A couple retiring at 65 has $1.6 million in retirement assets and $260,000 remaining on a 5.5% fixed mortgage with about 25 years left. Their monthly principal and interest is about $1,597, and with taxes and insurance total housing costs are about $2,297 per month, or $27,564 per year. If they withdraw 4% from the portfolio, they have about $64,000 of annual income, and about 43% goes to housing. Some recommend paying off the mortgage, while other retirement-income research treats a fixed-rate mortgage near bond yields as a negative bond position. The decision depends on comparing the mortgage rate to expected portfolio returns after taxes and inflation. With a 60/40 portfolio priced to deliver around the 6% range, the mortgage rate is near neutrality after considering taxes. Inflation also helps because fixed mortgage payments lose real value over time.
"Net of taxes on the bond portion, you are flirting with neutrality. Inflation is not helping the "just invest it" side either. CPI sits at a 90th-percentile reading versus the past year, and Core PCE has climbed steadily through early 2026. A fixed mortgage payment is one of the few items in a retiree's budget that inflation actively erodes in your favor. The opportunity-cost case is real: $260,000 invested at 6% for 25 years grows to roughly $1.12 million, while the interest you would pay on the mortgage o"
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