Many years ago, when I first started figuring out how much money we would need to retire, I assumed my husband and I would enter our golden years debt-free. However, 24 moves later, we've never stayed anywhere long enough to pay off a mortgage. For a while, the reality of not having our current mortgage paid off before retirement bugged me -- a lot.
Turns out, we're not alone. In the U.S., an estimated 10.5 million homes owned by people 65 and older still have mortgages. At least I know if there's a party thrown for those of us who still carry a mortgage, we'll be invited. I guess that's good news.
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A realization
I spent the first year in our current house whining about how much higher the house payment is than our previous mortgage. Even though I realized it was because we moved to a state with high property taxes and made the purchase when home prices were white-hot, I still found it irritating.
One day, as I was paying bills, I had a simple realization. We pay nearly as much in property taxes and homeowners' insurance as we do in principal and interest on the property. In other words, if we paid off our mortgage today, we'd only be rid of about half the payment. We'd still be responsible for the portion that covers taxes and insurance.
No matter where we live or whether we own a home outright, we'll always have a housing payment. And although I was disappointed with the interest rate we were stuck with when we purchased this home, it's lower than the average return on our investments over the past couple of decades.
I decided to suck it up, be grateful for what we have, and come up with a workable retirement plan. Here's why I think going into retirement with a mortgage will be OK.
A single debt
Last year, I got serious about paying off the other small, low-interest debts I'd let linger. So far, I've gotten rid of our car payments, and we're on track to be debt-free in 12 months (excluding the mortgage). We may not be able to enter retirement mortgage-free, but we're still freeing up additional money by getting rid of all other debt.
Hitting investment goals
Over the past 30 years, the S&P 500's (^GSPC 0.61%) annualized average return with dividends reinvested has been 10.3%. The average return with dividends reinvested and adjusted for inflation has been 7.6%.
I know we won't enjoy high returns every year, and some years will be downright stinky, but even after inflation, the return on our investments outpaces our mortgage interest rate. Continuing to invest makes more sense than paying down the mortgage.
We're good on paper
Between Social Security, a pension, small royalties, and withdrawals from our retirement accounts, we'll be able to live comfortably by full retirement age (FRA) -- even with a mortgage. We won't be wealthy, but comfortable was what we were looking for anyway.
