'I have zero debt, no upcoming tax liabilities and no inheritance on the horizon'
Dear Quentin,
I don't know if my dilemma should involve some complicated equation or if it can be approached as a simple question with a simple answer. I'm 65 years old, and two years away from claiming Social Security benefits of approximately $1,800 a month. After an exhausting and traumatic career in crisis management, I pulled the plug about 10 years ago and have been doing the super-low-cost, nomadic long-distance-hiking thing, with nannying in between. My wants and needs are few.
I have zero debt, no upcoming tax liabilities and no inheritance on the horizon. I have $1.2 million in an IRA and $1.2 million in CDs. I have $1.1 million in pretty standard equities, $400,000 in exchange-traded funds and a share in a $1.5 million family investment trust that produces income from assets that are best left untouched for the time being. I live off income from my family trust, and I live simply. I don't have long-term-care insurance.
I'm betting on another 22 spins around the sun, given all relevant factors. I would like to settle down. My question: Responsibly, how much can I afford to spend to buy a home?
Settling Down
Related: 'Don't be naïve': I have a wake-up call for divorcing women - you've been giving up too much for too long. Am I wrong?
Dear Settling,
Go big on the details and modest on the overall expenditure. You can afford to buy or build a house that fits your needs and takes into account potential future mobility issues. We are, if we are lucky to live long enough, all temporarily abled. So keep that in mind when you are choosing or building a house. Make sure there is room for a downstairs bathroom and sleeping area. But in general, the answer to your question will depend on where you would like to live and your monthly income.
The general rule is not to spend more than 30% of your gross income on housing. Given your considerable assets and presumed income after you factor in Social Security, I would be inclined not to spend more than 20% of your net income on housing, taking property taxes and maintenance costs into account. Assuming you are buying a house outright, a $500,000 maximum seems reasonable. The median price of a house in the U.S. is roughly $421,000.
You are impressively specific about having 22 years left. No doubt that calculation is based on the lifespan of your parents and other relatives, in addition to your own medical history. Our requirements change as we enter different phases of life. Given that you plan to spend two decades in this home, make sure that it's comfortable. Your specifications should include the amount of outside space you prefer, a design that fits your lifestyle and lots of natural light.
Long-term-care insurance will be pricier at your age, but it's still worth considering. The average annual premium for a $165,000 policy with no inflation protection is $950 for a 55-year-old man and $1,500 for a 55-year-old woman, according to the National Council on Aging. At age 60, those premiums rise to $1,200 for a man and $1,900 for a woman. Meanwhile, the cost of assisted living can run as high as $64,000 a year, depending on the location.
Whether you purchase a condo or a house, choose a home that will give you the least amount of trouble - you'll probably want to avoid an old fixer-upper that may only require more attention over time. And rather than locking up $500,000 - to pick a round number, although you should be able to buy a home for less than that if you are living outside a major metropolitan area - you may wish to spend $250,000 and take out a mortgage for $250,000, with the guidance of a financial adviser.
Your home will likely increase in value over time, but if you're not planning to sell, you may opt not to tie up so much money in real estate.
Related: 'I'm convinced the U.S. will be drawn into World War III': How do I prepare my finances?
You can email The Moneyist with any financial and ethical questions at [email protected], and follow Quentin Fottrell on X, the platform formerly known as Twitter.
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More columns from Quentin Fottrell:
'Don't be naïve': I have a wake-up call for divorcing women - you've been giving up too much for too long. Am I wrong?
'I am now an empty nester': I encouraged my two adult sons to move out. I was anxious and scared - now my heart is full
My mother-in-law stole $25,000 from my husband's emergency fund. We donated to charity rather than give her a birthday gift - and she cried foul.
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-Quentin Fottrell
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