Last Week’s Question of the Week: As of March 2018, how many trillions of dollars have Americans stashed away into retirement savings? ANSWER: Americans have stashed away $26.6 trillion in retirement savings.
HOST: Your topics today deal with whether or not it makes sense to have a mortgage as we approach retirement? Does it?
KLAAS FINANCIAL: It depends on what kind of retirement people want, and where they ultimately desire to live. Discussing this topic alongside of your future retirement today, can put you in the driver’s seat to either to be debt free, or understand the costs of bringing a mortgage with them.
First of all, if you have a mortgage:
- Is it at a competitive rate? Are you a candidate for refinancing? Although rates have crept up, they’re still very good. 4.4% for refinances at this point; purchases, 3.7% (15yr loan) to 4.3% for 30 yr loans.
- Does it make sense to pay off your mortgage?
- Can you eat your equity in retirement?
- Is your current house the right house for retirement? 2 levels or 1; in the right state? Too much to care for if someone passes away?
HOST: What if you have paid off your house? What are the other expenses to consider?
KLAAS FINANCIAL: Yes, there are other expenses of course.What about your property taxes? Are there states or cities that have better tax rates?
- According to TaxRates.org, in 2017, the median property tax in Wisconsin is $3,007.00 per year for a home worth a median value of $170,800.00. Counties in Wisconsin collect an average of 1.76% of a property’s assessed fair market value as property tax per year.
- Wisconsin has one of the highest average property tax rates in the country, with only eight states levying higher property taxes. If the average person is retired about 18 years, just property tax alone would cost $54,000!
- According to the U.S. Census Bureau, the cost of owning a home doesn’t end with your mortgage loan, you must add maintenance into your budget, which might cost you on average an additional $1,204 a month, or $14,448 annually. This includes home insurance, utility bills, property taxes, lawn care, snow removal etc.
- How much space do you really need? And do these things change over time…growing family, or empty nesters? Don’t try to “keep up with the Jones”… they are probably consumed in debt. Talk this through, and be prudent.
- Happiest retirees are those who don’t have a mortgage in retirement!
HOST: So, what about the idea of renting in retirement?
KLAAS FINANCIAL: This is a very good question. And honestly, we are starting to hear it more often as a possibility to consider.
Do you know for sure where you may wish to live in retirement? 3 kids, 3 different directions? Renting may offer a solution.
Are you interested in maintaining a large household of items, or are you ready to pare down somewhat?
Is too much of your retirement wrapped up in your house? Perhaps by selling your home you could open up possibilities for travel? Less financial strain.
Pros of renting a home in retirement:
- Your housing costs are limited to whatever your rent is. Renting eliminates the risk of growing maintenance costs or unanticipated repairs. And fixed costs tend to work better than variable costs when you’re dealing with a fixed income.
- Renting is almost always cheaper. According to Trulia, it’s generally less costly to rent a home than to buy one. Furthermore, of the 100 cities with the highest population of seniors 65 and older, renting makes more sense financially in 98 locales (though this doesn’t take the potential to leave a home an as inheritance into account).
- You have the flexibility to pick up and move as you please. (When you’re selling a home, you’re at the mercy of realtors, buyers, and market conditions.)
- On the other hand, if your health situation changes, or if you decide you’re ready to relocate to someplace warmer or cheaper, it’s a lot easier to get out of a rental situation than it is to sell a place you own.
HOST: Is there such a thing as a “good debt” to have in your retirement or early pre-retirement years? Like tax deductions for mortgage interest?
KLAAS FINANCIAL: I don’t think there is such a thing as “good debt” to have. Debt does two things. First, it increases risk and, second, it robs you of cash flow. Both these things affect your ability to invest and become wealthy.
It doesn’t make sense to trade prolonged debt and interest payments in return for a little bit of a tax-break — and folks we’re talking a little tax break here. If you pay out $10,000 in interest and you’re in the 25 percent tax bracket, it only saves you $2,500 in taxes.
Interesting fact, the fastest growing area of bankruptcy filers are senior citizens — and college-agers are right behind them.
There are of course are people already in retirement who have done really well. There are, after all, lots of stories out there of fortunes still being made by people who are in their 60s, 70s and even in their 80s. But it certainly would be better to enter those last three decades of your life with a little bit of money.
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.
