If I buy a house for $1 million in cash at 70, will I run out of money by 90?

By Beth Pinsker

Buying a house late in life means you might not reach the break-even point that would make it better financially than renting.

There's a lot to consider before you buy your retirement dream house.

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Dear Fix My Portfolio,

Can I afford to pay cash for a home in San Diego at 70 years old? I'm on my own, and I have approximately $770,000 in an IRA and $1 million in a brokerage. Can I spend that $1 million and still be secure until 90? Otherwise, my only income is Social Security, which I took at my full retirement age of 66 and 4 months. By the way, I pay a professional adviser a percentage each year to manage my funds.

Tired of Renting

Dear Tired,

I understand why you would want a second opinion on this question beyond your professional adviser working for a percentage. Their fee would be based on your investible assets, so if you take all of that $1 million and plunk it down on a house, their fee goes way down.

If you're using a fiduciary adviser like a certified financial planner or registered investment adviser, that shouldn't matter; they should still give you financial advice that is in your best interest. But they're human too, so at the very least it could be an awkward conversation. It might be worth it, though, because your adviser will have more information about you than you were able to provide on our handy MarketWatch Retirement Questionnaire. As with any questions for Fix My Portfolio, I can only provide general educational direction, and not specific advice for your financial situation.

But I can point out that you're not really "spending" your whole liquid savings on a house. The money doesn't go away (besides what you pay in closing costs and local taxes). Instead, you'd be making an investment, which is the same category as the stocks and bonds you might hold now. The differences are that your home values may not be predictable - and could be harder to access in an emergency. You may also face unexpected costs for maintenance and repairs.

Whether it's a good idea for you hinges on a couple of factors you'll want to consider. The first is if you're on your own and 70 now, what's your plan for aging in place in the new home? Does it have stairs? Is it in a community built for seniors?

Your long-term plan matters a lot here because the average break-even for buying a home versus renting is six years from now, according to Zillow. But with San Diego's high home values, specifically, it's 23 years. If you're only going to stay in this home until, say, 80 and then have to move to an assisted-living or nursing home, you would likely be better off renting. And if that is the trajectory you're likely to face, then you might be better off buying into a housing situation now that can adapt with your needs, like a continuing care retirement community (CCRC). With those, you'd put down cash for a buy-in and then likely pay a monthly maintenance fee like you would with a condo. You can find these communities at all sorts of price points, with the average around $400,000 and monthly fees around $3,000 to $4,000.

The long-term plan

If that's not your bag, then you could consider using some of your taxable brokerage savings to buy a long-term-care insurance policy of some sort. You indicated in your questionnaire that this wasn't on your radar right now, but if you want to "be secure until 90," as you said, then that is one way to help. You could purchase a hybrid life insurance and long-term-care policy for around $100,000 to $200,000, leaving you the funds to cover at-home care if you needed it down the road. If you don't end up needing the care (and the hope is to never get sick), then your heirs would receive a death benefit after you die.

That brings up the biggest issue to consider when buying a new house at 70 with the bulk of your savings. What is your legacy plan? In California, most estate attorneys say it's prudent to put the house in a trust, because probate in the state is a long and expensive process. The small-estate expectation for real estate is $750,000, and your $1 million property would definitely fall outside of that, not even accounting for price appreciation.

Then there's the matter of whether you want to leave any assets behind to anyone or if you would rather spend down as much as you need to by 90 or beyond. If you use your $770,000 IRA for spending, on top of Social Security, you could design a withdrawal strategy that suits your needs. Starting at 4% would give you about $30,000 this year, or $2,500 a month. You could spend about double that and run it down to zero by 90. You'll probably end up somewhere in between. But it all depends on how long you live: It could be 90, or it could be 105. And, surely, it could be tomorrow.

Most retirees fear running out of money, which is why they tend to be conservative investors and spenders, and why they build in so many contingency plans. You're not exactly going all-in with your house plan, because you have your IRA and Social Security, but you wouldn't want to set your plan for 90 and then get close and realize you're still going strong with less than you'd like to fall back on.

If you ever ran into emergencies, you could pull out equity from the house, do a reverse mortgage or sell the property and downsize - because, again, your house would be an investment that still holds value once you spend the money to buy it.

Will living in a paid-off house and keeping your spending-that is, the utility bills and taxes, groceries and dining out, healthcare, home maintenance and transportation, to name a few common routine expenses-within the parameters of Social Security plus your IRA withdrawals work for you? Or do you need more backup, like insurance or being part of a community living situation? Your feeling of security with this plan is about your own psychology, and you know that best.

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08-08-26 1323ET