Don't carry your mortgage into retirement

BOSTON — Time was when everyone retired debt free, or at least without a mortgage. Now many people retire while still paying that monthly home-loan bill. But should you? The short answer, according to a new Boston College Center for Retirement Research (CRR) report, is no, no, no.

It's better to pay down your mortgage than to carry it into retirement. Or at least it is if you have the money set aside in a taxable or tax-deferred account.

The reasons are several, but boil down to this: In the current environment, your mortgage provides a better return on your money than other risk-free assets.

"It is unlikely that many retired households will be able to earn a return on risk-free investments, such as bank certificates of deposit, Treasury bills and Treasury bonds, that will exceed the cost of their mortgage," says Anthony Webb in the CRR report.

That, by the way, is the typical analysis most financial experts would do if you asked them whether you should carry your mortgage in retirement.

Can you earn more on your mortgage than on another investment, risky or not? At present the answer is clear: A 5 percent mortgage offers a bigger bang for your buck than a 2 percent CD.

And another good reason to pay down your mortgage: You don't want or need a mortgage payment should calamity strike and you've already spent down your nest egg. By the way, four in 10 households aged 60 to 69 in 2007 have a mortgage and, of those, one in two have enough to pay down their mortgage.