The 'Couv'

The 'Couv'

Tuesday, January 28, 2020

With New Taxes, Is Paying Cash Better?

Since the federal government passed the most recent tax package in 2017 some retirees may no longer benefit from carrying mortgage debt. Retirees often have very little to itemize other than a mortgage and the new standard deduction is a whopping $24,000 for a married couple. With interest rates near all time lows it takes a pretty big mortgage to produce interest payments over $24,000 in a year.

Paying cash for a property could lead to a better and stronger position later on. A reverse mortgage could be used later in life should cash flow in the future be impeded by natural inflation or an unforeseen financial event.

Paying cash could also open the door to places like condominiums or manufactured homes in senior parks. With no mortgage payments the HOA or park fees are likely to be easily covered with the retirees fixed income payments.

Mortgages can free up capital that may be invested elsewhere at a higher rate of return, but retirees should be mindful that risky investments are unwise in the latter third of life.

Mortgage free living allows the retiree to spend less of the fixed income each month which can help preserve assets in 401k or IRA accounts. For fixed pensions it allows for more monthly spending or to build up a solid savings account. As mentioned earlier, a free and clear house also allows the retiree to utilize a reverse mortgage to increase income later in life should the resources in the 401k or IRA run low or if the pension begins to lose ground against inflationary conditions.

As always when I write about investments and taxes I encourage people to consult with licensed professionals in the investment industry and a professional tax accountant before making decisions based on information in articles lie these. Everyone has different and often unique financial needs and conditions that ought to analyzed by an appropriate professional.