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Michelle Singletary | The Color of Money

Waiting until you are retired to pay off the mortgage is a risky proposition

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June 15, 2008

It would have shaken my dear, deceased grandmother to her financial core.

The headline read: "Mortgages No Longer a Stigma in Retirement."

That was the finding of the third annual "Affluent Boomers at 60" survey conducted by Bell Investment Advisors. Baby boomers, the survey revealed, are in no rush to pay off their mortgages.

This attitude of keeping a mortgage years into retirement is a major shift from what Big Mama, a child of the Great Depression, taught me. She always stressed that I should aim to pay off my mortgage before I retire, getting rid of the most significant expense in my budget.

There was a time when people would throw parties to celebrate being released from the bondage of a mortgage. But now more than 55 percent of boomers with mortgages do not plan to pay their mortgages off until their 70s, if ever.

For those seniors, wealthy or not, who are inclined to believe it's a good financial move to drag a mortgage into their old age, I've got two words for you: Ed McMahon.

McMahon, Johnny Carson's sidekick on "The Tonight Show," is trying to save his multimillion-dollar mansion from foreclosure. The Beverly Hills estate has a $4.8 million mortgage and, according to a default notice, McMahon, 85, is more than $644,000 in arrears.

I wanted to ask McMahon what went wrong. I wanted to know how someone who reportedly earned millions in his lifetime peddling the American dream of instant fame and fortune as the pitchman for American Family Publishers sweepstakes and host of "Star Search" could fall so far financially.

But Howard Bragman, McMahon's spokesman, said his client was tired of talking about his situation. McMahon did acknowledge his poor handling of his money in an interview with CNN's Larry King.

"Well, if you spend more money than you make, you know what happens. And it can happen," McMahon said.

McMahon, wearing a neck brace and sitting beside his current wife, Pamela, also blamed his multiple divorces and the economy for his money woes. His troubles got worse when he broke his neck in a fall. His injury has prevented him from working, he said.

While tragic, McMahon's plight is an example of what happens when you live too large.

If you always spend more money than you earn, you can't possibly earn enough.

The fact is, the wisdom of Big Mama's generation about mortgages was right. They understood the risks. If you pay off your mortgage before you retire, you have more financial flexibility. You have a better chance to withstand a major illness or injury, a downturn in the economy or a drop in the stock market.

Don't listen to the knuckleheads who say keep a mortgage forever. Look forward to the day when you can celebrate the retiring of that debt.

Michelle Singletary is a columnist for The Washington Post. She can be reached at singletarym@washpost.com.

SOURCE: Bloomberg News

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