Should You Retire if You Still Have a Mortgage?

Retiring with a mortgage is a big financial decision -- you'll want to make the right choice.

Retiring changes many aspects of your financial life. You'll no longer have a paycheck coming in, so you'll need to rely on other income sources such as Social Security and savings. And chances are good you'll end up on a fixed income with less money to spend than you had before leaving the workforce.

Since retiring may mean you need to make less money stretch further, you may not want to leave the workforce when you still have a lot of financial obligations. Specifically, if you have a mortgage loan, you should ask yourself these questions to decide if retiring before you pay it down would make financial sense.

1. How will your mortgage affect your monthly budget?

The first big question to ask yourself when deciding if you should retire with a mortgage is what impact your home loan will have on your ability to make ends meet.

Think about the money coming from Social Security and your savings at a safe withdrawal rate. If your mortgage eats up too much of it and leaves you without the money you need, then you'll have to think about waiting to pay off your loan before retiring.

2. Can you afford to pay your mortgage even if things go wrong?

If you have a mortgage on your home, it's absolutely critical you ensure you're able to afford it even if everything doesn't go as planned. The last thing you want is to face foreclosure once you're retired and can't easily go back to work to try to recover from the damage that losing your house causes.

To reduce the chances of losing your home due to a future inability to pay, consider whether you have an emergency fund that could cover housing costs if you face other unexpected expenses that eat up your retirement income. And think about whether you'll still be able to pay the bills if your retirement investments don't perform quite as well as expected.

If you fear the possible future loss of your house, you should seriously think about postponing retirement until your mortgage is paid off and you own the property free and clear so you don't need to worry about the monthly loan bill.

3. How long will it be until your loan is paid off?

If you're close to repaying your mortgage, then it may not be a big deal to have a few months, or even a year or two, worth of payments to make as a retiree. But if it will be many years before your loan balance hits $0, then you may not want to leave the workforce just yet.

A lot can go wrong in a short time as you age -- including developing costly health issues. Ideally, you won't be carrying your home loan for many years once you've stopped working, as this will be one more big financial obligation to cope with.

4. What are your other alternatives?

Of course, when you're deciding whether to retire with a mortgage, you also have to consider your other options.

Obviously, continuing to work until your loan is paid could be one solution, but it's not always possible if no jobs are available or if you have health issues -- or if you are simply ready to be done with your job. You could also think about downsizing to a home you can own mortgage-free, but this can mean a major lifestyle change.

You'll have to consider these alternatives, and weigh the pros and cons of retiring with a mortgage versus your other options, to decide what approach is best for you.