Ask an Advisor: I’m 81, have a $118K mortgage and a $110K IRA. Should I withdraw from my investment to pay off my mortgage?
I am 81 years old. I have a home mortgage balance of $118,300. I also have $110,000 in an Individual Retirement Account (IRA) invested in the bank. Should I withdraw money from my investment and put the money towards reducing my mortgage?
– Octavio
The best choice for you will depend on how the rest of your finances look and what your ultimate goal is. Regardless of why you’re asking this question, I think you need to consider how much it might affect your cash flow, as well as your flexibility to absorb unexpected expenses.
Ask an Advisor: I’m 81, have a $118K mortgage and a $110K IRA. Should I withdraw from my investment to pay off my mortgage?
Think about what made you ask this question in the first place. The optimal choice for you depends partly on your personal “why”.
Do you want to do whatever will result in the greatest financial return? In that case, this is more of a math problem. Comparing your mortgage interest rate with the return you can expect from your investments – and the associated risks – will be a key element.
Want to simplify things? If so and you can get rid of the mortgage entirely, this would certainly work. You would be removing two accounts with the implications of related payments, disbursements and tax returns for both. I get it – I made decisions that weren’t strictly justified on the spreadsheet because they would have reduced my complexity.
Are you worried about your heirs? I’ve had conversations with retirees who didn’t want to leave their beneficiaries with an unpaid mortgage because of concerns that they might not be able to keep the house. If this is part of what drives you, talk to an advisor and attorney about planning your estate. They will help you understand your options and be able to guide you.
What is the immediate impact on your budget and cash flow?
Ask an Advisor: I’m 81, have a $118K mortgage and a $110K IRA. Should I withdraw from my investment to pay off my mortgage?
Whatever your reason, make sure you don’t go without enough liquid assets.
Are you receiving regular withdrawals from your IRA and using the money as part of your regular budget? If so, how would depleting the IRA affect your cash flow? Do these withdrawals cover a significant amount of your spending?
One thing that stands out to me about this particular point in your situation is that withdrawing the entire balance would not completely eliminate the mortgage. You would still have the payment, but without the IRA to pay it.
Assuming this is traditional tax-deferred IRAyou would owe tax on the full amount, so be sure to factor that in. But even if we ignore the impact of taxes, you’d still owe about $8,300 on the mortgage. Could you cover this amount from other savings to pay it off in full? If not, can you comfortably cover the payment until it’s paid off without an IRA to fall back on? Whatever it is, make sure you don’t go back into the financial corner where you are mainly house paid for, but then struggles to keep up.
You can’t rely on an IRA at all. If you can live comfortably off your Social Security, pension or other savings, that’s great. You may only be taking required minimum distributions (RMDs) because you have to do that from the IRA and you don’t need the money to survive. If that’s the case, of course, it’s less of a concern.
Think about what makes you ask this question, plus the cash flow and tax consequences of withdrawing from your IRA. These considerations will help guide your final decision.
Brandon Renfro, CFP®, is SmartAsset’s financial planning columnist and answers readers’ questions about personal finance and tax topics. Do you have a question you want answered? Email AskAnAdvisor@smartasset.com and you may have your question answered in a future column.
Please note that Brandon is not a participant in the SmartAsset AMP platform, is not an employee of SmartAsset, and was compensated for this article.
Find a financial advisor
If you have questions related to your investment and pension, a a financial advisor can help. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three verified financial advisors serving your area, and you can interview your advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Keep an emergency fund handy in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t exposed to significant fluctuations like the stock market. The trade-off is that the value of current money can be reduced by inflation. But a high interest account allows you to earn compound interest. Compare the savings accounts of these banks.
Are you a financial advisor who wants to improve your business? SmartAsset AMP helps advisors connect with prospects and offers marketing automation solutions so you can spend more time converting. Learn more about SmartAsset AMP.
