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Plan Ahead: How to Retire Mortgage Free
by Russell Kavanaugh
The late afternoon sun warms my bronzed face while my hand lazily cradles a frozen margarita, the salt slithering it's way to the handle in a tributary of condensation. A smiling gentleman approaches my wife and I to ensure that our drinking vessels are replete with the local nectar and departs with a "no problem, Mon!" We are still in our mid-sixties, slightly graying, but still looking youthful and vibrant.
This, dear friends, is my mental picture of retirement. Your utopian old age may differ, but they probably have one common requirement: the money to finance it. Living the good life of a beachcomber is contingent upon the mental security of having one's house bought and paid for. The last thing you want when deciding to sell your last 401(k) plan is a mortgage payment hanging over your head.
Ah yes, the retirement years. Those days when you can wear green plaid shorts, a sky blue pork pie hat and bladk ankle socks with impunity. King of your castle, master of your own domain. As with many aspects of our lives, we use our own parents as the benchmark. Without knowing it, our lives somewhat mirror aspects of those who have gone before us. How many of us have already found ourselves sounding just like Mom or Dad, often to our horror! The bad news is that the safety net that existed for our parents, namely Social Security and company pensions, is fast unraveling.
It's easy to see why. Back when the Pilgrims first landed on Plymouth Rock, a man of 39 would have been considered an elder statesman. Some may not have survived the voyage, as people then died before reaching the age of 40. How times have changed! If you had to guess the fastest growing age group in America today, you may be surprised to find that it's people over 100 years of age! So, it is now quite possible to spend as many years in your retirement as you did working.
How then do you avoid financial hardship in your golden years? Plan. Be realistic. Save. Most people put their personal savings second to their other financial concerns. I regularly hear comments like, "I can't afford to add to my savings this month because I have to (insert here: "go to a wedding," "go on vacation," "do my holiday shopping", etc. The reality is you MUST put savings aside and then allocate the remaining assets to your current priority, otherwise you will retire with nothing but excuses. When choosing your house, buy within your means, with a mortgage payment of no more than 30% of your annual salary. When possible, pay a little extra on each monthly mortgage payment. You will be amazed at how quickly pre-payment can decrease the term of your mortgage. Clear up your credit card debt. Pay more than the minimum payment each month, otherwise you will be funding this debt for years to come. If you employer offers a retirement plan at work, take advantage of it. The compounding effect of investing pre-tax dollars in a tax deferred investment is phenomenal. Finally, the most important advice? Start NOW!
Russell Kavanaugh is a Retirement Plan Marketing Consultant with John Hancock Mutual Funds. He is married to Bernadette Kavanaugh, an Assistant Vice-President with Lawyers Title Insurance Company.