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How a Mortgage Impacts Retirement Income

Does your employee retirement education include information about carrying a mortgage into retirement?

It can have a big impact on retirement wealth, says a report from the National Center for Policy Analysis (NCPA). Retirees have many reasons for carrying mortgage debt. For example, if the mortgage payments are small, a worker may not consider it an issue to pay them in their retirement years, or some retirees may purchase a home to move to a less costly, low-tax state to reduce their living expenses.

Retiring with mortgage debt is becoming much more common. According to research from LIMRA, for those ages 55 to 64, 37% of people were retiring with mortgage debt in 1989, while 2010 saw that figure rise to 54%. For those ages 65 to 74, the figures over the same time frame increased from 22% to 41%. And for those 75 or older, the figures over that period increased from 6% to 24%.

Mortgage interest may not concern some retirees, as it is a tax deductible expense. But, the NCPA article points out, Social Security benefits and retirement account income will likely put retirees in a lower tax bracket than while they were working. Itemizing, therefore, may not be the best way to reduce their overall tax liability. For tax year 2013, the standard deduction is $6,100 for singles or marrieds filing separate, and $12,200 for marrieds filing jointly, which could be more than if they itemized. So paying interest on a mortgage gives the homeowner no tax advantage.

Rebecca Moore editors@plansponsor.com