I am 60 years old and have $ 1 million in my retirement accounts. My house needs a new roof. Should I use my savings to cover repairs?


Dear MarketWatch,

I am single and have a house that I have deferred repairs to, such as a new roof and improved electrical system. The house was built in 1925 and the previous owner has been remodeled but didn’t care about the electrical upgrade.

I would love to install solar power, but it requires a massive electricity upgrade. As I am now 60 years old and still working, and have a little over a million dollars in savings in my retirement account, I don’t know if I should withdraw some of the money. and make the necessary repairs.

I’m still working but at a job that pays me a lot less than I used to, so being able to pay for the repairs would require withdrawal. I plan to work until I am at least 67 years old. My mortgage will last another 10 years after I retire.

With all the work I must have done on the house, I guess I might have to put over $ 100,000 into my house. The house is worth $ 700,000 in the current market. Do I have a choice?

Truly,

Repairs vs retirement

“The Big Move” is a MarketWatch column that examines the ins and outs of real estate, from finding a new home to applying for a mortgage.

Have a question about buying or selling a home? Do you want to know where your next move should be? Email Jacob Passy at [email protected]

Dear repairers,

These are the costly dangers of owning – and why buying a home isn’t always the most financially wise for everyone. While owning a home gives people the option of locking in their housing costs and not having to worry about rising rents, with that comes an added liability. Home improvement projects don’t come cheap and don’t necessarily offer any return on your investment either.

Watching major repairs like a new roof or an electrical upgrade can be intimidating, especially for someone in your situation who relies on just one income. And when you’ve amassed as much as you have in savings, it’s tempting to want to fall back on them in tough times.

I must caution you, however, against viewing your retirement savings as a rainy day fund. Yes, you need to patch the holes in your roof to protect yourself from rainy days. But you also need financial protection for figurative rainy days in the future.

You have less than a decade to go before your expected retirement date, which doesn’t leave you much time to replenish the retirement savings you could use up with such a strategy, especially since there are so many retirement accounts. have contribution limits.

Additionally, you need to consider the significant costs that can arise from using your retirement funds in this manner. Distributions from IRAs and 401 (k) are taxed as ordinary income. This could quickly put you in a higher tax bracket.

“If you go from a 12% tax rate to a 22% tax rate, you’re basically paying the government a 10% premium to access your money,” said Brian Schmehil, Managing Director portfolio at The Mather Group, an independent wealth management company in Chicago. “You will also lose the future tax-deferred growth of these funds. “


You will generally be taxed on the money you withdraw from retirement accounts, which could put you in a higher tax bracket.

Instead, a better approach would be to take out a home equity line of credit or refinance your mortgage to cash in some of the equity you’ve built up to fund these improvements. Considering the cost and extent of the repairs required, you may also be able to take out a construction loan. Getting a new loan would leave your retirement funds untouched, and with interest rates as low as they are now, it might not be too onerous, setting aside expenses related to closing costs and maintenance fees. case.

Before you bother to apply for a loan, take the time to do a financial self-check. My concern is that you might be overwhelmed by this house. Right now it’s the roof and the electrical system. Tomorrow it could be plumbing or central heating. The next day, it could be something else.

You are only a few years away from being on a fixed income. Yes, $ 1 million might sound like a lot of money to save for retirement, but you’d be shocked at how fast it can go if you factor in the costs of aging – not even considering wanting to spend. some of that money. to enjoy your retirement.

Looks like you might be living in some sort of repairman. Projects like these are best suited to young people of age, not just the young at heart. Ask yourself if you can afford to stay where you are now. Instead of spending $ 100,000 on band-aids, ask yourself if it might not be more profitable to move to a smaller, more affordable, and better house. The time to take such a step is when you have come from a place of financial strength, as you seem to be now.

About Joan Dow

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