ChatGPT's Take: Is a Mortgage Payoff at 60 Actually Dumb?

People who give financial advice, including professional advisers and experts who share their opinions publicly, spend a lot of time criticizing certain money decisions.

But Christine Benz, the director of personal finance and retirement planning at Morningstar and a co-host of The Long View podcast, says there are a few financial choices she doesn't worry much about. Here are three important examples.

1. Paying off a mortgage early

Paying off a mortgage early may not give people the best return on their money right now. That's because interest rates on certificates of deposit and high-interest savings accounts are higher than the mortgage rates on loans taken out several years ago, when rates were lower. I also agree that younger people who have many years before retirement should put most of the money they can invest into investments with higher risks and higher potential returns, such as stocks. They usually need less money set aside for safety, whether that means paying down their mortgage or buying CDs.

One reason I don't worry much about whether someone pays off a mortgage early—or buys a home with cash instead of borrowing money—is that these choices don't usually suggest that someone is bad with money. Of course, some people may make these choices without having enough emergency savings or enough money in their retirement accounts. But most people who pay off their mortgages have their other finances in good shape. For them, paying off the mortgage can bring peace of mind, and they have every right to use their money this way. I've never met anyone who told me that paying off their mortgage stopped them from reaching other important financial goals.

2. Keeping extra cash

This is another cautious choice that can bring peace of mind, and I find it hard to criticize too strongly. It's true that cash has earned less than bonds and especially stocks over long periods. Looking at the history of modern U.S. markets, cash has beaten inflation by only a very small amount. If a younger person keeps a lot of cash while investing very little in assets meant for the long term, especially stocks, that is almost always a terrible choice.

But I've more often seen people keep large amounts of cash when they have a different financial situation. These are people over 50 who already have plenty of money invested but prefer cash because it is easy to access, stable, and convenient compared with bonds. I've said that this has been one of my own investing mistakes, at least when judged by the numbers. Could these people miss out on returns by choosing cash instead of bonds? Probably. Will inflation likely eat up most of the interest they earn on a large amount of cash? Yes. But I'd argue that, in this common situation, the greater benefit is that people have chosen a safer place for some of their money instead of putting everything into the stock market. As author Bill Bernstein puts it, “If you've won the game, stop playing.” If their financial plans are otherwise sound and they still have a reasonable amount invested in assets that can grow over time and earn returns that keep up with inflation, such as stocks, I don't think having a little extra cash is worth worrying about.

3. Choosing traditional tax-deferred retirement contributions instead of Roth contributions, or the other way around

In this situation, the investor is getting the main thing right: putting money into a retirement plan. To be honest, choosing the “right” kind of IRA or 401(k) contribution will always involve some guesswork. Investors don't know whether their tax rate in retirement will be higher or lower than it is when they contribute. They also don't know how tax rates will change over the years.

My advice is to save as much as you can afford and make your best guess about which type of contribution to use. One frustrating fact is that by the time you realize Roth contributions might have been better—because your tax-deferred accounts have grown a lot or your tax rate has risen—you are often at a stage in life when making Roth contributions is less useful. I've also come to strongly believe in using traditional tax-deferred accounts, Roth accounts, and taxable accounts while building up your savings. That way, when you start taking money out of these accounts in retirement, you can choose which accounts to draw from and plan how to keep your tax bill as low as possible throughout retirement.