planning for retirement

Retirement 102: Keep the Mortgage?

When planning for retirement, there are several important estate plan factors that we focus on at Phelps LaClair. The first is protecting the wealth you have worked so hard to acquire. The second is the best way to pass on your wealth to the next generation. The third is making sure your wishes are followed should you become incapacitated. This article will look at protecting the value of one of your biggest assets—your house.

As you near retirement age, you may find that this valuable asset requires some reassessment. Should you keep your house for your heirs? Do you still owe money on it? Should you sell it and reinvest? If so, when? There are emotional, physical, and financial considerations to take into account.

Is this house still right for me?

When your children have grown and moved into houses or apartments of their own, your house might begin to seem rather empty. The echoes of little feet have long since faded, the rooms once filled with love and laughter are now feeling silent. Perhaps the stairs are becoming steeper, maybe the grass is growing faster, or the weeds have taken over the flower beds. You may begin to wonder if your house has become too big and too much to manage.

The Burden of Carrying a Mortgage

When planning for retirement, it’s good to remember what Paul Simon said: “Everything put together sooner or later falls apart.” When you consider the cost of maintenance and repairs, you may find yourself thinking that selling is a better option than trying to keep up with a property that has become unwieldy. If you still carry a mortgage, you have another factor to weigh. According to Fannie Mae, 50% of retirees are still carrying a mortgage. Even though more people are carrying a mortgage into retirement than ever before, that doesn’t mean it’s right for you. Would it be better to sell and reinvest the proceeds in other opportunities? There are many people who are investing in annuities these days. Unless you are a gambler, at this stage of life you probably want low-risk rather than high-reward investments.

Or would it be better to pay off the mortgage and keep the house? If you have a low interest rate, this could be advantageous. Once the mortgage is paid off, you would be able to use the extra money to update the house and make it more marketable. The property values in the Phoenix area have risen 7% in the last year. They are predicted to rise another 5% in the next year.

Death and taxes

Every estate plan must take tax liability into consideration. With tax laws changing regularly, you will need an estate planner to keep up. We can help you with that. Do you itemize deductions? There is a cap of $10,000 on the write off for state and local taxes. That includes property taxes. But there may not be an advantage to itemize deductions in order to write off mortgage interest because most of the payment will be toward principal. If you sell, you may not be saving much on the interest side, but you will have more liquidity in a potential real estate bubble burst.

As for estate taxes on the inheritance your beneficiaries will receive, as it stands now, only capital gains will be taxed if the estate value is less than $11.18 million. If you sell and put the proceeds into an IRA, the recently passed SECURE Act may also have an effect on the tax liability of your beneficiaries.

Come see us!

As we stated above, Phelps LaClair (serving Chandler, Mesa, Phoenix and Scottsdale) can help by providing bulletproof estate planning. We can’t make the decisions for you, but we can explain the intricacies of tax laws, property laws, probate, wills and trusts. Come see us for a free first time consultation with no obligation. Planning for retirement doesn’t need to be a mystery; it just requires some wise and thoughtful consideration. In our 40 years of estate planning, we have helped thousands of folks like you to pass on an inheritance and a legacy to the next generation.



 Images used under creative commons license (Commerical Use) 03/10/2020  Photo by Shopify Partners from Burst

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