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Based on the information provided, here's a tailored response to your situation:

1. ESOP Distribution Considerations:

• Check if your husband can receive his ESOP distribution without penalties. Typically, distributions after age 59½ avoid the 10% early withdrawal penalty.

• However, he may still owe income taxes on the distribution, which could push you into a higher tax bracket for that year.

2. Mortgage vs. Investment Returns:

• Compare your mortgage interest rate to potential investment returns. If your mortgage rate is low (e.g., under 4%), it might be better to keep the mortgage and invest the ESOP funds for potentially higher returns.

3. Retirement Income Security:

• Paying off the house would significantly reduce monthly expenses, providing more financial flexibility during retirement.

• This could be especially beneficial given the 15-year gap between your husband's retirement and yours.

4. Part-time Work Impact:

• Your husband's plan to work part-time is a good strategy to ease into retirement and supplement income.

• This additional income could help offset the need to use the ESOP funds for the house payoff.

5. Long-term Financial Planning:

• Consider how paying off the house affects your overall retirement strategy, including Social Security claiming strategies and required minimum distributions from retirement accounts.

6. Tax Implications:

• Consult a tax professional to understand the full tax impact of taking a large ESOP distribution in one year.

7. Health and Long-term Care:

• Factor in potential healthcare costs, given your husband's physical condition from his work.

Recommendation:

Given your husband's age and physical condition, paying off the house could provide significant peace of mind and financial flexibility. However, this decision should be balanced against potential tax implications and investment opportunities. Before making a decision:

1. Confirm the ESOP distribution rules and potential penalties.

2. Consult with a tax professional to understand the tax impact.

3. Review your overall retirement plan with a financial advisor to ensure this aligns with your long-term goals.

If the tax impact is manageable and it significantly improves your monthly cash flow, paying off the house could be a sound strategy for your situation, especially considering your husband's desire to retire soon and transition to less physically demanding work.