There have been many stories in the news about the struggle of senior citizens trying to live purely on Social Security. According to ssa.gov, 46% of single, retired Americans rely on Social Security for most of their income, but the average monthly Social Security payout is only $1,269. Unfortunately, that may not cover many people’s expenses or way of living that they may have become accustomed to before retiring.
One tool that some advisors use is replacement income. The idea is that, in retirement, your income should be 70% of your pre-retirement income. This calculation is only an estimate, but it was recently reported on researchscape.com that, on average, only the states of Nevada and Hawaii have seniors living at that rate. Many states in New England have seniors living at 50% of pre-retirement income.
And even if you do everything right, like spend conservatively and put money into 401(k) plans that offer corporate matching or IRAs, there are things in life that can’t be predicted. Many seniors have medical expenses that aren’t covered by their insurance or Medicare. They find themselves using their savings to pay for these unplanned expenses instead of using the money to travel or pursue interests.
Here are some of the advantages and disadvantages of refinancing to prepare for retirement.
- If you can refinance to a lower rate, it can reduce your monthly payments and allow you to set aside extra money.
- If you know that you will relocate in the next few years to a smaller home or retirement community, or closer to family, refinancing may make sense to lower your monthly payment to save for this event.
- Refinancing at a lower rate could free up money that you can put toward paying off additional debt obligations.
- You need to take closing costs into consideration because they can cancel out the savings of refinancing. A licensed loan officer can review the numbers with you.
- Having a mortgage payment while you are in retirement can cause potential tax problems. Please consult with your tax advisor to ensure that refinancing your mortgage will be right for your financial situation.
- Refinancing at a lower rate is good, but if it lengthens the term, you may not be able to pay off your mortgage and leave your home as an inheritance.
- Also, if you lengthen your term of the loan, a mortgage payment may be a strain on your finances.
IS REFINANCING RIGHT FOR YOU?
In a perfect world, people would be able to save for retirement and not use up their savings, but if you’re approaching retirement and would like to explore refinancing to reduce your interest rate or shorten your term, the licensed loan officers at CrossCountry Mortgage, Inc., doing business in the State of New York as CrossCountry Financing, are ready to help you.
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