Survey after survey in the United States indicates that one of the biggest worries in retirement is running out of money.

More than a third of retired US investors and half who aren't retired said they worry they will run out of money and be forced to depend on Social Security as their main income source, according to a Wells Fargo-Gallup survey.

You might think that it would make people save more. But few of us even know how much we need to save for a comfortable retirement.

However, one way people can feel better about retirement is to start out with as little debt as possible. And that leads us to a question many financial planners are asked by pre-retirees: Should you pay off that mortgage before you retire?


In the US, the percentage of homeowners 65 and older with mortgage debt jumped from 22 per cent in 2001 to 30 per cent in 2011, according to the Consumer Financial Protection Bureau. Among those 75 and older, the rate nearly tripled, from 8.4 per cent to 21.2 per cent. The median mortgage debt for seniors, meanwhile, increased 82 per cent (from $43,400 to $79,000).

Unlike many areas of retirement planning, there is no easy answer to this question. What is clear is that there are a lot of variables, and there's no one correct answer. So the simplest answer is: It depends.

"It's very dependent on the actual individual," says Jimmy Lee, chief executive of the Wealth Consulting Group in Las Vegas. "So much of it has to do with risk tolerance and their sources of income.

"The people who have more reliable sources of income may be more suited to carrying a mortgage," he says. "They are less dependent on withdrawals from investment accounts. Interest rates are a big factor. In today's low-interest environment, it would make sense to carry a mortgage if your mortgage rate is under 4 per cent and you can get an investment rate of 6 per cent."

It's kind of an emotional thing more than a fiscal thing. At the end of the day, financially it makes more sense to not pay off the mortgage. But that's easy to say in theory and harder in practice.

Lee says that, generally speaking, "Debt-free is preferable and wise."

Mitch Katz, financial adviser and partner at Capital Associates in Bethesda, says having that mortgage paid off helps some people sleep at night.

"It's kind of an emotional thing more than a fiscal thing," Katz says. "At the end of the day, financially it makes more sense to not pay off the mortgage. But that's easy to say in theory and harder in practice.

"We can control only what we can control," he says. "You can go to the gym and eat healthy, and walk outside and get hit by a bus. We can't control that. But, paying off a mortgage, you can control. By paying off the mortgage, it gives you the ability to pay off other things. Emotionally, it's very powerful."


Nick Abrams, financial planner at AJW Financial Partners in Columbia, says it depends on how much money the client has in cash. He says some clients are eager to pay off the mortgage, but he tries to take the emotion out and look at the numbers. When they "run the numbers," sometimes it is clear that it would make no sense to pay off the mortgage because most of their savings are in their retirement plan.

"If a client has enough liquid cash, money outside of the retirement plan, that they can pay off the mortgage and still maintain a healthy cash reserve, we do make that recommendation," he says. "But, if a client is looking at paying off the mortgage, but the majority of the money is in a qualified plan, and they would incur a huge tax bill as a result, we do not recommend paying off the mortgage."

Katz says paying off the mortgage out of your retirement account "sounds good in your head" but is not a good thing.

"When you take money out of retirement accounts, first you have to pay taxes," he says. "In the retirement account, money gets to grow without taxes. The power is in longevity. You are essentially taking something that will produce income later and at an exponential level, and paying into something that will not produce income."

Many people have low-interest mortgages and high-interest credit cards. Get the high-interest credit cards out of the way.

Abrams says he looks at how much guaranteed income a client will have in retirement: "We look at how much will the get out of Social Security, if they have a defined benefit plan, how much they will get, and if they have an annuity. If those numbers are large enough to cover a mortgage and all other expenses going into retirement, we will say don't pay off the mortgage."

But, he says, he takes everything on a case-by-case basis.

"In a perfect world, if a client comes in and has the mortgage paid off before they retire, that would be perfect," he says. "But most people have refinanced or moved up. And we have a considerable number of clients who have mortgages in retirement. But they are still doing well because they have enough income."

Debt is a litmus test, says Charles Winfrey, president of the Rollover Company in Nashville.

"Many people have low-interest mortgages and high-interest credit cards," he says. "Get the high-interest credit cards out of the way."