Email FacebookTwitterMenu burgerClose thin

Should We Use Cash to Buy Our $1.2M Retirement Home After Selling Our Business?


I’m 63 and totally disabled. My wife owns and operates a family business on a property that we own with no mortgage. Our plan is to sell the business for $795,000 and rent the property for $6,000 a month. We also currently have $1.2 million in the stock market, $400,000 in CDs and high-yield savings accounts, and $150,000 in I bonds.

For 30 years I have supported my mother after my father died. My two sisters said when mom passes away they are giving me their shares of the home. My plan is to sell her home and move closer to my children. The home is worth $995,000. My house has no mortgage and should sell for $675,000. We plan on buying a home in New Jersey for around $1.2 million all in cash. I need some help putting all the pieces together and seeing if we are making the correct decisions and will have enough.

– Retiring in Jersey

Congratulations on the upcoming sale of your business and relocation. I hope it provides you with flexibility and security in the next stage of your lives.

You may want to think about your situation in two steps. First, consider whether or not you have sufficient savings to maintain your desired standard of living. Second, think about how you would feel about owning your home outright vs. having a mortgage on it. (If you have retirement planning questions like this one, connect with a financial advisor and talk it over with an expert.)

Do You Have Enough?

A couple reviews their finances while deciding whether to pay cash for their retirement home.

Contrary to what some financial personalities say, figuring out whether or not you’re ready to retire isn’t about hitting some arbitrary savings number. It’s about comparing your personal budget with your sources of income.

Your Budget

Start by examining what your typical monthly budget will look. It sounds like your wife plans to retire after the sale of the family business. If so, consider how your spending patterns might change once she’s retired.

Here are some thoughts that came to mind mind after reading your question. There are likely other considerations that you didn’t mention, but thinking about these questions may help get you started:

  • What retirement lifestyle changes will you make? Do you plan to travel more? What will it cost? Or perhaps you plan to spend considerably less for a particular reason.
  • What about the move? Do you currently live in New Jersey or are you moving there from a different state or region? You may need to consider cost of living differences, as well as state and local taxes – New Jersey state income tax rates are among the highest in the nation.
  • Will you have other expenses? Are there expenses associated with caring for your mother that you’ll no longer have? 

The idea is to get a decent estimate of your annual expenses so that you can compare it against your sources of income in retirement. (As you plan for retirement, it may be a good idea to go over your projected expenses with a financial planner to ensure you’re not overlooking a major area of need, like health insurance and long-term care insurance.)

Your Assets and Income Streams

Next, consider your assets and income sources. It looks like you’ll have roughly $3 million in savings once you sell the business (I did not account for taxes, so subtract those if you hadn’t already), including the net proceeds from selling your home and your mother’s home, setting aside the $1.2 million for now.

You’ll want to decide how much you plan to withdraw from your savings. I like to start by considering withdrawal rates. The classic 4% rule suggests that withdrawing 4% from a balanced portfolio (50% stocks, 50% bonds) in the first year of retirement, and increasing subsequent withdrawals for inflation, allows you to stretch your savings approximately 30 years.

It’s not a golden “rule” and you’ll likely want to make some modifications, but the 4% rule can be a helpful guideline that offers you a starting point.

Four percent of $3 million is $120,000. Now, add other income sources to that: 

  • Social Security: If you’re collecting Social Security disability benefits, add those to your income total. If not, you can get your Social Security benefits estimate through the Social Security Administration.
  • Rent: Add in the $6,000 per month you plan to collect in rent on the commercial property that your family business will be vacating. However, be sure to account for vacancy rates and other expenses associated with the property.

From what you mentioned in your question, it looks like you’ll need to add up your savings withdrawals, Social Security benefits and rental income to determine how much retirement income you can expect to generate.

From there, compare your projected expenses to your estimated income. If your income is adequate to cover your expenses then you’re probably in good shape. If not, consider whether you can reasonably cut expenses or do something to increase your income. (As you can see, building an income plan for retirement can be complicated, but a financial advisor can help.)

Paying Cash for a House

A couple goes over their finances as they get ready to sell their family business and retire.

Now for your question about buying your next home with $1.2 million in cash.

If you get a combined $1.67 million from selling both your home and your mother’s home, you’ll have an extra $470,000 after setting aside the $1.2 million that you plan to use to buy your next home. I included this excess in the analysis above.

However, the choice between paying for the home in cash or getting a mortgage will impact your retirement budget and income plan.

If you don’t pay cash for your new home, you’ll add the $1.2 million (minus any down payment and closing costs) to your nest egg in the analysis above. In other words, you’ll have approximately $4.2 million in savings to withdraw from, but you’ll also need add the mortgage payment to your estimated expenses.

If you pay cash for your new house, your savings will be remain at $3 million but you won’t have a monthly mortgage payment to worry about.

Whichever scenario provides you with a better income-to-expenses ratio may be the route you end up taking. Also, factor in how you’ll pay for an emergency or unplanned expenses. Having an additional $1.2 million in liquid assets would certainly help, but may not be necessary. (When faced with major financial decisions like this, consider connecting with a financial advisor and talking through your options.)

However, retirees don’t often make this type of decision purely based on math. Some people have a strong aversion to carrying debt into retirement. If that’s you, it’s perfectly fine to pay cash for the home. It may be a better choice for you and your wife, even if the math works out better the other way.

By paying all cash, you not only avoid debt, but the $1.2 million won’t subject to investment volatility. If you’re a conservative, risk-averse investor, this can be very comforting.

Bottom Line

I recommend comparing your planned expenses to your income sources. From there, see how paying cash vs. taking out a mortgage affects this comparison. You may find that one way is clearly the direction you should take, or you may see that both could be viable choices.

Also, consider the psychological impact that owning your home free and clear vs. carrying a mortgage into retirement would have on you and your wife. If either option works financially, the emotional implications of the decision may even be the most important thing to consider.

Retirement Planning Tips

  • SmartAsset’s retirement calculator can help you project how much your savings may be worth in the future and how much income you can potentially expect to generate in retirement. Having both estimates can help you plan and save for retirement more effectively.
  • Don’t forget to maintain an emergency fund with enough money to cover between three and six months worth of living expenses. If you’re retired, however, you may want an even larger emergency fund. This fund should be liquid – in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
  • A financial advisor can help you plan and save for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email and your question may be answered in a future column.

Please note that Brandon is not an employee of SmartAsset and is not a participant in SmartAsset AMP. He has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.

Photo credit: ©, ©