Quick Answer: An 80-year-old widow with a $57,000 IRA and $60,000 mortgage should consider both emotional and mathematical factors when deciding whether to cash out retirement funds for mortgage payoff. The decision depends on whether she has other accessible assets for emergencies and if the emotional benefit of being mortgage-free outweighs potential investment returns.
Question:
Dear Steve,
Hi, I am an 80-year widow.
I have an IRA with Lincoln investments worth around $57,000.00. In addition, I have a mortgage with a balance of $60,000.
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I want to pay off the mortgage and wondering if this would be a wise choice.
The money in Lincoln is not making that much, and I would like to get rid of the mortgage.
Although I feel I’m very healthy, I can’t see this money doing me any good if I can’t use it now and my kids don’t need it when I die! Thank you for your response.
My question is…should I withdraw the 401k and pay off my mortgage?
Rachel
Answer:
Dear Rachel,
Bless you, for asking me your question.
There are two answers here, like so many other issues in the credit and debt world.
The first is mathematical and common logic, and the second is emotional.
It sounds as if paying off the mortgage would make you feel a bit better. Of course, without the mortgage, you will still have ongoing home expenses like utilities, taxes, insurance, and repairs. But not having a mortgage is a nice feeling.
If you are not relying on the IRA for any income and the money is just sitting there, then maybe the emotional benefit of paying off the mortgage is a good investment.
However, if the IRA has been invested in the stock market and has had an excellent return, then mathematically, I’d be hesitant about cashing it out.
For me, the answer comes down to if you have other assets you have access to in case of an unsuspected surprise. If you do and find greater comfort in not having a mortgage, using the IRA can be a good move.
Before you do anything, make sure you can withdraw the IRA funds tax-free or at least prepare for any tax hit you may suffer. Talk to the person you usually trust for tax help or advice.
The elephant in the room is that the IRA will not ultimately pay off the mortgage, so be sure you have access to extra funds to fill that gap to get rid of the mortgage.
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Asked question about paying off my mortgage.
Please post an update here in the comments and let me know what you decide to do.