Where to Turn After Prioritizing Mortgage Payments Over Retirement Savings

For someone who realizes that their retirement is quickly approaching, it can be daunting to realize that a fixed income is right around the corner with little savings. For one couple who prioritized paying off their forward mortgage over saving for retirement, the moment that income becomes fixed could be a stressful one.

There are other options that can be considered, however, according to finance columnist Liz Weston in a new piece at the Los Angeles Times.

“My wife and I aggressively paid down our mortgage and now have it paid off, but we don’t have much saved for retirement,” writes an advice-seeker. “It probably won’t be enough to live on. We will receive no Social Security benefits. We have no other debts, and we would like to make up for lost time as best we can on retirement preparation.”

Asking for the best advice to be offered for someone looking to finance retirement with few resources, Weston does not sugar-coat the reality that will soon be faced in her answer.

“The older you get, the harder it is to make up for lost time with retirement savings,” she writes. “You probably can’t do it if retirement is just a few years away. This is not to make you feel bad, but to serve as a warning for others tempted to prioritize paying off a mortgage over saving for retirement.”

Someone in their 50s would need to save nearly half of their to equal what could have been accumulated had someone started putting 10% of income away in their 20s, she says.

“The miracle of compounding means even small contributions have decades to grow into considerable sums,” she explains. “Without the benefit of time, your contributions can’t grow as much so you have to put aside more.”

That’s not to say that a combination of aggressive savings and some alternative cash-flow options would be ineffective in making a difference, however.

“Once you hit 50, you can benefit from the ability to make “catch up” contributions,” she says. “For example, if you have a workplace retirement plan such as a 403B, you can contribute up to $26,000 — the $19,500 regular limit plus a $6,500 additional contribution for those 50 and older.”

An IRA also presents an option, but other potential alternatives exist up to and including a reverse mortgage, Weston writes.

“If possible, a part-time job in retirement could be extremely helpful in making ends meet. So could downsizing or tapping your home equity with a reverse mortgage,” she says. “A fee-only financial planner could help you sort through your options, as well as help you figure out the best way to take your pension when the time comes.”

Read the column at the L.A. Times.

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