But a mortgage can affect a variety of items, from your cash flow to taxes in retirement. You'll need to know how to budget for a house, and you may even be wondering if you can get a mortgage if you are retired. (You can.) If you're asking yourself, “Can I afford a mortgage in retirement?" here are some pointers.
Include a home payment in budget
Taking your mortgage into retirement requires running a different set of numbers . Not only will your income change, but your expenses will, too. For example, you won't be commuting for work, and you won't have to invest in a work wardrobe. But there are other costs to consider, such as travel to visit family or see new places, and new hobbies you might want to take up now that you have more free time. And, of course, there's health care, which is a significant outlay. (AARP has a calculator Opens in new window to help you consider your health care costs.)
If you were planning a mortgage-free retirement, throwing that monthly payment into the equation can make a big dent in your spending plans. Ponder whether you'll still be able to do the things you'd hoped to do, or whether carrying a house payment will force you to curtail some hobbies — or work longer to make it all possible.
Many personal finance experts will say you should be able to get by on any income you receive plus withdrawal of about 4% of your retirement portfolio. Make sure that's still possible even with a mortgage on the balance sheet.
Weigh the pros and cons of a mortgage
Depending on where you live, tax law changes may make it less desirable to have a mortgage in retirement. Because the standard deduction has doubled under the tax overhaul passed in 2017, you may not benefit as much from a mortgage interest deduction if you don't have enough deductions to itemize on your taxes.
And if you live in a state with high state and local taxes, owning a home may be more expensive now that there's a cap on state and local tax deductions.
That said, if you're thinking of taking assets out of a retirement account or other investments to pay off your mortgage, that also may not be the best approach. Historically, other investments can earn more than real estate over the long term, and they're far more flexible — so if you need to pull money out to cover an unexpected event, it's easier to do it from an investment account.
It's worthwhile to sit down with your financial or tax professional to determine how the new tax system will affect you in retirement.