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When Myrna McGrath decided to retire at age 66, she had no intention of paying off her mortgage with retirement savings. “I earn more on my retirement plan—which is invested in stocks and mutual funds— than my mortgage costs me, so I decided to keep it,” says McGrath, a former CPA. She also finds it convenient. “I have an escrow account with my mortgage holder, so I let them escrow my insurance costs and my property taxes,” she says.

McGrath isn’t alone. More than 40% of homeowners age 65+ carry housing debt.¹ Still, you may be hesitant to retire on a fixed income and have a house payment. But mortgage payments in retirement aren’t necessarily a bad financial choice. It ultimately comes down your age, mortgage value and taxes, feelings about debt, and retirement income plan. These four considerations may help you decide what’s best for you.

1. Your age

If you’re younger than 59½, there’s a 10% penalty for withdrawing early from your IRA or taking distributions from an employer-sponsored plan, such as a 401(k) or 403(b), no matter what the purpose— even if you use it to pay off a mortgage.

2. Mortgage value and taxes

How much you need to withdraw to pay off your mortgage—your mortgage’s remaining value—also has an impact on your decision, especially as it relates to your potential tax burden. Here’s why:

If you’re retired, any pre-tax money taken out of your 401(k) or IRA is treated as income. So, the more you withdraw in order to pay off your mortgage, the more potential tax burden you may face. (There’s a big difference between $100,000 and $10,000.) In addition, you may want to speak with your tax professional to discuss the impact of keeping or losing the mortgage interest deduction.

3. Your feelings about debt

Sometimes emotional factors are just as important as financial. “Who you are and how you feel about debt can outweigh the math,” says Stanley Poorman, a financial professional with Principal^® . “Are you a person who sees a mortgage balance as the world on your shoulders, or are you comfortable carrying it into retirement?”

4. Your retirement income plan

Hopefully your retirement plan includes several sources of income and an emergency safety net. That information, alongside interest rates you’re paying and earning, may help you evaluate if you should use your 401(k) or IRA to pay off your mortgage. For example:

• If your retirement account earns 6–7% and your savings account only earns 1.5%, you may want to keep your retirement money where it is and use your savings. (But be wary of depleting a safety net; it helps you respond to life’s what ifs.)
• If the growth potential—i.e., possible interest rate—of your retirement savings is low compared to the interest rate on your mortgage, paying off your mortgage may be a good idea.