consumers with fiduciary advisors. Welcome to the show, Pam.

Pam Krueger:

Thanks, Margaret. It’s great to be back.

Margaret:

It’s lovely to have you here. I’m thrilled to have a financial expert on the show because Sixty and Me is a pretty big community of women over 50, many of whom have retired or are certainly planning for it. They are definitely wondering about how on earth they are going to manage this transition.

One of the things I wanted to chat with you about is whether or not you would advise people to pay off their mortgage and have the extra cash flow or do something else. I would really like to hear your opinion.

Pam:

This is a question that so many people have. Honestly, being in a position to even ask the question is so fortunate. If you find yourself wondering, “Should I pay off my mortgage entirely and live debt-free completely, or should I invest those savings,” you are in a wonderful position. I hope we all get to ask ourselves this question one day.

We are going to answer the question in two different ways. First, we are going to use our financial money head. On the finance side, if you or your spouse is still working, and you know that you can afford to take a big huge chunk off of your savings, then yes, you could consider it.

Certainly, there are pros to paying off your mortgage and getting done with it. One of them is, if you have another 15 or 20 years to go on your mortgage, you are going to save tens of thousands of dollars of your future money and interest if you pay it off now.

When you think about it, the money that you are not paying out anymore in interest – that three, four or five present on your mortgage – becomes the return that you are guaranteed to get on that savings now. Since you are not paying it, it’s not coming out of your pocket, therefore it is in your pocket.

Margaret:

There is a psychological part to it, too. The mortgage is most likely your one big debt and to have that opportunity to get rid of it, would be liberating.

Pam:

That’s why I want to answer this both with the financial head and with the emotional side. The emotional side is exactly where your mind goes first. All the pros I just gave you on the financial side, multiply by a hundred because now that you’re free from your debt you feel terrific.

Now you own your house and it feels like a triumph. Intuitively, it does feel like you are supposed to do just that. It gives you a sense of security. But there are reasons why you don’t want to pay off your mortgage ahead of time.

It really depends on how much longer you plan to stay in the house and how much longer you have on the life of your mortgage. So, if your savings is a little bit iffy, but you have that psychological emotional need to say, “I have enough money saved and I just want to get it over with,” financially, that might be the worst thing you can do.

I will give you an example. I have a good friend, and she works really hard. Her husband is retired now but they finally got to that critical point where they said, “We can do it. We can pay off our mortgage.” So they did.

But guess what? In financial freedom, they are trapped, because now all their money is in their house. Even though they plan on staying there for the rest of their lives, all their money is in the house. The freedom of the mortgage may now cost them the freedom to travel and actually feel secure in their retirement years.

They are now realizing that they may not be able to do half the things they could’ve done when they had their money in savings, even though she’s still working. That is a consideration both on the emotional side and on the financial side.

Margaret:

That’s a really good point. I think a lot of people, women in particular, see owning their homes as the thing to do. Women from our generation have been raised to think that if you own your house you have achieved something.

Pam:

They just feel so darn secure.

Margaret:

You are right, though. Where is the money then? You have to keep working.

Pam:

You will be in a different emotional state if you just don’t have the money you need to pay off your mortgage. If we look at it from the perspective of getting out of debt, you should look at credit cards and higher interest debts first. Your mortgage is probably your least expensive debt, so leave it for last.

Then, also, you have got to be looking at other things, like getting higher returns on that savings by investing it really well in a diverse portfolio that earns you more than three or four percent after taxes.

Additionally, you should decide whether you are going to live in your house for the rest of your life. If you think you are going to move in 5 years – why pay off the mortgage? You are saddling yourself. If you have most of your mortgage left and you’re going to be moving, it would be wiser to keep the mortgage and maybe buy your next house, then downsize.

Another financial consideration you should think about is whether you would be giving up a big tax break. If you do have a long life on your mortgage and you do have that interest deduction, that’s a huge amount of money you would no longer get.

I take my deduction every year, and it’s $20 000 off my top line income. If I’m planning to lose that benefit, I’d want to think about what I’m gaining by giving it up.

Here is my recommendation: Talk to a CPA and run some scenarios that will give you a pretty accurate idea about your finances. CPAs have sophisticated software that can run these what-if scenarios that compare scenario A (pay off) to scenario B (don’t pay off).

Sure, there are some free calculators online, but they are nothing more than a good starting point. You need a more thorough run-through, and these calculators could be misleading.

So, the best thing to do is sit down and talk with a CPA. They can use their really powerful software to run a very specific what-if scenario. Then you are going to know with certainty about the financial side of your choices, which will give you the freedom to choose whether you want to make your decision emotionally.

Margaret:

That’s a good point. Your tool, WealthRamp, matches consumers with fiduciary advisors. Can these people help with the scenarios or are you saying a better person for the job would be a CPA?

Pam:

The really good fiduciary advisors – including those who are on my platform – are going to have a team of people they’re working with, including a CPA.

However, if you had no one to go to at all, and if I had to suggest to you to go to someone first I would recommend you go to a CPA first, because I don’t want to see what I am losing in taxes. I want to see everything on it after tax bases.

Margaret:

So then, WealthRamp could be helpful with this as well.

Pam:

Yes, it can. I created WealthRamp because my audiences from the MoneyTrack show kept telling me that they could not find the kinds of financial advisors I was describing –  those who were fiduciary, who put your best interest first and who were not sales people.

You want to find someone who is not a salesperson, but an actual financial advisor. The only people who are actual financial advisors are SCC or state registered. They adhere to the fiduciary standard all the time, and they put it in writing.

Margaret:

Does this information only relate to the United States? I’m guessing most of it does.

Pam:

Actually, it transfers over internationally as well. No matter where you live, you want to be looking for the same level of responsibility. You would want to find a financial advisor who will put your best interests first.

That’s the first and most important concern, that legally the advisor has to put your interest first. Then you want to look at competency and qualifications, and that’s complicated which is why I created my platform.

Margaret:

I advise people to take a look. Where is the best place for them to reach you?

Pam:

Either on www.pamkrueger.com or www.wealthramp.com. Also, we do have a brand new PBS special that will air in 2018. In it we explain what a fiduciary advisor is and what a broker does at a brokers’ firm, that is selling products, and the difference between the two. It’s especially tuned for women over 60.

Margaret:

This is wonderful. I am so happy that we got the chance to chat with you. Thank you so much, Pam. I really appreciate it.

Have you considered paying off your mortgage? What are your thoughts now? How important is your house to you? Please join the discussion below.

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