Seniors Ponder Choices
Increasingly, seniors are going against the conventional retirement wisdom about mortgages which, always before, preached that a cornerstone of a good retirement was to enter it debt free. That meant without a home loan. And yet about one-third of homeowners 65 and older have a home loan now. That’s up from 22% in 2001. Among seniors 75 and older, the rate jumped from 8.4% to 21.2%. The appeal, of course, is that home loans are cheap with low interest rates. That puts the question in sharp focus: is this good financial planning or is it reckless?
Paying off a home loan brings a sense of relief. Tim Shanahan of Compass Securities Corporation in Braintree, Mass. said: “It’s a great feeling to have no debt and a significant accomplishment to be able to tear up the loan.” But is this still the smartest planning? As more seniors take on home loans, experts are re-opening the analysis. “The short answer to the question is it depends,” said certified financial planner Kevin O’Brien of Peak Financial Services in Northborough, Mass. O’Brien continued: “It depends on how strong the person’s cash flow is or not. It depends on how much liquid savings and investments they have after they might pay it off. It also depends on the balance they need to pay off in relation to their sources of cash flow, and liquid assets.” About one senior in four has told researchers he plans to work past 70 years of age.
Also, at age 70, a person has every reason to claim Social Security – there are no benefits in delaying – so that means many 70+ year-olds now have two checks coming in, plus what retirement savings and pensions they have accrued. That complexity is why Pedro Silva of Provo Financial Services in Shrewsbury, Mass offered this advice: “We like to see clients go into retirement without debt because the tax benefits are using less. If clients will carry a home loan, then the low rates are a great opportunity to lock in a low payment,” Silva continued. “We encourage those folks who don’t foresee paying off their home in retirement, to stretch the payments out as long as possible in order to achieve the lowest rate possible.”
Source: The Street — Want to know more about what might be right for your situation? Contact us for a referral to a financial planner, if you are not already working with one.