Should You Pay Off Your Mortgage Before You Retire?

For many people nearing retirement, the mortgage is their biggest monthly expense—and their home is their largest asset. Deciding whether to pay off that loan before leaving work is about more than peace of mind. It affects cash flow, taxes, estate planning, and long-term healthcare considerations.

There’s no one-size-fits-all answer. Some retirees thrive with a paid-off home and lower monthly obligations. Others benefit from keeping liquidity and using that money elsewhere. And for anyone worried about nursing home care, the way you hold and protect your home equity can make a major difference down the road.

The Upside of Paying It Off

Retiring with no mortgage can free up thousands of dollars per month. That breathing room can reduce the amount you need to draw from your retirement accounts each year. It may also make your Social Security benefits or modest pension go further.

With no mortgage, your required income drops. That can help keep you in a lower tax bracket and slow down the pace at which you deplete your investments. In addition, you may feel more financially stable knowing that your housing cost won’t rise with interest rates or market changes.

Some retirees also value the emotional payoff. Knowing the home is fully theirs gives a sense of independence and security, especially if they plan to age in place. Speak with your medicare advisor or other retirement planning professionals if you have questions about the value of paying off your mortgage.

But There Are Downsides Too

Using retirement savings or cash reserves to pay off a mortgage might leave you short on liquidity. Once money is tied up in your home, it can be difficult to access without taking on new debt or selling the property.

Pulling a large sum from a traditional IRA or 401(k) to pay off your mortgage in a lump sum can also push you into a higher tax bracket. That extra tax cost may outweigh the interest savings on your loan.

And in some cases, keeping a mortgage allows you to preserve more wealth for growth. If you’re locked into a low fixed rate—say 3%—and your investments are earning 5–7% annually, you may come out ahead by keeping the loan and investing the difference.

Home Equity and Medicaid Planning

One of the lesser-known factors in this decision is how your home—and the equity in it—affects your eligibility for Medicaid long-term care benefits. Medicare does not cover extended nursing home stays, but Medicaid does for those who meet income and asset requirements.

In Washington State, Medicaid allows you to keep your primary residence if you're applying for long-term care, but only up to a certain equity limit. As of 2025, that limit is $713,000. If your home is worth more than that and not protected by the right planning tools, it could disqualify you from benefits or trigger a Medicaid estate recovery claim later.

This is where trusts can help. Some retirees choose to transfer ownership of their home into an irrevocable trust well before they need care. When done early—at least five years in advance—this strategy can protect the home from Medicaid’s five-year lookback period.

How Trusts Can Protect the House

An irrevocable Medicaid trust is not the same as a revocable living trust. Once assets are placed in it, you cannot access them directly. But you can name a trustee and beneficiaries, retain the right to live in the house, and give instructions about what happens to it later.

Your estate planning attorney can help you preserve the home’s value for heirs and may prevent the state from claiming it to recoup long-term care costs. Timing is everything. Transfers made within five years of applying for Medicaid are subject to penalties and delays.

Before transferring property into a trust, it’s important to consult both a financial advisor and an attorney who understands Washington’s Medicaid rules. You’ll need to weigh the benefits of asset protection against the loss of control and flexibility.

Don’t Forget About Property Taxes and Maintenance

Even if your mortgage disappears, your housing costs won’t go to zero. You’ll still be responsible for insurance, property taxes, utilities, and upkeep.

In higher-cost counties, property tax bills alone can exceed $5,000 to $10,000 per year. If you're on a fixed income, those amounts can feel just as burdensome as a modest mortgage payment. Make sure to factor these continuing expenses into your retirement budget, whether the home is paid off or not.

Thinking Through the Bigger Picture

The question of whether to pay off your mortgage isn’t just about debt. It’s about how you want to use your money, where you want to live, and how much flexibility you need in retirement.

If paying off the home gives you peace of mind and helps you sleep at night, it may be worth it, even if the numbers suggest a different route. If you’re trying to stay liquid, preserve tax flexibility, or plan for healthcare costs later in life, keeping some debt might work better.

Every situation is different, especially when Medicaid planning or home equity protection is part of the conversation. That’s why it helps to work with someone who understands both the financial and legal dimensions of retirement.

You Don’t Have to Decide Alone

Chris Maggio at Retirement Planning Partner helps clients think through decisions like this every day. Whether it’s weighing the tax impact of a large withdrawal, coordinating with an estate attorney on a trust strategy, or testing different scenarios through cash flow projections, she helps clients see how each choice fits into the larger plan.

You’ve worked hard to build equity in your home. With the right planning, that value can support your lifestyle, protect your future, and preserve options for your family.