Ask Tim: Paying Off the Mortgage Before Retirement?

If you live in the Northeast, you already understand this truth: winter has a way of turning regular life into a budgeting exercise.

One week you are cruising through your routine, and the next you are staring at a driveway that looks like a small ski resort.

Big snow has a funny side effect. It forces a pause. You cancel a few things. You stay in. You look out the window. And your brain starts wandering into the bigger questions.

Will I be financially ready for retirement? How should I be investing as I get older? What’s the meaning of life? Okay. Maybe not that last question.

So, while the forecast does what it does every winter, here are three questions we have been hearing versions of lately, all tied to one theme: making the next move with clarity, before the weather changes again.

Should I Pay Off My Mortgage Before I Retire?

Dear Tim,

I am about 5–7 years from retirement. I am halfway through a 30-year mortgage, and I keep thinking it would feel safer to wipe it out before I stop working.

At the same time, I want to avoid a move that feels good emotionally and ends up being a mistake financially.

How do you think about this?

- Future Mortgage-Free Legend

Dear Future Mortgage-Free Legend,

Paying off the mortgage can feel great in the moment. However, it can also lead to long-term financial stress depending on your circumstances.

This decision usually comes down to two important considerations: performance and capacity.

Here is a simple proxy example based on year 15 of a 30-year mortgage:

• Original mortgage: $400,000
  
  
• Rate: 5.00%
  
  
• Term: 30 years
  
  
• Monthly Principal + Interest: $2,147
  
  
• Balance Around Year 15 (month 180): ~$271,500
  
  
• Remaining Payments Over the final 15 Years: ~$386,500
  
  
• Remaining Interest Over Time: ~$115,000

Regarding our first consideration — performance: How do you expect your portfolio to perform over the term of the mortgage vs. the interest cost you’re continuing to pay on the loan?

From there, the planning becomes clearer:

• If your expected portfolio returns are meaningfully higher than your mortgage rate, keeping the mortgage makes sense – your dollars may be working harder if they remain invested, and you also preserve flexibility for future funding needs.
• If your mortgage rate is materially higher, paying the loan down can be compelling – however, this is when we’d focus in on our next consideration before deciding here.

Regarding our second consideration — capacity: Are the funds earmarked for this potential mortgage paydown truly expendable?

Retirees typically rely on the compounding growth, and liquidity, of their investments to make ends meet above and beyond their fixed income. Does removing hundreds of thousands of dollars from your nest egg impact your ability to afford expected and unexpected expenses through the rest of your life?

In practice, we typically assess the following in regards to how it will impact your long-term financial security.

• Maintain the mortgage and keep assets invested
  
  
• Pay it off when reserves remain strong after payoff
  
  
• Split the difference by making targeted extra principal payments for 12–24 months, then reassess

It’s no secret that the nest egg you’ve spent your career building was done to serve a purpose. To solve this riddle, I’d strongly recommend working with a quality financial professional to run the numbers and help you narrow in on the best path forward.

I Just Started A Job That Offers RSUs. How Do They Work, And What Can I Do With Them?

Dear Tim,

New job. They offered Restricted Stock Units (RSUs).

I nodded like I understood. I did not.

How do RSUs work? When do taxes come into play? Once they vest, what am I supposed to do with them?

- Company Stock Compensated

Dear Company Stock Compensated,

You’re not alone, the vast majority of people who receive equity compensation fail to understand the intricacies of how they work and where they can be maximized for your future financial goals.

RSUs are a promise of shares in the future, tied to a vesting schedule. They tend to create two surprises: tax timing and concentration risk.

How They Work

Grant
Your company grants you RSUs, which represent a promise of shares that can become yours later.

Vesting Schedule 101
RSUs vest over time, often across 3–4 years, and vesting can occur annually or quarterly. When shares vest, they become yours.

Once RSUs vest, you generally have two options: hold or sell.

Taxation at Vest
In most cases, RSUs are taxed as ordinary income when they vest, based on the fair market value on the vest date.

Taxation at Sale
In most cases, RSUs begin their holding period (and receive their basis) at the time of vesting. Depending on timing and market movement, the eventual sale of these shares will be treated as short or long-term capital gains.

Common Mistakes

1) Not having an exit strategy

Most of those earning equity compensation simply ignore the shares being received or are enamored by their stake in the company. Either way, not having a clearly defined exit strategy for this growing position can lead to a large portion of their wealth being tied to single stock.

Every decade brings a new wave of examples, senior staff members think they’re rich and ready for their dream home or retirement — just to see their wealth plummet when their stock drops in value.

2) Failing to understand the tax implications

Buckle up, there are a few things to think through here and missing them can lead to unnecessary, or unexpected, tax liabilities.

• Basis Recording: Some custodians will fail to record basis for shares correctly, or at all, and if you make liquidations, that 1099 is going to your CPA showing a full capital gain even though you had already been taxed on a portion of that value.
• 83(b) Election: This little-known IRS filing allows folks to be taxed, and receive basis, on the value of RSUs as they’re granted. For folks expecting to be employed long-term at high growth companies, this option can bring immediate income tax savings but long-term capital gains considerations as well.
• Tax Withholding: Confirm with your employer that the custodian is liquidating shares at each vesting event for tax withholding — nobody likes receiving a large tax bill in April over something that could be avoided.

Advisors like myself will fully review your stock programs and identify how we maximize their value within the context of your goals.

This typically includes:

• Establishing a defined approach to managing RSUs before shares vest so each cycle feels automatic
• Setting a target range for employer stock exposure within the household, then build an exit strategy for each vesting cycle so diversification stays intentional
• Maintaining an ongoing assessment of how the RSUs fit within your holistic picture and adjusting accordingly

I Am Thinking Of Selling Significant Investment Real Estate, And I Realize I Will Owe Major Taxes After Years Of Depreciation. What Are My Options?

Dear Tim,

I have held investment properties for years and used depreciation along the way.

Now I want to sell, and I realize I may have to write a large check for federal and state taxes.

What options should I be considering?

- Real Estate Owner Ready For The Next Chapter

Dear Real Estate Owner Ready For The Next Chapter,

This is a common moment: depreciation helps along the way, and then the sale forces a real tax reckoning. The first step is to build a baseline estimate of taxable gain and potential tax liability if you sell without additional planning. Once you have that baseline, you can compare real options.

Here are planning paths we often evaluate in collaboration with your tax and legal professionals:

Option 1: Sell and Pay the Tax
Sometimes simplicity wins. When liquidity and life circumstances matter most, and the liability is manageable relative to the benefits of selling - paying the tax can be the cleanest answer.

Option 2: Structured Sale (Installment Sale / Seller Financing)
If the transaction is structured so you receive payments over time, the installment method can spread recognition of gain, depending on the specifics and proper structuring.

Option 3: 1031 Exchange into Another Property
A 1031 exchange can defer gain by exchanging into other like-kind investment property within strict rules and timelines. It can be a fit when you still want real estate exposure.

Option 4: A Series of Exchanges, Including 1031 into A DST With a Longer-Term Plan
Some investors evaluate a Delaware Statutory Trust (DST) to stay invested in real estate with less day-to-day property management. Some longer-term paths may involve the ability to 1031 into another physical property when ready or to complete a 721 exchange into a REIT.

Option 5: Charitable Solutions
For households with charitable intent, certain charitable structures can potentially reduce the taxable impact while supporting philanthropic goals and creating income planning flexibility, assuming the structure matches the household facts and objectives.

Each option comes with a host of considerations, benefits, and costs. It’s important to work with a quality professional team (wealth manager, CPA, attorney) when assessing impacts to your personal situation.

The big picture: real estate exits tend to work best when they are treated as a coordinated planning project. The baseline tax estimate comes first, then a side-by-side comparison of a few viable routes, with your advisor collaborating closely with your CPA and attorney.

Questions may have been altered or edited from the actual submission for brevity, clarity, or anonymity. Questions may not have been submitted by actual clients and may have been added by Kingsview for discussion purposes.