A financial decision made today, with retirement just a decade away, could significantly affect long-term financial security and quality of life in the years that follow.
Morgan Stanley published a guide urging workers in their final decade of employment to give special attention to high-interest debt. It outlines six actions pre-retirees can prioritize before their income stops.
The guide covers expenses, income sources, debt, investment strategy, tax efficiency, and insurance, but its debt section never distinguishes between credit card balances and a mortgage.
For the growing share of homeowners entering retirement with a balance still on the house, that gap changes how the guide should be read. The rate, tax bracket, and cash left after a payoff determine whether eliminating the loan builds security or drains it.
More retirees carry mortgage debt into their later years
The share of homeowners age 75 and older with a mortgage nearly tripled between 1998 and 2022, reaching about 30%, an Urban Institute analysis found.
Median mortgage debt for that group rose to $106,800 after inflation adjustments, a 61% increase from the same measure in 1998.
Rising prices and pandemic-era refinancing changed the baseline for a generation that once entered retirement mortgage-free. More households now enter Morgan Stanley’s decade-out planning window with a mortgage still on the books.
Morgan Stanley recommended working with an adviser to review outstanding obligations, but the guide does not specify what threshold separates high interest from manageable cost.
Mortgage rate draws the line between payoff and investing
A homeowner locked in at 3% faces entirely different math than a borrower at 7%, and a T. Rowe Price analysis illustrates the gap clearly.
The firm modeled a $300,000 mortgage at 4% interest, with the borrower able to direct an extra $500 per month toward either accelerated payoff or investing. A faster payoff would save about $25,000 in interest over 13 years and cut seven years off the remaining term.
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Investing that same $500 at a 6% after-tax return would produce a net worth advantage of roughly $16,000 over the same period.
David Edmisten, a financial advisor at Pure Financial Advisors in Prescott, told Kiplinger that homeowners locked in at rates of 3% to 3.5% may benefit more from carrying the balance and directing their savings elsewhere.
At a 7% rate, the guaranteed return from paying down the mortgage typically exceeds what short-term Treasuries and high-yield savings currently pay.
New standard deduction narrows the mortgage interest tax benefit
The standard deduction for joint filers rose to $32,200 for the 2026 tax year under the One Big Beautiful Bill Act, according to the IRS Revenue Procedure 2025-32.
Retirees age 65 and older can stack a new $6,000 senior deduction onto that figure, with qualifying married couples eligible for up to $12,000 combined. An age-65 add-on, worth $1,650 per qualifying spouse in 2026, layers on top of both.
Those combined thresholds mean fewer retired households will need to itemize, making the mortgage interest deduction irrelevant for most retirees.
A retired couple, both 65 or older, with $15,000 in annual mortgage interest and $8,000 in state and local taxes, would total $23,000 in itemized deductions.
That sum falls more than $24,000 short of the couple’s combined $47,500 standard deduction, the base plus both add-ons stacked.
Retirees with larger mortgages or high state and local tax bills may still clear the itemization threshold, but the OBBBA math pushes far more filers to the standard side.
Cash reserves matter more than a zero mortgage balance
Depleting savings to eliminate a mortgage can leave retirees without the liquidity they need during their first years without income.
Anqi Chen, then associate director of savings and household finance at the Center for Retirement Research at Boston College (now at Edelman Financial Engines), told CNBC that liquidity planning matters because roughly 10% of retiree income goes to unexpected shocks.
<strong>Even small amounts of savings will help provide some sort of buffer for when these events occur</strong>.
Kevin Lao, owner and financial planner at Imagine Financial Security, told Kiplinger that retirees are better served maintaining 12 to 24 months of liquid reserves as a buffer against market downturns.
Pulling a lump sum from a pretax retirement account to pay off the house triggers an immediate tax bill that many retirees underestimate. At the 22% marginal rate, netting $100,000 after tax requires a gross withdrawal of roughly $128,000.
That withdrawal could push taxable income high enough to trigger higher Medicare premiums through income-related monthly adjustment amounts, adding a hidden cost.
“You never want to end up house rich and cash poor by paying off your mortgage,” Brandon Ashton, director of retirement security at Cornerstone Financial Services, told Kiplinger.
What shifts the mortgage calculation from here
Two moving pieces will continue to change the payoff-or-carry question for pre-retirees.
The One Big Beautiful Bill Act senior deduction phases out for higher-income filers and is scheduled to expire after 2028. That makes the standard deduction advantage that currently sidelines mortgage interest a temporary feature of the tax code.
Retirees planning around the current threshold could face a different itemization calculation before the decade is out.
Adjustable-rate borrowers who locked in during pandemic-era lows face added pressure as reset dates arrive, typically five or seven years after origination.
That group is small next to fixed-rate refinancers, but individual stakes grow as more resets hit through 2029.
The three variables Morgan Stanley leaves each household to weigh, rate, bracket, and cash position will look different in 2028 than they do today.
Related: 3 tips for getting the lowest mortgage rate in today’s market
