March 2026
In this conversation, host Chris invites Wealth Advisor Ian Rennick to challenge one of the most common assumptions in financial planning: that being debt-free is always the goal. They explore the trade-offs between aggressively paying down a mortgage and maintaining liquidity, highlighting how excessive home equity can leave retirees “house rich but cash poor.” The key takeaway: financial freedom is about having options.
Tune in if you’re interested in…
Watch previous episodes here:
Ep. 178 Is Your Retirement Account a Future Tax Bomb?
Ep. 177 Morton's Take on Market Headlines
Ian, we might ruffle some feathers with this conversation today. Only because debt is one of those things that people have, like a visceral reaction to. And so the conversation that we're going to have today is, is paying off your mortgage that important? And we're specifically talking to people that are saving towards retirement nearing or early on in retirement.
And their goal is like, I have to pay off my mortgage in order to retire. Obviously, there are people that are, you know, later on in retirement and they've paid off their mortgage. But like, let's let's have the conversation today. Is it really that important to pay off your mortgage? Because we see some clients run into some issues with having too much equity in their home.
Yeah. You know, Chris, I was thinking about it. How would you define house rich? Is this more of a ratio problem or liquidity problem?
It's easier to to look at a client situation and and really know quickly like oh wow. That's potentially an issue then to define it through a ratio. Let me let me paint an example for you. I can imagine. Imagine you're in retirement and you have a $2.5 million home because you bought it 30, 40 years ago for $500,000.
It's now grown to 200 to 2.5 million. Your mortgage is paid off, and then you have like 1,000,002 in an IRA, and you're needing $100,000 a year to live. There's a problem. Okay. Because now you're retired. The only dollars that you have access to are from a retirement account. So every dollar you take out, you have to pay tax on it.
It's a high withdrawal rate,
but your total net worth is relatively high if you account for your home equity that you can't access.
And so that type of a situation, somebody that doesn't have different buckets of money to access, that's that's where the problem is. It's not so much about whether or not you've paid off your house. It's whether or not you have money in a brokerage account, like a trust or an individual account, or a Roth IRA outside of a pretax retirement account.
And so that's where I see the problem most often.
What are your thoughts?
Yeah. No, I have similar thoughts on that. It's funny you bring that up. I'm working with a client right now, and he's in his early 50s. And a number of years ago, before he came to us, he
he decided that his goal was to start paying down his mortgage. Well, there's there's a trade off that comes with that.
You're going to be able to put less money in your retirement accounts, maybe less money into that taxable brokerage account that you mentioned to. You know, we fast forward to today. His goal was to probably retire in his in sometime in his 60s. But that's changed today. He he thinks that he wants to retire closer to now. Well, he can't access that retirement bucket that he's built up.
And because of the trade off he made by
paying down his mortgage. Well, now he doesn't have that taxable bucket to help bridge that gap until he can start bringing or taking money out of that retirement account.
Yes. So his biggest options either sell the house and downsize to access some equity or now take out a mortgage to have it. I mean, that's an interesting situation.
Yeah. And as we know, you know, back then rates were a lot different. He had optionality and flexibility. Now, you know homes cost a different amount now. And you know he's kind of backed into a corner.
I think it's interesting. You know, a lot of our clients that are older, their parents or their or their grandparents, they they lived through the Great Depression, world wars. You fast forward to today. They're somewhere between, you know, 60 and 85 years old and they're there's this sense of pride when they pay off their mortgage.
And you should be I mean, that's an incredible accomplishment. You own your home outright. It's nobody else's. You don't owe anything to a bank.
But there's also, like, an aversion to debt for some people. And it tends to be the people that have a scarcity mindset towards money.
You have a home, you have a mortgage. Do you want to pay it off before you retire?
Like, do you have an aversion towards debt?
I personally don't I know, like you're saying, growing up like you're told, hey, buy a house and pay it off as quickly as you can.
But I don't think that all debt should be viewed the same way there is in some way or shape or form good debt, I would say.
You know, I go back to that situation that I talked about earlier in terms of, you know, it when you see it like the house rich. So take a client that's got a $2.5 million house, no mortgage, needs $100,000 a year to to live their life. And they've got about $1.2 million in a retirement account pretax, depending on how that money is invested in that withdrawal rate.
And let's pretend that there's no surprises. Like, I don't need to fix my roof. That money in that IRA, it might last anywhere from 8 to 14 years, depending on, you know, their needs. But the that when I talk to that that client about oh you should take, you know a home equity line of credit out of your, out of your house to have access to some proceeds.
Their initial answer is like, yeah, I don't want to do that because now I'm paying 6 or 7.5% interest on that money that I'm borrowing, and that's expensive, but it's not as expensive as the taxes you have to pay by withdrawing large amounts out of your IRA. So I think people get fixated on the on the cost of the debt, like the the interest rate on the mortgage.
And let's just say a prayer for those sub 3% mortgage rates. That was that was a nice time to to to live in. But even today, if you're contemplating like, oh, I paid off my house and all I have is a retirement account and you're, you're scared to borrow money at 6 or 7 or 8%. It's still cheaper than the tax consequences of having to take money out of the retirement account.
And so that's where I that's where I look at the trade off too. Yeah.
And I think I think there is that sense of comfort to knowing that I have that 30 year mortgage. And that's a fixed mortgage rate. You know, if I have a $2,500 a month mortgage, which that that still seems a lot for some today. You know, in 20 or 30 years that $2,500 doesn't seem so expensive anymore.
You're talking about inflation in terms of, you know, hey, if I'm spending $5,000 a month today, it feels like a lot of money. But because our dollars buy less goods and services in the future, 20 years from now, $5,000 might not feel like as much. I had another client situation where, you know, as I look back at my career, I've been doing this for about 17 years.
I feel very proud of this client situation because they were able to retire, pay off their house, live the life that they wanted to live, and I was young and naive enough as an advisor to not ask further questions or even challenge the client at the time. But you know where I feel like I failed this client. You know, if I rewind back many, many years ago, is this client really wanted to retire?
He lives a very reasonable lifestyle, well within their means and really wanted to pay off their house. You fast forward about 1415 years. All of that is true. This client is, for the most part, living the life that they want to live. Does not have a mortgage. But then something came up. We were having an interesting conversation where she's in her early 70s and she's like, well, my kids are probably going to have to wait 15 or 20 years to be able to get, you know, these dollars that I've saved or that will be left over for inheritance.
And then the house that's paid off. She's like, but I can't help them out today to buy a house. Like, I would love to be able to have a couple hundred thousand dollars to help out each one of my kids to to have a down payment, because homes are so expensive, because we chose to pay off that mortgage 14 years ago, and she's got okay savings in a trust account, but really good savings in a retirement account.
She can't take a few hundred thousand dollars and give them to her kids today to be able to help them with the down payment, because she prioritized paying off that house to where I feel like I failed her was if you rewind 4 or 5, six years ago, we could borrow money for sub 3%. I should have forced the issue or challenged her a little bit more during that time frame of saying, hey, you know what?
Your home's worth a million and a half. It might make sense to take $400,000 out of the 30 year fixed at 2.9%, and you can use that $400,000 to invest and grow. I mean, that's basically free money. And I didn't do it. Fortunately, the client is fine and happy, but that's one of the challenges that I see with paying off your mortgage, too.
Yeah. And I think you're really highlighting that, you know, goals, you know, 15 years ago. And goals today are not always the same. Goals change and you gotta sometimes plan for your future self when thinking about that.
Yeah, life happens unexpectedly and your goals change. I think that that's that's the truest thing. And so running a financial plan, modeling and scenarios, figuring out he doesn't make sense for me to pay off my house or to save in other areas to give me flexibility, like your client situation, who's choosing the last ten, 15 years to pay down his house.
Now he's in his mid 50s. If he wants to retire. On paper it looks like he can, but not having access to the home equity or not being able to access the retirement account without taxes and penalties, that sort of forcing him to have to keep working.
Yeah. And I think on the other side of things, you know, you and I had a client meeting just last week with somebody who actually did create that flexibility for himself. You know, he's well into retirement and he has an interest. Only you know, ten year loan. He knows and you know, a few years he's he's going to have to downsize.
And he's totally okay with that. But he provided him the flexibility to to live in this home. And he's living a great life right now. And I think, you know, he thinks he made a right move. And I think he made a right move.
I mean, he's been retired for probably 20 years 15 to 20 years. And he's kept $1 million balance on his home by paying an interest only loan. But big because he did that, he still had other dollars that he can access, you know, to live his life. Now he wants to downsize down the road because he's in a two storey house, so he knows eventually he'll be able to use the equity that's in the home.
But man, you want to talk about somebody that was happy even with $1 million mortgage in retirement. He was he was really happy. Yeah. Ian I enjoyed this conversation today. You know, it comes up a lot in terms of once I pay off my house, I feel like my expenses are lower and then this or that can happen.
But really what we see is that better off is instead of just choosing to pay off your house, make sure you have other buckets of money that you can access besides a retirement retirement account. I mean, saving 20% of your income, all in a retirement account and paying off your house is a good thing, but it doesn't create the flexibility or the sort of financial freedom that some of the clients are really looking for.
Yeah. Yeah, I've really enjoyed it. Thanks.
