August 6, 2026 • 14 mins
That “debt-free” feeling is powerful, but the number on your mortgage statement may not be the real price of paying it off. A retirement planning trap that catches a lot of homeowners: Using taxable IRA or 401(k) withdrawals to wipe out the loan, then realizing the tax bill turns a $300,000 payoff into something closer to $395,000. If you’ve been tempted to write a big check for peace of mind, this conversation helps you slow down and measure the full trade-off.
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▶️ YouTube: Paradigm Wealth Partners
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Thanks for Listening!
Jonathan
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Episode Transcript
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SPEAKER_00 (00:02):
For many retirees, the dream is simple.
Make that final mortgagepayment, own the house free and
clear, and never send anotherpayment to the bank or mortgage
company again.
And honestly, I understand why.
I've worked with hundreds ofretirees, and very few things
provide the same level of peaceof mind as knowing your home is
(00:24):
completely paid for.
But here's what many retireesdon't consider.
Paying off your mortgage couldactually cost you far more than
the balance shown on yourstatement.
Today I'm going to walk youthrough and talk about the
trade-off between beingdebt-free and maintaining
flexibility in retirement.
(00:46):
I'll show you an example where a$300,000 mortgage effectively
could cost for a retiree nearly$400,000 to eliminate.
My name is Jonathan Bedner,certified financial planner with
Paradigm Wealth Partners, and wehelp individuals and families
make informed decisions so theycan retire with confidence.
(01:07):
Let's jump in.
First, let's acknowledge theemotional side of this decision.
Retirement is different fromyour working years.
When you're working, a mortgageis usually just another monthly
bill.
Once you've retired, everydollar spent feels different
because you're no longerreceiving those steady paychecks
(01:28):
from your employer.
Oftentimes retirees will tellme, Jonathan, I don't care if
the math says I should keep themortgage.
It's a valid feeling for people.
There are some real benefits topaying off your mortgage, to
(01:49):
having no house payment, beingcompletely debt-free.
And the first benefit is havingpeace of mind.
When markets decline, retireeswithout a mortgage often feel
less stress.
They know that regardless ofwhat happens in the stock
market, they own their homeoutright, and that's really
powerful.
The second benefit is it's lowermonthly expenses.
(02:12):
Let's say your mortgage ofpayment is$2,000 per month.
Eliminating that payment reducesyour annual spending by$24,000.
So that means less pressure onyour portfolio, lower
withdrawals, which may meanlower tax liability, more
flexibility during marketdownturns.
(02:33):
The third benefit is uh theguaranteed return.
So if your mortgage rate is 7%,paying it off effectively is
earning a risk-free 7% return.
That's really attractive, uh,especially today when when uh if
(02:53):
you have a mortgage that has ahigher rate, 6 or 7%, like we're
seeing in today.
So there's absolutely situationswhere paying off your mortgage
makes tons of sense.
But now I want to look at whatretirees often overlook.
And there's some hidden coststhat people oftentimes don't
calculate.
Let's look at an example.
We'll call them Tom and Janet.
(03:15):
Tom's 65, Janet 67.
They've done a really good jobsaving for their retirement.
And they've got about$1.5million in retirement accounts,
a$300,000 mortgage, and amortgage rate of 4%.
No other debt.
(03:36):
One day they decide we've workedreally hard on entire lives.
Let's just pay off the mortgage,be completely debt-free.
You know, they've talked throughthat.
So, you know, it sounds simpleenough.
They owe$300,000.
They want to withdraw$300,000from the IRA, right?
Not exactly.
Because IRA withdrawals aretaxable.
(03:58):
Now, maybe there's assets uhoutside of an IRA, maybe there's
some non-qualified assets ornon-retirement assets that they
could utilize and and uh use topay these off.
Most people, most of theirassets, uh aside from equity in
their house, is built into theirretirement plans.
(04:20):
Uh 401ks, 403Bs, 457s, thingsthat um when they withdraw them
is going to cause additional taxliability.
So let's assume Tom and Janetare in the 24% federal tax
bracket.
If they withdraw$300,000 fromthe IRA, they're not going to
(04:42):
receive$300,000 after taxes.
They'll actually have lessbecause they have to pay the tax
liability on that$300,000.
So they would need to withdrawabout$395,000 from their IRA in
order to account for the 24% taxliability they would owe on that
(05:06):
distribution out of theirretirement account.
So think about that for asecond.
They don't spend$300,000 toeliminate the mortgage.
They've actually spent nearly$400,000 of retirement assets to
help eliminate that mortgage.
The mortgage may have been$300,000, but the after tax cost
(05:26):
of eliminating it was$395,000.
That's books for consideringthings like state income taxes
if you're in a state that hasstate income tax liability.
Medicare IRMA surcharges ifyou're already taking Medicare
and the increased cost of thosedistributions and what that does
(05:46):
to your IRMA or your Medicarepremiums.
Increased taxation on SocialSecurity benefits, and then
potential loss of other taxplanning opportunities.
So there are some things toconsider, there's some hidden
things to consider that frankly,I would say nine out of 10 times
just gets overlooked becausethey're so laser focused on just
(06:10):
pay off the debt, just take themoney out, pay off the mortgage.
There's a few questions that youknow you could consider uh in in
this conversation.
So most retirees ask, should Iuse the$300,000 to pay off my
mortgage?
And that's actually probably thewrong question to be asking.
The question is, should I spendthe$400,000 or$395,000 of
(06:32):
retirement assets to eliminate a$300,000 mortgage?
This is where advisors arereally good, where we can help
shed some light on, you know,the actual all-in cost of paying
off your mortgage.
And again, I'm not saying payingoff your mortgage is a bad idea.
Being completely debt-free,including your mortgage, is a
(06:52):
completely satisfying feelingand a huge weight off your
shoulders, knowing that youdon't owe anybody anything.
What I want to kind of talkabout now is um what about the
kind of investment growth sideof this?
So let's, if we take this onestep further, if Tom and Janet's
mortgage is you know 4%, bypaying it off, they've
(07:14):
effectively earned a guaranteedrate of 4%, a 4% guaranteed
return.
That's not bad.
But they've also removed nearly$400,000 from the portfolio.
So 1.5 is now worth$1.1 million.
And now nobody knows what themarkets will do.
They will fluctuate, they ebb,and they flow, and there's no
(07:36):
guarantee that the market willoutperform the 4% in the long
run.
But historically speaking, adiversified portfolio has often
generated returns above that 4%over long periods of time.
What happens year over year, whoknows?
But over a period of time,historically speaking, the
(07:57):
market has outpaced that 4%.
So what they're giving up isfuture growth potential,
liquidity, flexibility, wherethose extra assets in the
portfolio could be used for, youknow, maybe an unforeseen
expense that pops up.
So in exchange for eliminating arelatively inexpensive loan in
(08:19):
today's standards, uh, again,this doesn't automatically make
paying off the mortgage wrong.
It simply just means thedecision isn't as obvious as
many people think or make it outto be.
There's also a liquidityproblem.
This part kind of concerns methe most as a financial planner.
And when I'm talking to clients,I want them to understand when
(08:40):
Tom and Janet had$1.5 millioninvested, they had options.
If a major expense came up, theyhad access to capital.
If the market declined, they hadflexibility.
If healthcare costs or long-termlong-term care needs arise, they
had resources available.
After paying off the mortgage,that money is now trapped inside
(09:01):
the house.
Now they would still have$1.1million, which is a lot of
money, and could still be usedfor some of those things, but it
does reduce some of theflexibility and some of the uh
assets available to be used hadit still been in investable
assets or readily available cashnot tied into equity in their
(09:26):
home.
Now, it is still equity, theystill have it in their house,
but you can't easily pay medicalbills with home equity.
You can't pay for a new roofwith home equity, you can't take
a family vacation with homeequity, the money becomes much
less flexible.
Now, obviously, there are waysto get equity out of your home
using a home equity line ofcredit.
(09:47):
That's not what I'm talkingabout, because then you're
really just getting a loan topay for, say, the new roof.
And so the benefit of having themoney flexible is we're not
having to go into debt somewhereelse to use the equity from our
home, right?
We have cash and investmentsthat can provide the
flexibility.
And that flexibility is one ofthe most valuable assets a
(10:10):
retiree can have.
So when does paying off amortgage make sense?
There are certainly situationswhere I obviously and absolutely
support paying off the mortgage.
Again, for example, if yourmortgage rate is six or seven
percent or higher, then yes, itmakes a ton of sense to find a
way to help pay that mortgagefaster.
(10:31):
Uh maybe if you have substantialliquid assets remaining
afterwards and it doesn't hurtyour uh your investments or your
cash reserves, anything likethat, then sure.
Uh the payoff won't create amajor tax burden.
If you can do this withoutcausing a big tax bill, you
know, that might make sense.
(10:51):
You know, being debt free cansignificantly improve your
quality of life.
And if if having that debtfreedom uh provides that kind of
sense of uh relief andconfidence, then you know maybe
it makes sense.
And in those situations, beingdebt free or having a paid-off
(11:12):
mortgage can be a greatdecision.
On the other hand, I've becomemore cautious when the mortgage
rate is very low, like in thissituation, and even over the
last several years, when rateswere 2, 3, 4%.
Or maybe assets are inside yourretirement accounts.
Most of your assets are lockedup in accounts that when you
(11:32):
make the withdrawal, it'll betaxable.
That's something to consider.
Or paying it off creates a largetax bill, or liquidity becomes
constrained.
In those cases, keeping themortgage may actually strengthen
your retirement plan so that youhave enough assets for uh you
know your lifetime.
(11:52):
Our goal as financial plannersis so that as long as you have
life, you have money.
What we don't want to happen isyou run out of money, but you
still have life.
So that's where we're trying tothink through what is the best
solution for you.
So maybe there's a middleground.
And remember, this doesn't haveto be an all-or-nothing
(12:14):
decision.
Many retirees choose to keeplarger cash reserves or make
extra principal payments,gradually reduce their mortgage
over time.
Maybe you want to have Rothconversion strategically before
you're paying it off.
So sometimes the best answerisn't paying it off immediately.
It's creating a plan toeliminate it more efficiently
(12:36):
over a several year period.
I see retirees, you know, focuson this, make their mortgage be
the primary focus instead of theafter-tax cost of eliminating
the mortgage.
You got to think of the wholepicture, not just what's on the
mortgage statement.
Because a$300,000 mortgage isn'talways a$300,000 decision.
(12:59):
And in this case, like wediscussed, it's a$395,000
decision at minimum before youcount impact to Social Security,
impact to uh Social Securitytaxes, impact to IRMA
surcharges, uh liquidity.
And so before you write thatcheck, it's important to
understand exactly what you'regiving up in taxes, liquidity,
(13:21):
and future flexibility.
If you'd like to see how payingoff your mortgage impacts your
retirement plan, taxes,long-term income strategy, IRMA,
we'd be happy to sit down withyou and you can schedule a
complimentary consultation withme at the link below in the
description, and I'll love tohelp you evaluate the trade-offs
(13:43):
based on your specificsituation.
If you haven't alreadysubscribed, please subscribe.
Be confident in your retirement,and we'll see you in the next
video.
Thanks for joining me on anotherepisode of What the Wealth.
If you enjoyed the episodetoday, smash that subscribe
button.
It helps me more than you think.
Also, if you found this episodeinsightful and a light bulb went
(14:04):
off, share it.
Your friend Aunt Judy, therandom guy in the office who's
always talking aboutinvestments.
Wealth isn't about just the chipchain.
It's about our choices, chances,and changing our financial
futures.
The information in this podcastis informational and general in
nature and does not take intoconsideration the listener's
personal circumstances.
This podcast is not intended tobe a substitute for specific in
(14:27):
financial, legal, or tax advice.
You should consult the approvedqualified professional prior to
making a final decision.
Securities offered through LPLFinancial, member FINRA SIPC.
Paradigm Wealth Partners is theother business name for
Independent Advisor Alliance.
Investment Advice offeredthrough Independent Advisor
Alliance, a registeredinvestment advisor, Independent
Advisor Alliance, and ParadigmWealth Partners are separate
(14:50):
entities from LPL Financial.
For many retirees, the dream is simple.
Make that final mortgagepayment, own the house free and
clear, and never send anotherpayment to the bank or mortgage
company again.
And honestly, I understand why.
I've worked with hundreds ofretirees, and very few things
provide the same level of peaceof mind as knowing your home is
(00:24):
completely paid for.
But here's what many retireesdon't consider.
Paying off your mortgage couldactually cost you far more than
the balance shown on yourstatement.
Today I'm going to walk youthrough and talk about the
trade-off between beingdebt-free and maintaining
flexibility in retirement.
(00:46):
I'll show you an example where a$300,000 mortgage effectively
could cost for a retiree nearly$400,000 to eliminate.
My name is Jonathan Bedner,certified financial planner with
Paradigm Wealth Partners, and wehelp individuals and families
make informed decisions so theycan retire with confidence.
(01:07):
Let's jump in.
First, let's acknowledge theemotional side of this decision.
Retirement is different fromyour working years.
When you're working, a mortgageis usually just another monthly
bill.
Once you've retired, everydollar spent feels different
because you're no longerreceiving those steady paychecks
(01:28):
from your employer.
Oftentimes retirees will tellme, Jonathan, I don't care if
the math says I should keep themortgage.
It's a valid feeling for people.
There are some real benefits topaying off your mortgage, to
(01:49):
having no house payment, beingcompletely debt-free.
And the first benefit is havingpeace of mind.
When markets decline, retireeswithout a mortgage often feel
less stress.
They know that regardless ofwhat happens in the stock
market, they own their homeoutright, and that's really
powerful.
The second benefit is it's lowermonthly expenses.
(02:12):
Let's say your mortgage ofpayment is$2,000 per month.
Eliminating that payment reducesyour annual spending by$24,000.
So that means less pressure onyour portfolio, lower
withdrawals, which may meanlower tax liability, more
flexibility during marketdownturns.
(02:33):
The third benefit is uh theguaranteed return.
So if your mortgage rate is 7%,paying it off effectively is
earning a risk-free 7% return.
That's really attractive, uh,especially today when when uh if
(02:53):
you have a mortgage that has ahigher rate, 6 or 7%, like we're
seeing in today.
So there's absolutely situationswhere paying off your mortgage
makes tons of sense.
But now I want to look at whatretirees often overlook.
And there's some hidden coststhat people oftentimes don't
calculate.
Let's look at an example.
We'll call them Tom and Janet.
(03:15):
Tom's 65, Janet 67.
They've done a really good jobsaving for their retirement.
And they've got about$1.5million in retirement accounts,
a$300,000 mortgage, and amortgage rate of 4%.
No other debt.
(03:36):
One day they decide we've workedreally hard on entire lives.
Let's just pay off the mortgage,be completely debt-free.
You know, they've talked throughthat.
So, you know, it sounds simpleenough.
They owe$300,000.
They want to withdraw$300,000from the IRA, right?
Not exactly.
Because IRA withdrawals aretaxable.
(03:58):
Now, maybe there's assets uhoutside of an IRA, maybe there's
some non-qualified assets ornon-retirement assets that they
could utilize and and uh use topay these off.
Most people, most of theirassets, uh aside from equity in
their house, is built into theirretirement plans.
(04:20):
Uh 401ks, 403Bs, 457s, thingsthat um when they withdraw them
is going to cause additional taxliability.
So let's assume Tom and Janetare in the 24% federal tax
bracket.
If they withdraw$300,000 fromthe IRA, they're not going to
(04:42):
receive$300,000 after taxes.
They'll actually have lessbecause they have to pay the tax
liability on that$300,000.
So they would need to withdrawabout$395,000 from their IRA in
order to account for the 24% taxliability they would owe on that
(05:06):
distribution out of theirretirement account.
So think about that for asecond.
They don't spend$300,000 toeliminate the mortgage.
They've actually spent nearly$400,000 of retirement assets to
help eliminate that mortgage.
The mortgage may have been$300,000, but the after tax cost
(05:26):
of eliminating it was$395,000.
That's books for consideringthings like state income taxes
if you're in a state that hasstate income tax liability.
Medicare IRMA surcharges ifyou're already taking Medicare
and the increased cost of thosedistributions and what that does
(05:46):
to your IRMA or your Medicarepremiums.
Increased taxation on SocialSecurity benefits, and then
potential loss of other taxplanning opportunities.
So there are some things toconsider, there's some hidden
things to consider that frankly,I would say nine out of 10 times
just gets overlooked becausethey're so laser focused on just
(06:10):
pay off the debt, just take themoney out, pay off the mortgage.
There's a few questions that youknow you could consider uh in in
this conversation.
So most retirees ask, should Iuse the$300,000 to pay off my
mortgage?
And that's actually probably thewrong question to be asking.
The question is, should I spendthe$400,000 or$395,000 of
(06:32):
retirement assets to eliminate a$300,000 mortgage?
This is where advisors arereally good, where we can help
shed some light on, you know,the actual all-in cost of paying
off your mortgage.
And again, I'm not saying payingoff your mortgage is a bad idea.
Being completely debt-free,including your mortgage, is a
(06:52):
completely satisfying feelingand a huge weight off your
shoulders, knowing that youdon't owe anybody anything.
What I want to kind of talkabout now is um what about the
kind of investment growth sideof this?
So let's, if we take this onestep further, if Tom and Janet's
mortgage is you know 4%, bypaying it off, they've
(07:14):
effectively earned a guaranteedrate of 4%, a 4% guaranteed
return.
That's not bad.
But they've also removed nearly$400,000 from the portfolio.
So 1.5 is now worth$1.1 million.
And now nobody knows what themarkets will do.
They will fluctuate, they ebb,and they flow, and there's no
(07:36):
guarantee that the market willoutperform the 4% in the long
run.
But historically speaking, adiversified portfolio has often
generated returns above that 4%over long periods of time.
What happens year over year, whoknows?
But over a period of time,historically speaking, the
(07:57):
market has outpaced that 4%.
So what they're giving up isfuture growth potential,
liquidity, flexibility, wherethose extra assets in the
portfolio could be used for, youknow, maybe an unforeseen
expense that pops up.
So in exchange for eliminating arelatively inexpensive loan in
(08:19):
today's standards, uh, again,this doesn't automatically make
paying off the mortgage wrong.
It simply just means thedecision isn't as obvious as
many people think or make it outto be.
There's also a liquidityproblem.
This part kind of concerns methe most as a financial planner.
And when I'm talking to clients,I want them to understand when
(08:40):
Tom and Janet had$1.5 millioninvested, they had options.
If a major expense came up, theyhad access to capital.
If the market declined, they hadflexibility.
If healthcare costs or long-termlong-term care needs arise, they
had resources available.
After paying off the mortgage,that money is now trapped inside
(09:01):
the house.
Now they would still have$1.1million, which is a lot of
money, and could still be usedfor some of those things, but it
does reduce some of theflexibility and some of the uh
assets available to be used hadit still been in investable
assets or readily available cashnot tied into equity in their
(09:26):
home.
Now, it is still equity, theystill have it in their house,
but you can't easily pay medicalbills with home equity.
You can't pay for a new roofwith home equity, you can't take
a family vacation with homeequity, the money becomes much
less flexible.
Now, obviously, there are waysto get equity out of your home
using a home equity line ofcredit.
(09:47):
That's not what I'm talkingabout, because then you're
really just getting a loan topay for, say, the new roof.
And so the benefit of having themoney flexible is we're not
having to go into debt somewhereelse to use the equity from our
home, right?
We have cash and investmentsthat can provide the
flexibility.
And that flexibility is one ofthe most valuable assets a
(10:10):
retiree can have.
So when does paying off amortgage make sense?
There are certainly situationswhere I obviously and absolutely
support paying off the mortgage.
Again, for example, if yourmortgage rate is six or seven
percent or higher, then yes, itmakes a ton of sense to find a
way to help pay that mortgagefaster.
(10:31):
Uh maybe if you have substantialliquid assets remaining
afterwards and it doesn't hurtyour uh your investments or your
cash reserves, anything likethat, then sure.
Uh the payoff won't create amajor tax burden.
If you can do this withoutcausing a big tax bill, you
know, that might make sense.
(10:51):
You know, being debt free cansignificantly improve your
quality of life.
And if if having that debtfreedom uh provides that kind of
sense of uh relief andconfidence, then you know maybe
it makes sense.
And in those situations, beingdebt free or having a paid-off
(11:12):
mortgage can be a greatdecision.
On the other hand, I've becomemore cautious when the mortgage
rate is very low, like in thissituation, and even over the
last several years, when rateswere 2, 3, 4%.
Or maybe assets are inside yourretirement accounts.
Most of your assets are lockedup in accounts that when you
(11:32):
make the withdrawal, it'll betaxable.
That's something to consider.
Or paying it off creates a largetax bill, or liquidity becomes
constrained.
In those cases, keeping themortgage may actually strengthen
your retirement plan so that youhave enough assets for uh you
know your lifetime.
(11:52):
Our goal as financial plannersis so that as long as you have
life, you have money.
What we don't want to happen isyou run out of money, but you
still have life.
So that's where we're trying tothink through what is the best
solution for you.
So maybe there's a middleground.
And remember, this doesn't haveto be an all-or-nothing
(12:14):
decision.
Many retirees choose to keeplarger cash reserves or make
extra principal payments,gradually reduce their mortgage
over time.
Maybe you want to have Rothconversion strategically before
you're paying it off.
So sometimes the best answerisn't paying it off immediately.
It's creating a plan toeliminate it more efficiently
(12:36):
over a several year period.
I see retirees, you know, focuson this, make their mortgage be
the primary focus instead of theafter-tax cost of eliminating
the mortgage.
You got to think of the wholepicture, not just what's on the
mortgage statement.
Because a$300,000 mortgage isn'talways a$300,000 decision.
(12:59):
And in this case, like wediscussed, it's a$395,000
decision at minimum before youcount impact to Social Security,
impact to uh Social Securitytaxes, impact to IRMA
surcharges, uh liquidity.
And so before you write thatcheck, it's important to
understand exactly what you'regiving up in taxes, liquidity,
(13:21):
and future flexibility.
If you'd like to see how payingoff your mortgage impacts your
retirement plan, taxes,long-term income strategy, IRMA,
we'd be happy to sit down withyou and you can schedule a
complimentary consultation withme at the link below in the
description, and I'll love tohelp you evaluate the trade-offs
(13:43):
based on your specificsituation.
If you haven't alreadysubscribed, please subscribe.
Be confident in your retirement,and we'll see you in the next
video.
Thanks for joining me on anotherepisode of What the Wealth.
If you enjoyed the episodetoday, smash that subscribe
button.
It helps me more than you think.
Also, if you found this episodeinsightful and a light bulb went
(14:04):
off, share it.
Your friend Aunt Judy, therandom guy in the office who's
always talking aboutinvestments.
Wealth isn't about just the chipchain.
It's about our choices, chances,and changing our financial
futures.
The information in this podcastis informational and general in
nature and does not take intoconsideration the listener's
personal circumstances.
This podcast is not intended tobe a substitute for specific in
(14:27):
financial, legal, or tax advice.
You should consult the approvedqualified professional prior to
making a final decision.
Securities offered through LPLFinancial, member FINRA SIPC.
Paradigm Wealth Partners is theother business name for
Independent Advisor Alliance.
Investment Advice offeredthrough Independent Advisor
Alliance, a registeredinvestment advisor, Independent
Advisor Alliance, and ParadigmWealth Partners are separate
(14:50):
entities from LPL Financial.
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