Some experts say rushing to be “mortgage-free” isn’t always the best strategy, even as boomers try to lessen their financial burden before they retire.
According to Thomas J. Anderson, author of “The Value of Debt in Retirement.”, “A lot of baby boomers aren’t on track for retirement, and rushing to pay off a mortgage could be problematic for a lot of them,” Instead, “having a portfolio of cash and conservative, globally diversified investments gives you liquidity and flexibility,” would be better.
Before refinancing into a shorter-term loan or making extra payments to pay off their mortgage, Boomers should make sure they’ve taken these three steps:
1 – Pay off high-interest credit card debt
2 – Max out retirement savings contributions
While you’re working continue to put as much as money as you can into your retirement savings and get a tax break.
If you’re 50 or older, you can make “catch-up” contributions to your 401(k) and IRA which will put thousands more dollars to your nest egg. With catch-up contributions, a person 50 or older can put up to $24,000 into a 401(k) this year and up to $6,500 in a traditional or Roth IRA.
3 – Build your emergency fund
It’s even more important to keep stashing money in an emergency fund in the years leading up to retirement. Money in the bank will pay your bills, home equity will not. In fact, you want to have enough cash on hand so you’re not forced to take money from your retirement accounts to pay for unexpected expenses in retirement.