Do you need to pay off your mortgage before you retire?. In general, lower income households with total investable assets of less than a million are best served working to pay off the mortgage by retirement. Higher income households with over $1 million of invested financial assets may want to think about debt more strategically — in much the way a corporation would. "You are a lot better off if you can bring more money to the table through the strategic use of debt and then target a lower, less-volatile return," says Thomas J. Anderson, in his book “The Value of Debt in Building Wealth,” which discusses the appropriate use of debt for high net worth households. If you itemize deductions, mortgage debt can help reduce taxable income in retirement. Very high-income households may not see all the tax benefits, but the appropriate use of debt can provide creditor protection. Florida's homestead exemption provision allows a virtually unlimited amount of equity to be protected (subject to certain requirements) which is why you see many wealthy folks purchase property there. If you own a business or work in a high-risk profession, it may not make sense for you have more equity than the amount of the homestead exemption in your state. In cases where I advise higher net worth retirees to keep the mortgage, it's because if they pay it off, the only financial assets they'll have left are the funds that are in retirement accounts ) — which means each time they take a withdrawal it's all taxable income. In my more than 20 years of helping folks plan for retirement, I've advised many to pay off the mortgage, and many not to.
You might think that once you reach retirement, your credit score is just one of those things you get to stop worrying about. While it’s true that most retirees won’t be applying for mortgages, it’s not true that you don’t need to maintain a decent credit score. What if you want to apply for a car loan? What about credit cards? You certainly won’t get the lowest interest rates and best rewards programs possible without a good credit score to back you up.
A low credit score can also hurt you if you want to downsize to an apartment, or even move into a senior living facility. You might need a solid credit score to qualify.
Why it’s hard for retirees to build credit
According to FICO, to have a credit score, you must have at least one credit account that is at least six months old. You must also have at least one account that has been updated by a creditor or lender during the last six months.
If you aren’t paying a mortgage, paying off an auto loan, or using credit cards, you might not meet any of these requirements. This might lead to you becoming what FICO calls an “unscorable,” a consumer who has no credit score at all.
Fortunately, there are ways for retirees to continue building credit. They require the same good financial habits you’ve been practicing before retirement.
Use the credit cards you have
You might prefer paying for items in cash. Instead, make small purchases throughout the month with your credit card. If you pay off your entire card balance each month, you’ll continue to boost your credit score. (See also: How…