You need assets that can generate income for retirement, IMO. I think you're right, you need investments to do this. No matter how expensive your house is, it can't generate income. I suppose you could plan on downsizing in retirement and converting some of that equity into income producing investments. But in that case, you wouldn't be so much worried about paying off the house. In fact, in that case, you probably want more leverage in the house, not less. So again, it seems you're right to build up the investment side.
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