

It’s often said that people getting towards retirement age should strive to be mostly debt-free by the time they reach their golden years.

This can be sound advice as not having to pay down debt in monthly installments can free up money to spend on more fulfilling activities. Let’s discuss some of the reasons why this advice is no longer the only advice to follow.

Debt is not all created equal:

Most financial advisors in Portland, Oregon will tell you that carrying debt with you into retirement is not ideal. There are many types of assets that would qualify as bad debt that does not make any financial sense to carry whatsoever. Certain types of assets, however, may be advantageous to borrow money for.

Generally bad assets:

Boats

Cars

RVs

85” Samsung UHD 4K TV

Generally good assets:

Residential real estate

Commercial real estate

Investing

The bad debt assets all have one thing in common. They all depreciate rapidly and financing usually comes with high interest rates. While there are some collector cars and boats whose values may appreciate over time, it is exceptionally rare. Consumer electronics also depreciate with an exceptionally small number of items that may not.

The good assets are similar in that they generally will appreciate over the long term and financing can be secured with very low interest rates. Mortgage interest and other expenses can also be tax deductible in certain situations, and commercial real estate can even generate cash flow in the short term.

Why does this matter?

If an asset’s value increase at a greater rate than the interest that is being paid on the loan, you make money. If the asset’s value doesn’t exceed the interest rate or, worse still, the asset depreciates while still having to pay interest, you will lose money.

Hedge against inflation

If your retirement fund is growing slower than inflation, your mortgage can help to offset this loss of purchasing power. A fixed mortgage at a low interest rate will continue to cost the same amount of dollars even as that dollar amount is worth less and less. Your mortgage payment lesser cost will this help to mitigate slow retirement fund growth.

Boost liquidity

With rates near historic lows, money is relatively cheap. It can be more expensive to completely pay off a mortgage than it is to keep your own money accessible, where it can either work for you or serve as a safety blanket. If liquid assets will easily outpace the interest rate on your mortgage, it may be worth letting that money grow to increase your overall wealth.

Is this strategy right for me?

The most reliable way to ensure a low cost retirement is to enter retirement with as low of debt as possible. Keeping the mortgage to boost liquidity can be risky thought for many retirees, it will be a very reasonable option. As with any financial decision careful consideration and consultation with a licensed financial advisor in Portland, Oregon is crucial.

If you would like to talk about your path to retirement, you can contact us by email at Jason@llwmg.com or by phone at 503-747-6534.