Mortgage Payoff Dilemma

Summary

Podcast Summary: "Mortgage Payoff Dilemma" – Jill on Money with Jill Schlesinger

Podcast Information:

• Title: Jill on Money with Jill Schlesinger
• Host/Author: Audacy
• Description: Host Jill Schlesinger, CFP®, addresses challenging and sometimes controversial financial and investing topics without the jargon, making essential financial knowledge accessible to everyone. Each week, Jill interacts with listeners and guests to uncover valuable insights and provide actionable advice to help maximize financial well-being.
• Episode: Mortgage Payoff Dilemma
• Release Date: May 22, 2025

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Introduction

In the episode titled "Mortgage Payoff Dilemma," Jill Schlesinger delves into a common yet complex financial question: Is it advisable to pay off a mortgage early, especially under constrained financial circumstances? The episode features a thoughtful discussion between Jill and a retired listener named Daniel from Arizona, exploring the intricacies of managing limited assets, low-interest mortgages, and retirement planning.

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Listener's Financial Situation

Daniel reaches out with concerns about his financial stability in retirement. Here's a breakdown of his current situation:

• Age: 60 (turning 69 in July)
• Marital Status: Single
• Income Sources:
  • Social Security: Approximately $2,500 per month
  • Pension: A modest $72 per month
• Monthly Expenses: $2,700
• Savings and Investments:
  • Traditional IRA: $93,000
  • Roth IRA: $28,000
  • Checking Account: $37,000
  • Physical Gold: Valued at $50,000
  • High-Yield Savings Account: $9,600 (3.5% interest)
  • Cryptocurrency: $2,000
  • Emergency Cash: $3,000
• Real Estate:
  • Home Value: $450,000
  • Outstanding Mortgage: $155,000 at a low-interest rate of 2.75%, maturing in March 2051

Key Concern: Daniel is contemplating whether to use his limited savings to pay off his mortgage, hoping that eliminating this debt will make his Social Security income sufficiently cover his expenses.

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Main Discussion: Should Daniel Pay Off His Mortgage?

Jill Schlesinger and co-host Mark meticulously analyze Daniel's predicament, weighing the pros and cons of paying off a low-interest mortgage versus maintaining liquidity in retirement.

1. Assessing the Mortgage:

   • Interest Rate Advantage: Jill highlights the attractiveness of Daniel's 2.75% mortgage rate, stating, "That is such a nice low mortgage interest rate" (05:54).
   • Long-Term Commitment: With the mortgage maturing in 2051, it presents a long-term financial obligation that needs careful consideration.

2. Evaluating Liquid Assets:

   • Limited Cash Reserves: Daniel has approximately $50,000 in readily accessible funds (checking, savings, crypto, and emergency cash).
   • Physical Gold Holdings: Valued at $50,000, but Jill points out the challenges in liquidating gold for unexpected expenses, mentioning, "You need money to do something... you just going to sell gold in the market" (11:58).

3. Traditional IRA Strategy:

   • Utilizing Retirement Funds: Jill proposes a strategic withdrawal from the Traditional IRA to bridge any financial gaps, suggesting, "What if instead of you burning the cash... you were just, like, very methodical about taking some of the money out of the traditional IRA?" (06:40).
   • Growth Potential vs. Mortgage Rate: By keeping the mortgage, Daniel can potentially grow his investments at a rate higher than the mortgage interest, effectively leveraging his assets for better returns.

4. Tax Implications:

   • Tax Bracket Consideration: Given Daniel's modest income, Jill estimates he's likely in the 12% tax bracket. Drawing from the Traditional IRA would incur manageable taxes, enhancing his financial flexibility without sacrificing asset growth.

5. Flexibility and Security:

   • Maintaining Liquidity: Jill emphasizes the importance of having accessible funds for unforeseen expenses, advocating against tying up assets in debt repayment.
   • Investment Growth: Allowing the Traditional IRA to continue growing offers greater security in the long run, especially with a conservative investment strategy.

Notable Quote:

"The biggest problem with paying off a mortgage is that you just don't have control over those funds anymore and you don't have access to those funds." – Jill Schlesinger (10:55)

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Insights and Advice

Throughout the conversation, Jill imparts several key financial principles tailored to Daniel's situation:

• Leverage Low-Interest Debt: Maintaining a low-interest mortgage can be financially advantageous if investments yield returns exceeding the mortgage rate.

• Diversify and Protect Liquidity: Ensuring a balanced portfolio with accessible funds mitigates risks associated with unexpected financial needs.

• Avoid Overconcentration in Non-Liquid Assets: While physical gold can be a hedge against inflation, excessive reliance on it can impede financial flexibility.

• Strategic IRA Withdrawals: Utilizing Traditional IRA funds thoughtfully can bridge income gaps without prematurely depleting retirement savings.

Encouraging Adaptability: Jill encourages Daniel to retain his mortgage and utilize his IRA strategically, stating, "You're betting on 2.75% return until 2051. I think that's a lousy bet. You're going to do better than that." (08:07)

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Conclusion

In "Mortgage Payoff Dilemma," Jill Schlesinger provides a nuanced perspective on mortgage repayment in retirement, especially under financial constraints. For Daniel, the recommendation leans towards maintaining the low-interest mortgage to preserve liquidity and allow his investments to grow, ensuring greater financial security and flexibility in his retirement years.

Jill wraps up the discussion by emphasizing the importance of access to funds and prudent financial planning:

"You need access to your funds because that's where you are in your life." (10:50)

Listeners grappling with similar financial decisions can benefit from evaluating their unique circumstances, considering the balance between debt management and maintaining financial flexibility.

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Additional Resources:

• For personalized financial advice, listeners are encouraged to visit jillonmoney.com and use the "Contact Us" feature to join the conversation or seek assistance.
• Explore more episodes of "Jill on Money" via the Odyssey app or your preferred podcast platform for ongoing financial insights and guidance.

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Notable Moments and Quotes:

• Introduction to Daniel's Situation:

  • Jill: "I'm here trying to help you make better, less bad, more considered financial decisions." (01:52)

• Assessing the Mortgage's Appeal:

  • Jill: "That is such a nice low mortgage interest rate." (05:54)

• On Maintaining Liquidity:

  • Jill: "The biggest problem with paying off a mortgage is that you just don't have control over those funds anymore." (10:55)

• Encouraging Strategic Planning:

  • Jill: "If you were just, like, very methodical about taking some of the money out of the traditional IRA." (06:40)

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This episode of "Jill on Money" provides valuable insights for retirees and individuals facing similar financial dilemmas, highlighting the importance of strategic asset management, the benefits of maintaining low-interest debts, and the critical need for financial flexibility in ensuring long-term security.

Transcript

[Jill Schlesinger]

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[Jill Schlesinger]

Welcome to the Jill on Money show. It's Thursday, May 22nd and we are here trying to help you make better, less bad, more considered financial decisions. If there's something going on in your life, maybe you're starting new job, maybe you're trying to figure out how you're going to upscale your lifestyle to a brand new house. Maybe you're considering two different things that are driving you crazy about your portfolio. Retirement, your kids, college education, whatever it is. Anything that's kind of remotely near a dollar sign. Then get in touch with us. Go to jillonmoney.com just click the contact Us button, which is in the upper right hand corner wherever you are on our website and write us a note if you'd like to join us live. Check the box. Mark will do everything else. And you know we'd love to talk to you because talking to you live is really the greatest pleasure that I have. Just incredible. So today we Are talking to Daniel. Daniel joins us from Arizona. Hello, Daniel. What's going on?

[Daniel]

Hi. I'm retired. I've been retired for almost a year, and I'm just wondering. I didn't have a lot of time to save for retirement. I had to retire partly due to health issues. And I'm just wondering if paying off my mortgage is a good idea.

[Jill Schlesinger]

Okay, let me ask you this, Daniel. How old are you?

[Daniel]

60. I'll be 69 in July.

[Jill Schlesinger]

Are you single, married? Partnered?

[Daniel]

Single.

[Jill Schlesinger]

Okay. And do you receive any pension benefit?

[Daniel]

I do, but it's very small. It's about $72 a month.

[Jill Schlesinger]

I mean, $72 a month. I would earmark that to, like. Okay, that's coffee. Maybe.

[Mark]

Maybe.

[Jill Schlesinger]

I don't even think that'll cover your coffee for a whole month. And how are you living right now? What is the source of your income? Do you receive Social Security?

[Daniel]

Social Security, Yep.

[Jill Schlesinger]

And how much is that?

[Daniel]

About $2,500 a month.

[Jill Schlesinger]

Okay. Does that cover most of your needs or do you need to dip into other money?

[Daniel]

It does. My monthly expenses come to 27.

[Jill Schlesinger]

Oh. So that's not bad. Okay. How much money have you saved? We'll talk about the house in a second. I hear what's coming. But tell us about your savings. Did you participate in a retirement account through work?

[Daniel]

I did. I had a 401k and I moved that to both a traditional IRA and a Roth IRA.

[Jill Schlesinger]

Okay, so how much money's in the traditional?

[Daniel]

That's $93,000.

[Jill Schlesinger]

Okay. And what's in the Roth right now?

[Daniel]

$28,000.

[Jill Schlesinger]

And any other investment accounts, a brokerage account, or anything else that's out there?

[Daniel]

Well, I have checking, which is about 37,000. Now, I have physical gold, which is worth about 50,000. I have a high yield savings account, which is three and a half percent interest. 9,600 there. I have 2,000 in crypto and then 3,000 in emergency cash.

[Jill Schlesinger]

Okay, cash. Cash. Okay.

[Daniel]

Right.

[Jill Schlesinger]

Now, how much is your house worth?

[Daniel]

Last I checked, it was about 450,000.

[Jill Schlesinger]

And you like it? You want to stay there?

[Daniel]

I think so. I mean, if I could sell this house and move to a house about the same size in a better climate, I might do that. Someplace that's more affordable. Maybe, but most likely I'm going to end up staying here.

[Jill Schlesinger]

Okay, you have a mortgage, right? And what's the outstanding amount on that mortgage?

[Daniel]

That's 155.

[Jill Schlesinger]

When is it? How long is it good for? Like, what's the term of this Mortgage.

[Daniel]

The maturity date is March of 2051.

[Jill Schlesinger]

That's a long time from now. Yep. Okay. What's the interest rate?

[Daniel]

I hope I make it that long.

[Jill Schlesinger]

I know, right? What's the interest rate that is through 2051?

[Daniel]

2.75.

[Jill Schlesinger]

Oh, that is such a nice low mortgage interest rate. And you want to pay this off because you don't like it. Like, what's your story? How you. What's going on?

[Daniel]

I'm thinking if I pay this off, I will be able to meet more than meet my monthly expenses with just the Social Security.

[Jill Schlesinger]

Okay, but wait a second, Wait a second. So let's go back a second. So the idea here is, should the. And let me. I'm just reframing. We get this question a million different ways, but I'm going to reframe it. I think in your situation, which is this, you have a limited amount of money saved, right? You have this $93,000 in traditional 28,000 in a Roth. The physical gold you can't really do anything with. You probably don't want to sell your crypto. Is that right?

[Daniel]

More so the gold, I'd rather hang on to the gold because it's outperforming everything.

[Jill Schlesinger]

Okay. But that leaves us with this situation where you have about 50 grand in savings and cash, right? A little bit more 50 grand in gold, which we don't want to plow through all that money. So now my eyes are going to the traditional IRA, because, you know, you're 69. In a few years, you're going to have to start taking money out of that account. So why not start to use that money to just, you know, slowly but surely take some money out of that account? Because if you were to try to pay down your mortgage, the problem is you have no other money to draw on. And if other expenses start to rise in the future, if all of a sudden even you want. Something's happening in the house, you don't have the access to your money, you don't have the liquidity. So if you really think about it, if you really just want to be pretty safe, you have a very low tax bracket right now, right? I mean, I don't know, you don't have a ton of interest in dividend income. So, you know, I presume that you're mostly in the 12% tax bracket. So what if instead of you burning the cash up to make, to fund that difference, that you were just, like, very methodical about taking some of the money out of the traditional ira? How's that Invested that traditional ira, by the way.

[Daniel]

You know, I couldn't even tell you it's with Fidelity. From what I remember when I set it up, I had three or four different choices, and I took the choice that was more conservative.

[Jill Schlesinger]

I mean, look, if you had, if you were taking out like $500 a month from that traditional IRA and we did nothing else, right? Let's just pretend that you're going to take $500 a month out of your traditional IRA and you're going to do that. You pay the extra tax. It's just an extra six grand on your taxes, right? You'll clear the money that will fund your gap. I think that there might be a case for more than that, but let's just pretend it's six grand. You pay the tax, it's due, and you've got your few hundred dollars difference that you funded for your year to cover your expenses, right? And you keep the mortgage. Now, what we're betting on is that your money that's invested, that it will, over time grow faster than 2.75% over time. And I think that that's probably been your case, Daniel, for the last many years that you've seen that. And I'm not saying you have to get, you know, 22% return, but, you know, if you just clock in at a somewhat conservative growth balance kind of portfolio, you know, that means that your traditional IRA will probably be exhausted maybe in 15 years, maybe maybe 20 years. So that gets me from six to your late 80s. And then all of your other money is growing, okay? If you can live with the idea that you're carrying this mortgage because it's such a low interest rate, what would be nice would be, is for you to just make sure that you use that ira, the traditional IRA assets, to fund the difference. And then you have some optionality, meaning that you have money, you're using this money. If you take all this money out of the investments that you have and pay down your mortgage, then you're basically saying, I'm betting on 2.75% return until 2051. I think that's a lousy bet. You're going to do better than that. And I don't know if we are going to be here at 2051, but for the next 15 or 20 years, if all you've done is basically drain your traditional ira, you let your Roth grow, you can do whatever you want with your crypto, but you're kind of like, fine. And then if you sell the house and you find someplace to Live that's cheaper. Or you even find someplace in your area where you say, okay, I live in Arizona, but I'm going to make this up. I'm going to move from Phoenix to Flagstaff. That would be. Seem cooler to me in the summer. But you find something, then you haven't lost the use of your money. So that's kind of the way I look at it. And I think that this is a question we receive from people all the time, which is, should I pay off my mortgage? And the biggest problem with paying off a mortgage is that you just don't have control over those funds anymore and you don't have access to those funds. And I think you need access to your funds because that's where you are in your life. I guess that if you were like, I'm 85 and I've got 930,000, not 93,000, and you just were like, I'm bothered by this. Fine, that's fine. But you don't. I don't think you're in that place. And I don't think we want to lose access to your money. Does that make sense to you?

[Daniel]

I was worried that what I have, that my assets would not last long enough. And I thought if I paid off my mortgage, then I don't have to worry about that. Well, and it would leave me 61,000 in assets still. After I paid the mortgage, I just.

[Jill Schlesinger]

Again, I don't want to. Most of which is gold. Yeah. I mean, and you can't. What are you going to do with your gold? If you have to, actually, then you need money to do something. Like, you need something that is, like, not covered by Medicare or, or your health insurance, your supplemental, or you need a new car. You just going to sell gold in the market to do that?

[Daniel]

I don't know how long it would take to. I mean, to sell the gold. I know that there's a fee and then probably taxes.

[Jill Schlesinger]

Yeah, listen, I hear what you're saying. You know, if you want to do it, go, go, go ahead and do it. I don't think that's the best idea. That's. That's what I'm going to say. We get. Again, if you listen to the show, we get this question a lot. I think having access to your money and allowing it to grow, you're not. I don't think you're going to run out of money. I think you're in better shape and you're a higher risk for something bad happening. If you pay off that mortgage and not having the assets available to do what you want to do. But I hear that. Mark, this is one of those situations where I'm not really sure where the listener is going to go after we get off the air, but I hope at the very least that you're considering it in a somewhat different way. Daniel so we wish you all the best. Let us know what you decide to do and how about that gold? Mark this is all of a sudden the gold bugs are coming out from the listening audience. It's amazing. If you've got a question about paying down a mortgage, if you've got a question about trying to downsize, if you've got a question about how your asset allocation looks based on where you are in your life, get in touch with us. Go to jillonmoney.com, click the contact us button, write us a note, and if you'd like to join us on the air, just check the box. Mark will do everything else because he is the best you can subscribe to us on the Odyssey app or wherever you find your favorite podcasts. Please leave us a rating and review wherever you listen. And of course, please try to lift someone up. Change your work, change your wealth, Change your life. Thanks for listening. We'll talk to you tomorrow.

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