Don't like stocks or bonds? Pay off your mortgage
I've blogged before about the benefits of a mortgage-free retirement. A recent Wall Street Journal article looks at the other side of the coin -- the drawbacks of retiring with a mortgage. Here are the key points:
*Like all debt, a mortgage magnifies losses when prices go south.
*It's tough to refinance a house that has declined too much in value. I'll add: Seniors may find it particularly hard to get a new mortgage because they don't have jobs and the value of their assets has declined significantly.
*An interesting quote from Anthony Webb, a research economist at the Center for Retirement Research at Boston College: "A household that carries a mortgage and invests in the stock market is basically trading on margin."
The article also had some eye-opening stats, courtesy of the EBRI, comparing mortgage levels for the 65- to 74-year-old crowd in 1992 and in 2007 (the most recent data). Here are a few:
Percent with housing debt
Median amount of housing debt (in 2007 dollars)
Percent with debt payments exceeding more than 40% of income
Americans feel like they can retire if they have enough money. However, perhaps another way to look at it is: You can retire when you no longer owe too much money.
Robert Brokamp is the senior advisor for The Motley Fool’s Rule Your Retirement service.