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Question for the Money Doctors

Question submitted on Aug 8, 2022.


My wife and I are retiring next year. We have $1.5 million in IRAs and 401Ks along with $500,000 in available cash. We will also be collecting social security and $55,000 in pensions. We will be selling our home next year profiting about $400,000. Our new out of state home will be about $700,000. Should we pay in cash or have a mortgage? Thank you.


Depending on your comfort level with debt, risk tolerance in your portfolio and long-term estate planning goals, it might make sense to consider financing your new home with a 15- or 20-year mortgage while rates are still relatively low compared to historical averages.  As you’re close to retirement, you wouldn’t want to pull retirement funds to put towards an all-cash purchase, nor exhaust the flexibility of your after-tax liquidity by being “cash poor” with all your equity tied up in the home.  When deciding which mortgage to choose, be sure to pay down at least 20% of the value to avoid Private Mortgage Insurance (PMI).  You’ll also want to verify the sale of your primary residence is subject to the $500,000 capital gain exemption for “Married Filing Joint” taxpayers. 

The type of lifestyle you envision in retirement in your new state will determine what you’ll want to project for your cash flow needs after Social Security and pensions cover certain expenses.   There are strategies an advanced CPA Financial Planner can provide between portfolio management, cash flow planning, tax planning, retirement planning and other techniques to ensure your resources are stretched as far as they can be.  Between the IRAs/401(k)s, your post-sale home proceeds, available cash, new home and SS/pension resources, it sounds like you’ll be okay for a comfortable retirement.  This can be improved with the right planning in place to maximize your resources and minimize your life-long retirement taxes.

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