My husband and I retired in December 2019. We are both 69 and in relatively good health; however, neither of us would be able to work part time in our former fields due to physical limitations. Our combined Social Security income is $60,960 per year. We have $300,000 in cash investments (a risk-averse portfolio that includes stocks, mutual funds, CDs and Treasury bonds).
The $60,000 covers our basic expenses, but we have been withdrawing $10,000 to $16,000 a year to cover $8,000 for vacations, plus non-covered health care expenses (like PRP for debilitating spine and joint pain and dental procedures for my husband) and minor upgrades to our condo that was built in 1972. We have straight Medicare but no supplemental coverage at this time. We both see a pain management doctor monthly, as well as all the typical health care professionals necessary to maintain good health. So far, our copays are far below what a supplemental insurance premium would cost.
We purchased our waterfront condo in Pinellas County, Florida, in 2017 for $310,000 and paid cash. The condo is now conservatively worth $700,000.
My question to you is, would it be unwise for us to refinance the condo and take approximately $100,000 to $250,000 in equity to allow us to live our active years with the ability to travel at the rate of $8,000 to $10,000 a year and enjoy the best health care money can buy?
We purposely bought this condo because it would allow us to age in place. It is walkable to many services, has a fitness room, pool, one floor, etc. Our daughters and grandchildren live in town, and we have a very active, healthy lifestyle. Many residents in our community remain in their units and bring help in a couple of days a week. We anticipate doing the same.
We feel that even if we took some of the equity out of the condo, there would still be a healthy profit if it ever became necessary to sell it to take care of us in our much later years. Right now it seems like a lot of money sitting there doing nothing to improve our lives. Still, if we do nothing, the $300,000, conservatively invested, should last us 20 years if we withdraw at the rate of $15,000 per year. What do you think?
— Jan in Florida
I’m all for you spending the amounts you suggest to travel and buy the best health care available. But I’m not sure that taking out a mortgage on your home is the right way to do it, at least right now.
Given the recent spike in interest rates, you could end up paying more in interest than your risk-averse portfolio is earning. Social Security covers your necessities, so running out of money isn’t a huge worry. My concern with refinancing is that you’d be adding another expense. If your Social Security isn’t enough to cover a mortgage payment, you’d wind up eating into your savings anyway while paying unnecessary interest.
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I’d suggest that you continue drawing from your savings for now and revisit each year. If something changes — for example, if your expenses increase or interest rates drop — then you may want to tap that home equity.
Since you own your condo outright, one option you might explore is a reverse mortgage. Doing so would allow you to take cash out of your condo that you wouldn’t need to repay until you sell the unit, move out or die. The downside is that a reverse mortgage probably wouldn’t be a good option if you want to leave your condo to your daughters, as they’d need to pay off the loan or obtain financing in order to keep it. But if the goal is simply to convert home equity to cash that you’ll enjoy during your lifetimes, a reverse mortgage is worth considering.
Another option is to obtain a home equity line of credit (HELOC) that you could borrow against as needed. You could continue withdrawing from your investments. But if you’d encounter a big expense, like a medical bill or surprise condo assessment, you’d have a source of extra funds. But you wouldn’t pay interest unless you need to tap it.
It sounds like you’ve been prudent about managing your expenses over the years. Whether you use your investments or your home equity, I think you can easily afford the retirement you envision.
Robin Hartill is a certified financial planner and a senior writer at Codetic. Send your tricky money questions to [email protected].