Why You'll Need More Than a Paid-For Home in Retirement

Paying off your mortgage is a financial win for anyone, especially if you’re close to retirement. The pride of free-and-clear home ownership is often the crowning achievement of a life-long career.

But a paid-for home shouldn’t be the only arrow in your retirement quiver. Here are three things to consider before you put all your eggs into one mortgage-free basket:

Your home won’t pay the electric bill in retirement.

Paying off your mortgage might put more cash back into your budget . . . until your income comes to a halt in retirement. What good is a paid-for home if you don’t have enough money to pay your bills? Your household budget will include ongoing expenses like food, utilities, insurance, property taxes and vehicle maintenance. If all your retirement is tied up in equity, you might not be able to cover your basic living costs.

Beyond everyday expenses, you’ll need to be realistic about health care costs. Nothing says budget buster quite like unexpected medical expenses that are sure to come with aging. There’s no magic formula to forecast how much you’ll need to cover health care costs in retirement, but a recent Fidelity analysis shows that a 65-year-old couple who retired last year will need an estimated $260,000. Long-term care insurance—which Dave recommends starting at age 60—could potentially add another $130,000.

And don’t forget: Retirement is supposed to be fun too! If you want to travel more to visit grandkids or landmarks you’ve always dreamed of seeing, you’ll need extra money to make that happen.

For all these reasons, it’s important to invest 15% of your income for retirement as soon as you become debt-free. Yes—even before paying off your mortgage! Dave recommends 15% because it’s the right balance between saving for tomorrow and covering your bills today. Keep to your budget, and you should have enough to reach your other financial goals, including paying off your mortgage early.

Mutual funds provide more growth potential in the long run.

As you can see, a paid-off home is just part of a healthy retirement savings plan. To retire with a nest egg that will give you the income you need for a truly secure retirement, you need to be smart about where and when you invest your 15%. 

Where: Growth stock mutual funds with a history of above average returns are an excellent way to use the power of the stock market to build your retirement savings. Mutual funds are made up of pieces of stock in dozens, even hundreds, of companies, making them less risky than single stocks.

You can reduce your risk even further by diversifying your mutual funds—investing in funds in different categories. For example, Dave recommends investing:

• 25% in growth and income funds
• 25% in growth funds
• 25% in international funds
• 25% in aggressive growth stock funds

When: There’s no shortcut when it comes to saving for retirement. Consistent, long-term investing is the best way to build your nest egg. The number one reason: compound growth!

Let’s say your family brings home $55,000 a year. You could end up with $890,000–1.2 million in retirement over 25 years by investing 15% of your income each month. And here’s the kicker: Only $206,000 of that money comes out of your own pocket. The rest is the result of compound growth! The more time you give your money to grow, the less effort it will take to build a big nest egg.

Saving for retirement is easier than you think.

According to a recent Ramsey Solutions research study, more than half of Americans aren’t saving enough for retirement. Only one in 10 Americans saves the recommended 15% for retirement. While cost of living is the number one reason non-savers aren’t stashing away cash for retirement, lack of planning is another barrier to saving.

Market chaos, inflation, your future—work with a pro to navigate this stuff.

If all you have for retirement is a paid-for home—or you’re pushing hard toward that goal—then you are ahead of the crowd by far. You already have the drive and ambition to make wise money choices. But you still have some work to do.

Start by partnering with an investing professional to create a workable plan. They’ll show you how a paid-for home fits into your overall financial goals, plus they’ll give you valuable perspective on what kind of money you’ll need to enjoy your golden years.

Need help finding an investing professional?

If you think a paid-off home is all you need for a healthy retirement, you might want to re-evaluate your long-term investment strategy. We’re all for mortgage-free living, but not at the expense of your retirement contributions.

There are so many pieces to the retirement puzzle. An investing professional can help you make sense of your investment options.

Ready to get started? Our SmartVestor Pros are qualified professionals near you who help empower you to make the best decisions for your retirement. Get started today!