Reader Question: My husband and I own two cash positive rental properties with a combined mortgage balance of $260,000. We have 401k accounts that total approximately $1 one million. We will both retire next year and will draw social security of $4,000 per month. Should we pay-off both mortgages with 401k money and supplement retirement with net rent receipts (approximately $2500 per month)? Would it be wiser to pay off a $270,000 home mortgage? Do we do both, or neither? Mary P.
Monty’s Answer: Hello Mary, and thanks for your question. The question being asked is an excellent question. To some extent, it is a lifestyle question as much as a financial management question. There are other considerations in making a decision such as this one that are well beyond the scope of the question.
Consider taking a couple steps to gather some information and thoughts about where you will go in the next phase of your life. Part of the equation is an attitudinal change consideration. Is it simplifying your life with fewer responsibilities? Will it be keeping everything the same? There are two years to decide on your direction and to begin implementing your plan.
Step 1: Make an appointment with your Certified Public Accountant (CPA) to discuss tax planning and financial strategies. If you do not have one, do some research, ask around and after interviewing at least three, pick one. The point of this exercise is to learn the tax ramifications of the potential choices. There are many considerations; Are there children and grandchildren? What are your ages? Are you both in good health? Are there other assets? Do you have a will or a trust set up?
Step 2: Take a weekend together and go someplace out of your normal experience. It could be a local hotel or a friend’s mountain cottage. Then have a conversation together. Is there agreement on what you will do when you retire? Will you travel? Donate your time to charity? Take up a hobby left behind when you started working? Spend your time fishing and golfing? Some couples have very different hobbies they do individually. Other retirees get involved in Learning In Retirement.
There are many sources with material regarding what to do in your retirement. The thinking has already begun by virtue of your question. There is no cut and dried answer, but this is a good time to start the conversation.
Here is a link to an article I wrote for Yahoo about retiring. There are a few thoughts in it that may be helpful.
I hope this answer is helpful, Mary. Both of you have done well, and I wish you a happy and satisfying retirement..
Respectfully,
Richard Montgomery
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