Data & Research February 14, 2014

How a Mortgage Impacts Retirement Income

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

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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.

If moving to another state, retirees should weigh their options before a home purchase. In the report, NCPA Senior Fellow Pam Villarreal uses the State Tax Calculator to consider the example of a 64-year-old New Jersey resident who plans on retiring in Texas, a state with one of the lowest tax burdens, at age 65.

With a home in New Jersey valued at $300,000 and $50,000 left on his mortgage to be paid off in five years, he could move to Texas and purchase a house for the same amount ($300,000) and assume a $50,000 mortgage for 10 years. His monthly payments will be low, but he will gain only $79 a year in additional discretionary income for the rest of his life. Assuming he lives to age 100, his lifetime gain will only total $3,404.

If he instead purchases a $250,000 home using the proceeds from his previous home, he will gain an additional $2,318 in annual discretionary income, resulting in an additional lifetime wealth accumulation of $99,334.

“The State Tax Calculator really demonstrates how mortgage debt can sap your wealth, even in states with lower taxes,” says Villarreal. While paying down higher-interest debt should take priority, Villarreal urges seniors to seriously consider the pros and cons of carrying a mortgage into retirement.

The report, “Retiring Soon? Pay off the House First” is at http://www.ncpa.org/pub/ba794.

Deals & People February 14, 2014

401(k) Advisors Forms East Coast Team

Mike Falcone is head of an expanded team of retirement plan consultants and financial services professionals tasked with growing 401(k) Advisors’ East Coast presence.
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401(k) Advisors, based in Orange County, California, first started expanding its East Coast operations nearly seven years ago, the firm says, around the time Falcone joined the firm. To complement Falcone, who is now vice president of the east region, the firm added four senior plan consultants, a former practicing Employee Retirement Income Security Act (ERISA) attorney, a former practicing actuary and a chartered financial analyst.

Jesse Taylor, a communications manager for 401(k) Advisors, shared the team’s lineup with PLANADVISER:

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  • Mike Falcone, vice president, east region – Falcone joined 401(k) Advisors in 2007 and brings 30 years of experience in qualified plan design, investment due diligence, plan funding and participant communications. Mike leads the east region team in both consulting and new business development.
  • Tim Black, senior plan consultant – Before joining 401(k) Advisors in 2013, Black served as the director of the retirement plan consulting division for NFP Corporate Services in New York. He has 25 years of experience providing best practices consulting services to retirement plan sponsors and participants, the firm says.
  • Charles Catagnus, senior plan consultant – Charles Catagnus joined 401(k) Advisors in 2013, with 30 years of industry experience. Catagnus brings expertise in plan design, administration and recordkeeping, regulatory compliance and fiduciary governance.
  • Richard Fellows, senior plan consultant and ERISA specialist – Fellows is a former practicing ERISA attorney with more than 30 years of experience working with plan sponsors and plan participants. He specializes in fiduciary compliance, plan design and education regarding the ERISA landscape.
  • David Rinehart, plan consultant – Rinehart joined 401(k) Advisors in 2011 with 15 years of experience in portfolio management, client servicing and investment consulting. He is a member of the 401(k) Advisors Investment Committee that conducts money manager evaluations with regard to their qualitative processes.
  • David Shaw, plan consultant – David Shaw joined 401(k) Advisors in 2013 as part of its New York branch office. He has 10 years of industry experience in assisting plan sponsors with investment consulting, plan design, fee analysis, ERISA compliance and fiduciary best practices.
  • Pamela Basse, plan consultant – Basse joined 401(k) Advisors in 2014, with 15 years of retirement plan consulting expertise. She specializes in plan design, investments, fiduciary responsibility, fee analysis and participant communication.

The East Region Team will focus its efforts on clients located between northern Virginia and Maine. The team’s consulting services will focus on helping clients maximize retirement plan outcomes by increasing investment performance, cutting down plan expenses, improving efficiency and helping sponsors meet ERISA compliance requirements.

The team will also host various seminars and online events aimed at plan sponsors—providing information about legislative and regulatory mandates and fiduciary best practices.

More information is available at www.401kadvisors.com.

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