How to Retire: Have NO Mortgage!

How Do Spousal Benefits Work – A Simplified Explanation

 

How much would my wife receive from her spousal benefit? When will she be qualified to receive my Social Security? Will she lose her own retirement benefits?

I am four years older than Charlotte. I make more money than she does. That means I will receive a higher amount of Social Security benefits. For 15 years, she didn’t work or didn’t make much income from working part-time as a teller in Bank America. She worked various odd jobs. So, her Social Security benefit will be sparse.

For simplicity, let’s say her PIA is $1,500 a month. If she takes her benefit early, it’s reduced by 30% to roughly $1,000 a month. My retirement benefit though will be $3,000 a month. Her spousal benefit will be half of mine. That’s $1,500 a month at her Full Retirement Age (FRA).

So, in this case, she’ll get $1500 a her Full Retirement Age based on her OWN work record or her Spousal Benefit. There really is not much of a difference here. 

If we combine our retirement payments, we have around $4,500 a month in real money at our respective FRA’s. That’s $54,000 a year in income, completely tax-free, depending on what types of other income we have. 

When I die, Charlotte will lose her own Social Security benefits but will step into my benefit.  If I wait until I’m 70 to take my benefit, I’ll receive around $3,800 a month and that will be what Charlotte will get upon my death. 

If my wife dies first, it’s a drawback of her not taking an early benefit because we won’t receive ANY of her benefits. And this is a big reason for the lower earning spouse to take benefits early, simply to ensure that spouse receives SOMETHING. But many contingencies are out there, and many people have studied this problem. 

Despite the fact if she takes Social Security early she’ll receive a reduced benefit, it’s a good default for a spouse, especially for most women, who are often younger and have lesser income than their husbands. 

The best way to figure this stuff out is to actually look at the numbers! Figure out how much you and your spouse receive from Social Security payments. Take the time to do this so you can make the most informed decision that works for you. 

 

What is the benefit of having no mortgage payments in retirement?

We’re going to find that out by referring to the Census Bureau data. I will do this review as a prerequisite for my next video about the best places to retire in the US. 

To help me determine which of the states are great for retirement, I will go through average household income, as well as the homeowners with and without mortgages. Here we will focus on Georgia so I can answer your questions about whether it’s better to pay off your mortgages before you retire or not.

Case Study: Alpharetta,GA

In Alpharetta, GA, my neck of the woods, 3,000 owner-occupied housings have no mortgage, which is around 35% of the total homeowner population. The median household value is $337,000 in the past 12 months.  33% of the city’s population has more than $150,000 in household income.  $106,000 is the median household income of all residents.

The median annual housing cost in Alpharetta without a mortgage is $7,600. Divide that by the median income of $106,000 and we find 7.2% of the median home owners expenses go to home costs.  Of the $7,600 for total housing costs, $3,200 of it is from property taxes, which is around 1% of the median home value. 

By looking at the data closely, you will notice that homeowners who have mortgages paid more in property taxes because of higher house values. 11,876 homes in Alpharetta have mortgages. $373,000 is the median value of properties that carry a mortgage. That is nearly 15% HIGHER value than those properties without a mortgage!  Thus, having a mortgage leads to higher value homes which lead to higher property tax.  Crazy, eh?

In Alpharetta, 20% of homeowners have both mortgages and home equity loans, which is not good. The data also shows the median household income, which is $133,000.  As we have seen previously, if you have a mortgage you also have higher property taxes and 20% of these people have SECOND mortgages too.  So, they pay more in taxes, more in housing costs due to carrying a mortgage yet they don’t make that much more money!  Again, not good. 

Based on the median values, there are more households with mortgages than without. The figures show a higher percentage of Alpharetta homeowners pay higher taxes because of the mortgages.  

Conclusion: No mortgage means lower property tax which means less retirement costs!

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