Retired seniors in Nebraska recently posed a financial dilemma to The Ramsey Show hosts Rachel Cruze and George Kamel: Should they withdraw funds from their IRA to buy a house outright or use monthly distributions to manage a mortgage?
The couple, with an annual income of $125,000 from Social Security and pensions, has $200,000 in cash savings and over $500,000 in IRAs. Their goal is to purchase a $450,000 home and they’re seeking advice from The Ramsey Show to help them determine the best option for their financial stability.
Kamel started by breaking down the couple’s options. He noted that the $200,000 cash would be a “serious down payment,” which would be helpful; however, using their IRA to cover the balance in full would deplete a large portion of their retirement savings. “So they would have to live off of Social Security and pensions for the rest of their life.”
Cruze added that the couple’s income of $125,000 is above average, providing a solid foundation if they did decide to purchase the home outright from IRA funds. Ultimately, the hosts suggested taking out a mortgage might be the best option.
Kamel commented that the couple is already paying rent, implying they could handle a mortgage just fine now. “If times get tough, they have the money,” he added. “And they could leave the money invested, let it continue to grow.”
Another perspective the hosts offered is that the couple could consider downsizing and purchasing something smaller than a $450,000 home if they didn’t need a house with more than 1-2 bedrooms. That would allow them to pay the home off quicker and potentially immediately without tapping too much into their retirement accounts.
The median home price in Nebraska is $289,200 – substantially less than the $450,000 home being considered by this Nebraska couple.
This couple’s situation reflects broader trends in home buying among retirees. According to the National Association of Realtors, baby boomers, who often purchase to downsize or relocate closer to family, represent a significant share of homebuyers. Additionally, retirees often prioritize maintaining liquidity and minimizing debt, aligning with Cruze and Kamel’s advice to avoid fully depleting retirement accounts.
While there isn’t a one-size-fits-all answer, the couple has several options. Whether they choose to buy their $450,000 dream home with a mix of cash and a mortgage or downsize to a smaller property, Cruze and Kamel advise that their focus should remain on maintaining financial security and minimizing future debt.
If you’re in a similar situation and considering purchasing a retirement home, try speaking with a trusted financial advisor. They can help you understand your current financial situation and create a plan for buying a home that aligns with your long-term financial goals.
