| According to a new financial planning theory, individuals | | | | retirement income (except inflation-adjusted social |
| who want to achieve a comfortable retirement should | | | | security) will fluctuate with markets and interest rates. |
| not only be mortgage-free by age 65, but should have | | | | 3. Retirees usually do not have dependents, and tend |
| a reduced debt level by 45. | | | | to fall into a lower tax bracket. This erodes the tax |
| The recommendation is to have a debt-to-income ratio | | | | benefit of itemizing their deductions. |
| of 1 at age 45, and then gradually reduce it to 0 by | | | | How should you begin to pay off your mortgage? |
| age 65. A ratio of 1 would mean that, if you earned | | | | An effective way would be for an individual to obtain |
| $100,000/year, your total debt (including mortgage, | | | | an amortization schedule for their particular loan |
| credit cards, car loans, etc.) should not exceed | | | | amount and interest rate. Then, the individual can |
| $100,000. | | | | examine his or her latest mortgage bill, to find the |
| This theory is based on 3 ideas: | | | | amount of principal that is being paid off. Simply locate |
| 1. A home is an asset, not an investment. An | | | | this amount on the schedule to find the current position. |
| investment is defined as something that can generate | | | | The individual can then add the next principal amount |
| cash to live off of during retirement. It is unrealistic to | | | | to their payment. This would allow them to effectively |
| expect people to downsize their home for the purpose | | | | check off that position - even though they did not pay |
| of tapping equity for retirement. | | | | the interest part. The interest has been saved and, |
| 2. Mortgage debt is something to avoid in retirement | | | | next month, the homeowner would have to pay the |
| because a mortgage payment is fixed, while | | | | next payment on the schedule. |