A Key Factor to a Successful Retirement
Written by: Martin Shields
For many of our clients who are approaching retirement we develop a retirement plan that will outline their cash flow needs and income resource until their mid 90s. The income portion of the plan is vital to a successful plan but as important is properly managing the expense side of the equation. As couples develop their retirement budget, there are a number of variables they need to consider which will be different from when they are working. These differences include not having to pay FICA taxes and not having to save for retirement but they also include increased expenditures for travel, hobbies and other personal interests.
For many couples, a crucial element to successfully managing their expenses is to have their mortgage paid off very close to when they retire. They will still have expenses for property taxes, insurance and maintaining their home but if they can remove the mortgage payment from their expenses that could free up anywhere from 10% – 20% of their annual income.
According to 2013 survey of consumers by the Federal Reserve, approximately 42% of households headed by someone age 65 to 74 had debt that is secured by their home, up from 32% in 2004. This number has increased for a number of reasons including second homes or more expensive primary residences that were purchased later in life and financed with debt. There are also many cases where couples have used the equity in their home to put their children through college.
In any case, when there is a mortgage payment being carried well into retirement, the problem frequently becomes that it limits a couple’s ability to have as much of a safety cushion in their plan in case something unexpected happens and it also limits their ability to fund some variable expenses in their budget such as travel.
Having your mortgage paid off in retirement takes some planning and discipline but the benefit it will provide to your retirement plan is significant and every effort should be made to get to that point.
If you have any questions on this topic or if you are interested in scheduling a free consultation in either our Troy or Saratoga office, please contact us!
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