20 Nov I’m retiring. Should I pay off the mortgage on my beach house?

Q. I am within 18 months of retiring, we have our main home paid off and have a $350,000 mortgage on our beach house. I have a company stock plan that could pay off the mortgage. Does it make sense to use those proceeds to retire the mortgage prior to retirement or should I keep the mortgage? It’s a 30-year with 27 years left at 3.875 percent, with monthly payments of about $2,000. I have about $2 million in IRAs separate from the funds I would use for the mortgage.
— Planning

A. Congrats on your retirement!

There are several pieces to your question. Let’s take them one by one.

First, the investment piece.

Your 3.875 percent interest rate on a mortgage is still a very historically low interest rate, said Nicholas Scheibner, a certified financial planner with Baron Financial Group in Fair Lawn.

He said if you are itemizing on your taxes, the interest rate can still be tax deductible.

You should compare that rate versus your overall investment strategy to determine which is more valuable.

Then you need to consider risk.

“It sounds like your individual company stock is a large percentage of your overall investment portfolio,” Scheibner said. “If one stock makes up more than 10 percent of your overall financial savings, it is important to understand that risk, and look at a strategy to diversify.”

Then there are taxes.

Scheibner said selling the stock at a significant gain will cause capital gains taxes. Hopefully, they are “long-term” capital gains, which may be preferable to ordinary income tax rates, he said.

Next you need to consider cash flow, looking at your income sources and your expenses to see where you stand. As part of this, you need to consider Social Security and how much you will need to withdraw from your savings to cover your monthly expenses.

With all these moving parts, you should really consider meeting with someone to create a comprehensive financial plan.

Scheibner recommends you find a certified financial planner to give you an analysis of your complete financial picture.

“You have the option to hire someone either hourly, per plan, or ongoing through investment management services,” he said.

With all of your assets in mind, this could be the best investment you ever make.

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This story was originally published on Nov. 20, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.