The standard advice is that all debts (possibly excepting a reverse mortgage) should be repaid in full before retiring. My own take on this issue also tended towards the conclusion that retirement should be debt free. My reasoning is here: A debt free retirement?
Given where interest rates are today (all but one of my mortgages is currently costing me less than 3% pa) it is not difficult to persuade myself that investments in either real estate or equities should be able to produce total returns which are meaningfully above the cost of debt. There is no such thing as a free lunch, and investing rather than paying off the mortgages carries with it a higher degree of risk. The question is whether the potential for higher returns is sufficient to justify the additional risk involved. In particular, could I live (both financially and emotionally) with the possibility that the investment would show a return which was below the cost of servicing the debt?
My conclusions are as follows:
1. if there is enough margin in my budget and/or my lifestyle so that I should never need to be be a forced seller of any investments (either to make the mortgage payments or to meet lifestyle expenses), then the additional risk is reduced to the point where I would be willing to carry debt in retirement (but probably not as much as at present);
2. if there is insufficient margin in my budget and/or lifestyle to be highly confident that I would never be a forced seller of investments, then the potential for better returns is not sufficient to justify the additional risk involved.
In the latter situation, the retirement numbers are probably going to be a bit marginal in the first place and (in my case) I would prefer to work for an additional year or two to ensure that I would start in the former situation. It follows that there is a strong logical case for maintaining at least some debt in retirement (although not as much as I carry at present).
There is one other advantage of carrying some debt in retirement. The total pool of assets will be larger which allows for greater diversification and will, to a greater or lesser extent, mitigate the additional risk involved in carrying a mortgage.
There is also one very obvious risk involved. Interest rates are currently very low. In a situation where interest rates rise, it is easy to expect investment values to fall. This creates a rather unpleasant situation where expenses are rising and the ability to cut those expenses by selling investments to pay off the debt is being challenged by falling investment values. This is a very real risk and suggests that, without the back up of earned income, retirement debt should be used in moderation.
In practical terms, I could see myself keeping P+I mortgages on one or two properties in amounts that would allow the mortgage payments to be covered by the rental on those properties. If the remaining portfolio can meet our needs then, in the longer term, I would expect to gain financially as a result without needing to be materially concerned about the risks involved.