These days, retirees aren’t walking into the same golden years their parents once enjoyed. In fact, one financial adviser characterized the transition as stepping into a “pressure cooker.”
“Inflation has been sticky, health care costs are ballooning, and essentials like groceries, gas, and utilities are still far above pre-2020 levels,” adds Melissa Cox, owner and certified financial planner at Future-Focused Wealth in Dallas.
The situation is particularly problematic for more than 10.5 million Americans who are 65 and older and still have a mortgage. For them, stretching retirement funds is even more important, as a mortgage payment can easily eat up thousands of dollars each month.
With that said, the strategy that has worked for generations before no longer applies. However, there are still ways to learn how to make your retirement money work for you, rather than the other way around.
The 4% rule for retirement doesn’t apply to mortgages
The 4% rule suggests that retirees withdraw 4% of their retirement savings annually to ensure their funds last for at least 30 years. This rule has been a constant because it balances the need for income with the preservation of capital, assuming a diversified investment portfolio.
However, it doesn’t account for fixed expenses, such as mortgages.
“Retirees with a mortgage should consider a more conservative withdrawal rate, perhaps around 3%, to ensure they can cover their mortgage payments and other essential expenses without depleting their savings too quickly,” explains Jake Falcon, CEO at Falcon Wealth Advisors in Kansas City, MO.
Instead of suggesting the 4% rule, Falcon works with his clients to create a target rate of return, update their plan regularly, and track to see that they’re spending less than their average return.
Cox isn’t a fan of the 4% rule either. In fact, she tells her clients to forgo a percentage altogether and begin with a spending plan instead.
“Your goal isn’t to hit a magic number. It’s to make sure your bills are covered without draining your future. Begin by building a realistic spending plan that includes your mortgage, property taxes, and home upkeep. Then, line up with your income streams and back into a withdrawal amount that works for you,” says Cox.
She has found that for many retirees, that ends up being closer to 3.5%, especially if they want their money to last the rest of their life.
“Here’s the key: Don’t start with a formula; start with your life,” she says.
Inflation is changing the game
Economic changes, particularly inflation and high mortgage rates, make refinancing challenging because higher rates can negate the benefits of refinancing. Retirees might find that the cost of refinancing outweighs the potential savings on interest payments.
Additionally, tariffs can indirectly affect the cost of goods and services, further straining retirees’ budgets. It’s essential to carefully evaluate the costs and benefits of refinancing in the current economic climate.
“Ultimately, the financial plan should allow for some cushion and change as life changes,” explains Falcon.
How things are looking up
Mortgage rates have dropped a bit, but there’s no denying they’re still high compared with what most retirees were hoping for—and the uncertainty makes long-term planning harder. The silver lining? Some states are stepping up.
Maine, New Jersey, and Texas have all rolled out or expanded property tax relief for seniors, and others are catching on.
“For retirees living on a fixed income, those kinds of breaks can make a real difference. It’s not a total fix, but it helps ease the pressure when every dollar counts,” adds Cox.
When it comes to home repairs, tapping your home equity to pay for them can make sense, especially if it helps maintain or increase the home’s value. If you go this route, however, be cautious.
“Using home equity should be part of a broader financial plan that considers the long-term impact on retirement savings and overall financial health. Consulting with a wealth adviser can help retirees make informed decisions about leveraging home equity,” explains Falcon.
