Paying Off Your Mortgage Early Could Be Making a Mistake
Most baby boomers dream of owning their home in retirement. Whether they plan on staying put or moving to a new country, they find the idea of owning their home “free and clear” extremely comforting.
Paying Off Your Mortgage Early Sounds Like a Good Idea
From an emotional perspective, this makes sense. After all, our homes are more than just places that we eat and sleep. They are the center of our lives. They are the castles from which we set out to explore the world. They are our emotional anchors in our otherwise chaotic lives.
Unfortunately, the way that boomers feel about their homes often leads them to make bad financial decisions. Instead of paying off their high-interest rate credit cards, they focus on paying down their mortgage. Instead of maxing out their 401Ks, many boomers spend money on home improvements.
So, before you rush to pay down your mortgage as quickly as possible, make sure that you have taken care of the following priorities.
Invest in Your 401K and IRA
According to a report by Charles Schwab, about 60% of people over 55 have less than $100,000 in savings. They go on to say that 36% of us have less than $10,000 saved.
These are not small numbers, to be sure. But, if you consider the fact that many of us will live well into our 80s and 90s, we have a long way to go to reach true financial independence.
Many companies match their employees’ 401K contributions. But, even if this is not applicable in your case, there are plenty of reasons to invest as much as possible in your 401K and IRA. If you are not taking full advantage of these tools, I highly recommend that you get advice from a financial professional.
Pay Off Your Credit Cards
I know from personal experience that it feels better to put money in the bank than to pay off debt. Unfortunately, this instinct is one of the biggest reasons that people stay in debt longer than they need to.
It makes little sense to accelerate your mortgage payments when you are carrying credit card debt. There are several popular techniques for paying off debt, including the “stack method” and the “snowball method.” Regardless of which one you choose, the first step is to stop creating new debt so that you can focus on paying down your credit cards.
Improve Your Health, Not Just Your Hearth
This might seem like a strange suggestion to include in an article about credit card debt and 401Ks, but, it’s extremely important. Nothing will scramble your nest egg faster in retirement than unexpected medical expenses. The decisions that we make in our 50s and 60s have a huge impact on our health in later life.
I know people who are trying to pay their mortgage off faster, while simultaneously claiming that they can’t afford to spend $40 a month on a gym membership. Many people buy cheap convenience foods for exactly the same reason.
I’m not saying that you need to spend a lot of money to get in shape. There are plenty of ways to improve your fitness without spending a dime.
Thinking of your health as an “asset” is a good habit to get into at any age.
Build Your Skills Before Your New Kitchen
Many baby boomers feel like they cannot afford to invest in their education. As a result, they leave themselves at the mercy of employers who can let them go or sideline them at any moment.
Once again, there are plenty of free ways to boost your technical and business skills. But, if you want to accelerate the process, services like Lynda.com offer excellent value. For as little as $21 a month, Lynda provides.com access to 1000s of training videos on topics ranging from video editing to presenting.
The more marketable skills you have by the time you reach retirement age, the greater your chances will be of achieving financial independence through your own consulting work.
Build a Rainy Day Fund, Not Just a Roof to Keep the Rain Off
Baby boomers have learned the hard way that life is unpredictable. So, it’s amazing that so few of us have set aside a rainy day fund. Having a little extra money in the bank gives you the flexibility to deal with life’s little adventures without taking on additional credit card debt.
If you have already cleared your credit cards, built a rainy day fund, maxed out your 401K and invested in yourself, then, by all means, focus on paying off your mortgage early. But, if not, I hope this article gives you some topics to discuss with your financial advisor.
Do you agree that paying off your mortgage early may not always be the best idea? Why or why not? Please join the conversation.