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

Dear MarketWatch,

I am single and own a home on which I have deferred repairs, such as a new roof and an upgraded electrical system. The house was built in 1925, and the prior homeowner remodeled but did not bother with the electrical upgrade. 

I would like to get solar installed, but that requires a massive upgrade to the electrical.  As I am now 60 and still working, and have a little over $1 million saved in my retirement account, I don’t know if I should withdraw some of the money and address the needed repairs.

I am still working but at a job that pays me far less than I used to make, so being able to afford the repairs would require the withdrawal. I intend to work until I am at least 67.  My mortgage will be for another 10 years after I retire. 

With all the work I need to have done on the house, I am assuming I may have to put upwards of $100,000 into my home.  The house is worth $700,000 in the current market.  Do I have any choice?


Repairs vs. Retirement

The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.

Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Jacob Passy at TheBigMove@marketwatch.com.

Dear Repairs,

These are the expensive perils of being a homeowner — and why buying a home doesn’t always make the most financial sense for everyone. While owning a home offers people a chance to lock in their housing costs and not need to worry about rising rents, it comes with added responsibility. Home improvement projects don’t come cheap — and don’t necessarily offer any sort of return on investment, either.

Staring down major repairs like a new roof or an electrical upgrade can be daunting, particularly for someone in your situation who is relying on a single income. And when one has amassed as much as you have in savings, it’s tempting to want to fall back on them in difficult times.

I must caution you, though, against treating your retirement savings as a rainy-day fund. Yes, you need to patch the holes in your roof to have shelter against the literal rainy days. But you also need financial protection for the figurative rainy days in the future.

You have less than a decade until your planned retirement date, which leaves you with not much time to rebuild any retirement savings you might deplete with such a strategy, especially because many retirement accounts have contribution limits.

Plus, you need to consider the major costs that can come with using your retirement funds in this manner. Distributions from IRAs and 401(k)s are taxed as ordinary income. That could quickly put you in a higher tax bracket.

“If you bump yourself up from a 12% tax rate to a 22% tax rate, you’re in essence paying the government a 10% premium to access your money,” said Brian Schmehil, director of wealth management at The Mather Group, an independent wealth management firm in Chicago. “You will also lose out on future tax-deferred growth of those funds.”

You’ll typically be taxed on money you withdraw from retirement accounts, and doing so could put you in a higher tax bracket.

Instead, a better approach would be taking out a home equity line of credit or refinancing your mortgage to cash out some of the equity you’ve built up in order to fund these improvements. You may also be able to take out a construction loan, given the cost and scale of the needed repairs. Getting a new loan would leave your retirement funds intact, and with interest rates as low as they are now it might not be too burdensome, setting aside the expenses tied to closing costs and application fees.

Before you go to the trouble of applying for a loan, take the time to do a financial self-check. My concern is that you could be in over your head with this home. Right now, it’s the roof and the electrical system. Tomorrow, it could be the plumbing or the central heating. The next day it could be something else.

You’re just years away from being on a fixed income. Yes, $1 million may seem like a lot of money to have saved away for retiring, but you’d be shocked how fast it can go when you factor in the costs of getting older — not even accounting for wanting to spend some of that money to enjoy your retirement.

It sounds like you may be living in something of a fixer-upper. Projects like those are best suited for those who are young in age, not just young at heart. Consider whether you can afford to stay where you are now. Instead of spending $100,000 on Band-Aids, think about whether it might be more worthwhile to downsize to a smaller, more affordable home that’s in better shape. The time to make such a move is when you’re coming from a place of financial strength, as you seem to be now.

Harry Byrne

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