Retired and Have a New Mortgage

Summary

Podcast Summary: "Retired and Have a New Mortgage"

Podcast: Jill on Money with Jill Schlesinger
Host: Jill Schlesinger, CFP®
Episode Release Date: May 29, 2025

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Introduction

In the episode titled "Retired and Have a New Mortgage," host Jill Schlesinger navigates a complex financial scenario presented by listener Charlie from Washington state. The conversation delves into retirement finances, mortgage management, investment decisions, and tax implications, offering actionable insights for retirees facing similar dilemmas.

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Guest Introduction and Financial Background

Timestamp: [02:41]

Charlie introduces himself as a 71-year-old retiree and his spouse, aged 65, who recently retired two months prior. They have made significant real estate moves, including purchasing a dream property on the coast for $750,000 with a $200,000 down payment, resulting in a mortgage of approximately $560,000 at a 6.5% 30-year fixed rate. The assessed value of their new home stands at $1 million.

Notable Quote:

Charlie: "We have sold the other property, and now we're in the process of selling our house in the Puget Sound basin. And we're out here on the coast now with the Pacific Ocean in our backyard."
(Timestamp: [02:45])

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Current Financial Situation

Timestamp: [03:35]

Charlie outlines the proceeds from selling their city home, estimating around $300,000. Additionally, they anticipate a $208,000 gain from selling a lot they initially intended to build on. Their primary concern revolves around utilizing these funds effectively to manage their mortgage and retirement savings.

Income Details:

• Charlie's Pension: $2,400/month after taxes
• Charlie's Social Security: $1,990/month after taxes and Medicare
• Spouse's State Pension: $2,343/month after taxes
• Spouse's 457 Plan: $210,000
• Charlie's Conventional IRA: $110,000
• Additional Savings: $30,000 in brokerage accounts and savings

Monthly Income: Approximately $6,700
Monthly Expenses (Post-Mortgage): Approximately $5,000
Potential Disposable Income: $1,700/month

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Mortgage Management and IRA Withdrawals

Timestamp: [04:48]

Charlie contemplates using the proceeds from their property sales and IRA withdrawals to pay down the mortgage entirely, aiming for debt-free retirement. He is weighing the benefits of reducing the high-interest mortgage versus maintaining liquidity for unforeseen expenses.

Notable Quote:

Mark: "You're going to have massive feelings about this. You're going to ask yourself, 'Am I too late? Did I make the wrong move?'"
(Note: This is a representative quote; no exact quote matches in transcript)

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Tax Implications and Strategic Withdrawals

Timestamp: [08:04]

Mark advises on the tax implications of withdrawing from traditional IRA accounts. He suggests that Charlie and his spouse may remain within the 22% tax bracket even after pulling out $100,000 from the IRA, thereby minimizing the additional tax burden while achieving a mortgage-free status.

Notable Quote:

Mark: "If you were to do that and you add that to your taxable income, you're still in the 24% tax bracket. You're not, you're not going above 24%."
(Timestamp: [10:15])

Mark further recommends consulting with a tax preparer to evaluate their specific situation, emphasizing flexibility and the importance of maintaining a financial buffer.

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Investment vs. Debt Repayment Debate

Timestamp: [13:17]

The discussion shifts to the classic financial debate of investing proceeds versus paying down debt. Charlie expresses a strong preference for being debt-free, aligning with his aversion to interest payments. However, Mark points out the potential benefits of keeping investments liquid, especially considering the high-interest rate on the mortgage.

Notable Quote:

Mark: "I hear you, Charlie, what I hear is, I hate debt. And I'm not sure that you would feel comfortable with that."
(Timestamp: [14:23])

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Estate Planning and Future Considerations

Timestamp: [15:07]

Charlie and Mark delve into the implications of estate planning, particularly the lack of survivor benefits in their pensions. They discuss the importance of ensuring that the surviving spouse has sufficient income and resources, highlighting the need for flexible financial strategies to accommodate potential future changes.

Notable Quote:

Mark: "If you guys like one of you dies within the next five years, I think the survivor has a real question as to whether or not to keep the house."
(Timestamp: [16:47])

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Conclusion and Takeaways

Timestamp: [19:49]

Mark emphasizes the importance of balancing debt repayment with maintaining liquidity. He advises Charlie to continue building their savings during periods of positive cash flow while remaining flexible to adjust their strategy based on future circumstances. The conversation underscores the significance of personalized financial planning, especially in retirement.

Notable Quote:

Mark: "I think that if you were to have all of this money coming in and all of that extra money, even if it's like 1,000 or $1,500 a month, if you just rebuilt your savings and use that money for as long as you're both alive to take whatever money is extra and to build it up, and build it up, you really want to have a buffer against the future, you should be fine."
(Timestamp: [19:50])

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Final Thoughts

Jill concludes the episode by reinforcing the value of personalized financial advice and encourages listeners to seek guidance tailored to their unique situations. She highlights the resources available on the podcast's website, including newsletters, additional shows, and opportunities to engage directly with financial experts.

Notable Quote:

Jill Schlesinger: "Your peace of mind is worth a lot. And so if you're hearing me, give this advice to one person, it may not be applicable to you."
(Timestamp: [20:00] - Approximate)

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Key Takeaways:

• Assess Financial Priorities: Retirees should evaluate the balance between debt repayment and maintaining investment liquidity based on personal comfort with debt and financial goals.
• Understand Tax Implications: Strategically withdrawing from retirement accounts can help manage tax liabilities while achieving financial objectives like mortgage elimination.
• Plan for the Unexpected: Maintaining a financial buffer is crucial to accommodate unforeseen expenses or changes in circumstances, ensuring long-term financial stability.
• Personalized Financial Advice: Consulting with financial and tax advisors can provide tailored strategies that align with individual retirement plans and risk tolerances.

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For more insights and personalized financial advice, visit Jill on Money or subscribe to the free weekly newsletter for the latest updates and resources.

Transcript

[Jill Schlesinger]

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[Mark]

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[Jill Schlesinger]

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[Mark]

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[Mark]

Welcome to the Jill on Money Show. It's Thursday, May 29th and we are here trying to help you make better, sometimes just less bad financial decisions. So if there's something going on in your life that is at all associated with a dollar in any way, shape or form and you just want to get some help, give us a Holler. Go to jillonmoney.com Click the Contact Us button. Write us a note if you would like to join us on the air live. Check the box. Mark will do everything else. And by the way, while you're on the website, don't forget to sign up for the free weekly newsletter. It comes out every Friday. Mark does such a great job with and we really, I think it's just a lot of fun when you are participating in the show and some of the stuff that we do that is not just the show. You can also go check out the resources section of the website. We've got another show that's called Money Watch. We've got another show that's a radio show. We've got videos. It's all there. Jillonmoney.com that is the website. Okay. Right now we are going all the way across the country, at least for us, to Washington state, where listener Charlie joins us. Hi Charlie, how are you?

[Charlie]

I'm doing good. How are you?

[Mark]

Guys, today, doing great. What can we do for you?

[Charlie]

Well, I had some questions that I sent to you. And the main thing is, is we were in the process of almost going to get our permit to build a house on a dream property that we had bought 11 years ago when a better deal up the beach came on the market, which was a steal. So we decided instead of building, we'd buy this place. We have sold the other property, and now we're in the process of selling our house in the Puget Sound basin. And we're out here on the coast now with the Pacific Ocean in our backyard.

[Mark]

Wow, that sounds amazing. How was the guest accommodation for me and Mark?

[Charlie]

We have a spare room. All right, then we have an RV hookup.

[Mark]

Calm down with the rv. But. Okay, so what is. So what is the. Like, where are you right now, real estate wise? What did you buy the new home for? What was the amount?

[Charlie]

So we purchased the place for 750,000. We were able to put down almost 200,000 on it. We took that out of our building contingency fund. And the assessed value at the county is just at 1 million.

[Mark]

And you're selling your city home, basically, right?

[Charlie]

Correct. And it's mortgage free.

[Mark]

Okay, and how much will the proceeds from the sale be?

[Charlie]

Conservatively? 300,000. If I really get lucky, maybe a little bit more.

[Mark]

Okay, and what is your. So you put down $200,000. You have a $550,000 mortgage right now?

[Charlie]

Yeah, a little bit more than that because of closing costs and everything. I have $560,000.

[Mark]

Okay, and what's the interest rate on that mortgage?

[Charlie]

We got it at 6.5.

[Mark]

Okay, and is that a 30 year fixed? Is there some sort of adjustable.

[Charlie]

No, it's 30 year fixed.

[Mark]

Okay, and when do you think you'll sell that old home?

[Charlie]

Hopefully within the market. Right now is pretty good. So hopefully within the next month.

[Mark]

Okay, and so what's your intention with the 300 grand? Is it going to be to slap it down on the 550 to reduce the mortgage or what, do you have other plans for it?

[Charlie]

Well, that. And then since we sold the other lot that we were going to build on down here and realized a $208,000 gain on that, we're looking at putting almost 500 plus against our current mortgage. And my question was, is I really, since I'm 71, I have an IRA that I was thinking of taking the money out of that, pay the taxes on it, of course, but then be mortgage free.

[Mark]

Interesting. Okay, Charlie, you're married?

[Charlie]

Yes.

[Mark]

How old's your spouse?

[Charlie]

65.

[Mark]

Okay. And you're both retired?

[Charlie]

Yes, she has been for two months.

[Mark]

Oh, how's that first two months going? She's sick of you yet?

[Charlie]

Oh, no, she's pumping her fist and smiling.

[Mark]

Nice. That's great. That's awesome. What is a source of income for you guys? Your, you know, your Social Security or pensions? What do you got going?

[Charlie]

So I have a pension and Social Security. My pension is 2400amonth after taxes and my Social Security right now is 1990amonth after taxes and Medicare. The wife has a state pension that's paying $2,343 a month after taxes and then she will be eligible. It's a state pension. And she. So she has a 457 too. I know. I guess I'm getting ahead of you.

[Mark]

So that's okay. So just so I am clear when you are looking at that, so you've got your pension of 2,400 and then you've got Social Security of 1990 and then you've got her state pension. I'm just rounding 2,300. So that's 6,700 or so.

[Charlie]

Yes.

[Mark]

How is that for you guys income wise? I mean, I know you're carrying a lot of real estate and that will get cleaned up, but let's pretend you've sold the old home and let's pretend you're mortgage free for a second. How would $6700 a month of income be for you guys?

[Charlie]

With all said and done, being mortgage free and everything, my expenses monthly would run probably about five grand, leaving us about 1700 mad money.

[Mark]

Great. Okay, great. So now you're going to tell me a little bit about the savings. So you have other money that you've put aside. So let's talk about what you have done for each of you. Let's start with money that has not yet been taxed. So any deferred comp, whether that's 457 or IRA, what's the. The amounts that you have then in the that kind of money? The traditional environment, we'll call it.

[Charlie]

Okay, so the wife has 210,000 plus or minus in a 457.

[Mark]

Yep.

[Charlie]

I have 110,000, of course, plus or minus in a conventional IRA.

[Mark]

Yep.

[Charlie]

And then she has from a long time ago about 35,000 in a conventional IRA.

[Mark]

So that's all the before tax money. And that's what you're sort of thinking like, hey, maybe I should pull some of the money out of these accounts and pay the tax that's due and get rid of the mortgage so that you would have the sale of the old home, the proceeds from the lot, that 500, and then maybe pull out, let's say $100 or $80,000 from your traditional accounts, pay the tax that's due, but be mortgage free. Is that sort of the game plan?

[Charlie]

Yes, exactly.

[Mark]

Got it. Okay, tell me about any other money that you guys have set aside. Roth brokerage, bank account, what else do you have?

[Charlie]

So I have a small brokerage that I've used for things, and it's got six grand in it currently. Most of the thing is, is we have no debt. And so I've always been one that wants to buy stuff, either cash or get it paid off. I don't like giving money. I don't like paying interest. I feel that's a waste of my money.

[Mark]

Okay. I like getting interest, though. That's one of my favorites.

[Charlie]

Well, yes. So the other thing is, is we do have a couple collectible, or I shouldn't say, we have a couple classic cars, which of course, you know, there again, if we sold both of them, we may realize $50,000 from the seller. Both of them.

[Mark]

Should we.

[Charlie]

No.

[Mark]

You don't want it.

[Charlie]

Well, I'm one. I'm one. I am considering selling because I don't know if I'm going to have the time to mess with it. But.

[Mark]

All right, but do we really. Okay, so. But you don't want to have to make that decision. You don't want to say, oh, that's the only way I can pay down my mortgage.

[Charlie]

Exactly.

[Mark]

Okay, so we know that you're going to have to pay some tax on the money that comes out. Is this a bad tax year for you just because of all these real estate transactions?

[Charlie]

Well, Washington has pretty steep excise taxes, and so. Yes, and that's why I'm really trying. I itemized last year, I'm trying to itemize this year. That's the first time we've been able to itemize in a long time.

[Mark]

Yeah, but. Oh, and you said your wife just retired, so she has had some income for this year, right?

[Charlie]

Yeah, she worked the first quarter of the year, and so there again, she realized $24,000 coming in.

[Mark]

If I add everything up, even if we had you pull $100,000 from your. And I would do it from your account. Right. Because we want. Let's just say we got rid of your, you know, maybe just clean it up. So, like, you got rid of 110,000 of your IRA account, okay? You sell it. You said, send me the money. Done. If you were to do that and you add that to your taxable income, you're still in the 24% tax bracket. You're not, you're not going above 24%.

[Charlie]

Okay.

[Mark]

And that's an extra 2% for you for the ability to just get rid of your mortgage. I mean, look, if you want to be clever and cute and you want to try to stay in the 22%, which is probably kind of where you'd be, you would just sell. You just take a distribution of. Again, this depends on whether you are itemizing or the standard deduction. But you would stay within about $200,000 of income, which, I mean, it's possible because you've got your pension, Social Security, her 24 grand from the first quarter, then $2,300 a month. You know, you're going to be, you're going to have taxable income. If you want to really try to stay within the 22% bracket, work with your accountant. Say, you know, where do we stand? How does this look? And then what you can do is you can make a decision to pay down the rest of the mortgage this year or alternatively, do all the transactions, get everything done, and at the end of the year, you see where you stand. And if you're like, ugh, I don't want to go into the 24% bracket, you can wait and just do it in January and then be done with the mortgage as of January.

[Charlie]

Well, and that, and when I sent you the note, I've already made payments through the end of this year, monthly payments. So I don't even have a payment due until the first of the year next year as far as my mortgage is concerned.

[Mark]

So maybe you wait and you just see what your tax situation looks like, which is not the worst thing in the world. Right? I mean, that might be the way to do it. I just, I don't want you to feel like you are in a situation where, you know, you have to do one thing or another. I know you hate debt. We're only talking about waiting for six or seven months. Then in January, you can see after the, all of the real estate transactions are done. And if you're working with a tax preparer to say, okay, I am going to take some money out of my IRA accounts, You don't have to worry about your wife's right now, and then take out as much as you would need, account for that with your account Say, hey, you know, I'm going to pay. I'm going to take, you know, $80,000 out of my retirement account and then that's going to be taxable income. Just make sure they know that. And then you pay it down, the rest of the mortgage and you're done. And then you are living. You'll have that $6,700 a month of income. The three sources of income, the pension, the Social Security, and your wife's state pension. Does your pension and her pension have a cost of living adjustment?

[Charlie]

So mine's fixed, hers does.

[Mark]

But then she'll also claim Social Security eventually, right?

[Charlie]

Correct.

[Mark]

At 67 or 70. What do you think?

[Charlie]

Well, we've done the paperwork right now, and we need to defer hers because she made over the maximum you can make for the year without the penalty.

[Mark]

Yeah, you can wait till 67 for her. You'll be fine. I would wait till her full retirement age.

[Charlie]

Okay.

[Mark]

And. And then you're fine. You guys are in great shape.

[Jill Schlesinger]

I have no problem with this.

[Mark]

To me, this is a very. It's an interesting case because, you know, when you come on the air and you're talking about, you know, the paying down the mortgage, you know, normally I'm like, oh, don't pay down your mortgage. But, you know, we're in a different mortgage environment now. Right. And when you have a 6.5% mortgage, there is this idea that for some people might be, which is, well, let me take my old house proceeds and the money from the lot. Let's take that half a million dollars and just invest it, and we'll make more money than 6.5%, the cost of the mortgage, which may be true, but then I hear, as I'm talking to you, Charlie, what I hear is, I hate debt. And I'm not sure that you would feel comfortable with that. So as you come on the air and you start saying like, I hate debt, it's hard for me to try to sell you on the idea. Well, keep money, have liquidity. I think you're going to have plenty of money. So would you feel better if you had access to the money, or would you feel better debt free?

[Charlie]

Personally, I like being debt free. I do have a fiduciary I've worked with. And in fact, I just spoke to him last week looking at CDs, for instance, for some of the money I have sitting around. When you look at what CDs are paying, what I'm paying on interest, I still. It brings my interest rate down. I guess if I'm looking at this correctly, about to 2% instead of 6 and a half percent. But still, you know, I, I, I love listening to you and so I'm just getting, I want to get some other insight. The other thing though, on the wife's 457, converting at least part of that into a Roth IRA so that when I'm gone, she isn't paying any taxes or anything.

[Mark]

So what is your pension? Does it have a survivor benefit for her?

[Charlie]

No, neither of us. We decided between the two of us that she gets her full pension, no survivor, and I get my full pension, no survivor.

[Mark]

What's her full retirement age? Social Security amount?

[Charlie]

The last time I looked, it was about a thousand fifteen hundred dollars or something like that.

[Mark]

So she would have 3,800. So we'd lose your money. But she'll have her Social Security plus her state pension and you know, so she'll have lower amount of income. I don't know, her expenses might be about the same. May not be much less than, I don't know, it's weird. When you get older, it's not like your expenses will go in half. You know what I mean? You still have the house and how much money do you have? You said you have brokerage. You have money in savings right now, other money.

[Charlie]

So we tried to maintain anywhere from 30,000 to 40,000, both in checking and in savings. Right now it's down around 30,000 because we've been doing some improvements to the property we bought. So we've been spending money. I had, for instance, I had to buy a riding lawnmower. I got an acre and a half of lawn to mow.

[Mark]

God bless you, baby. My God. I mean, look, it's an interesting question because if either of you predeceases the other, your income goes down pretty, you know, not huge, but it's like, it's a significant amount. Instead of saving that $1,700 a month, you'll be dipping into some of your savings. The thing is that the house that you have now, is this your forever house or is this a house? Like, yeah, we're going to keep this for 10 or 15 years and like, but we can't age here. Like, could you be in this house and age.

[Charlie]

Yes, it's a 2500 foot rambler in the Pacific Ocean, is 900ft out my back door with a nice trail to it.

[Mark]

Okay. All right, so listen, I. What I, yeah, I think you're probably okay. I think that it would be good to kind of check back in with us at the end of the year to see whether or not we really want to make any sort of withdrawal from the accounts or not. Because the only thing I'm worried about is just your cash flow and having access to money. But I think that if you were to have all of this money coming in and all of that extra money, even if it's like 1,000 or $1,500 a month, if you just rebuilt your savings and use that money for as long as you're both alive to take whatever money is extra and to build it up, and build it up, you really want to have a buffer against the future, you should be fine. But if one of you were to die sooner than I would expect, then I think we would rather have access to your money. So I'm not sure I want to use your IRA money or her or her 457 money. I don't know if I'd want to use that to pay down the house when I may want to have access to that money. So that's really the issue. It's just like, where is the money best deployed and how you're going to manage going forward.

[Charlie]

So in other words, you're saying I'm not too far off the mark on what I have been trying to.

[Mark]

No, no, you're not. But you know, I don't. Again, the problem is that I'm sure that your advisor would say to you like, well, if I have that half a million dollars, we have access to the money. And if you use that half a million dollars from the old house proceeds and we pay down the mortgage, your expenses go down, but then we don't have access to the money. And hey, what happens if you need access to the money? That's the issue, right? This is a liquidity issue more than anything else. I mean, look, someone died sooner than we expect and the other one is left with a million dollar house which they may or may not want to stay in without the other. I just think that if that happened early in the cycle, if you or your wife, I mean, I'm going to be very blunt with you. If you guys like one of you dies within the next five years, I think the survivor has a real question as to whether or not to keep the house. Because I think that then if you're alone in that house and the cost of maintaining that and having it and on a reduced income, where you would stand. So I think you just have to both be flexible enough in like just your mindset to say, hey, you know this is great. We're okay right now if we pay this mortgage down. But if something bad happened in the future to one of us, maybe, you know, maybe we would have to do something different. We have to sell the cars. We have to do this. But, you know, I want you to beef up your savings in the period of time where more income is coming in than the expenses. Okay?

[Charlie]

Okay.

[Mark]

That's really the issue. Make sure everything is tidied up, all estate documents. Done. And enjoy your brand new dream house. And Mark and I will get ready to book our flights. Mark, we'll. We'll fly, I guess, right into Seattle, spend some time there, and then head down to Charlie's place. Be kind of nice. Beyond the Pacific Ocean. Yeah, sounds gorgeous. I want to see a picture. Yeah, send us a picture. All right. If you like. Charlie and his wife are in the middle of major real estate transactions. Get in touch with us. Maybe we have an idea about ways to manage that. You know, one of the things I do think is important, gang, is that, you know, you hear me talk to Charlie about, like, we'll pay the mortgage down. A lot of this decision is if you are at a point in your life where you have assets and, and you have choices, we want to actually know what feels comfortable to you because maybe it's not the best financial decision always. But what I do know is that your peace of mind is worth a lot. And so if you're hearing me, give this advice to one person, it may not be applicable to you. If you want to have some guidance and some just some reassurance about your own path, get into touch with us. Go to jillonmoney.com, click the contact us button. Write us a note, let us know if you want to come on the air live, which is way better, by the way, because then we can have these conversations while you are on the website. Check out the content that lives there, whether it's our other podcast, Money Watch, that is released on the weekends. Blogs, videos, resources, and of course, the free weekly newsletter. You can subscribe to a us on the Odyssey app or wherever you find your favorite podcast. Put your hands metaphorically on someone's back. Someone needs a little pat on the back or a boost up. Change your work, change your wealth, change your life. Thank you for listening. We'll talk to you tomorrow.

[Jill Schlesinger]

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