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Mortgage payments in retirement

Date posted:  6/18/14 07:15:00 AM Planning for retirement is never easy.

Heading into retirement can be difficult enough without having to deal with costly monthly bills, but that hasn't stopped many Americans from leaving the workforce with a hefty mortgage payment that needs taking care of at the end of each month.

In fact, more people than ever before are taking mortgages into retirement. The Consumer Financial Protection Bureau reported nearly a third of homeowners 65 and older had a mortgage in 2011, which was up from 22 percent from a decade earlier. Additionally, the bureau reported the number of mortgage-holding households led by someone 65 or older hit 6.1 million in 2011, a climb from 3.8 million in 2001.

Lori Trawinski, director of banking and finance with AARP's Public Policy Institute, told the Los Angeles Times that there's been a change in stance when viewing debt.

"People who lived through the Great Depression came out of that period with a great aversion to debt," Trawinski said. "As a culture we have loosened our opinion of debt."

She said Americans will be forced to do "some juggling" with their budgets in order to keep out of the red.

Should you pay off your mortgage before retirement?
Lisa Hay, founder and president of Ascend Financial, told Fox Business News that there's more peace and less anxiety when a person knows their mortgage is paid off.

But at what lengths should a person nearing retirement go to paying off their mortgage? Hay can see both sides of the argument.

"On the other side it's foolish to pay down a 3.5 percent mortgage using money that can earn 10 percent," Hay said.

But before a person should decide if they can afford a mortgage during retirement, the first step is considering where they want to spend their time. Some people want to live in their current residence as long as possible. Others with an empty nest prefer to downsize to cozier quarters. These are all items to consider before deciding if a mortgage is an affordable option after hanging up those work boots.

"I'm in favor (of paying off the mortgage) as long as it doesn't take away from fully funding your life insurance, IRA and 401(k)," Jeff Warnkin, a certified financial planner at The JL Smith Group, told Fox Business. "With most things financial it's not a stand-alone decision."

Warnkin urges Americans to examine their current source of income preretirement and compare those numbers to their estimated income post-retirement. He also said it's crucial to look at expenses, tax rates and any returns on investments.

Take better care of the budget
James Wells, a housing counselor, told the Los Angeles Times he often finds people avoiding certain budgeting needs. He said people often don't plan for a reduced retirement income when they refinance to take a vacation or help their children buy a home.

"They are not really thinking long term at that point," Wells said.

Jacqueline Murphy admitted she is one of those people. Murphy, a former clerical worker for the New York City Police Department, retired in the first quarter of 2014. She believed her pension, Social Security and a part-time job would be able to compensate and keep her comfortable during retirement.

She thought wrong. Murphy said she hasn't been able to find a part-time job and most of her retirement income goes to pay off her $2,200 monthly mortgage payment.

"I thought retirement was going to be wonderful," she said. "Now that I am retired, I am sorry that I did. I am focused on how I am going to make it to next week, how am I going to make it to the next mortgage payment, and I am constantly worried."