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\u201cWe would like to make some home improvements to the tune of about $50,000 to $60,000.\u201d (Photo subjects are models.) – Getty Images\/iStockphoto <\/p>\n \u201cWe would like to make some home improvements to the tune of about $50,000 to $60,000.\u201d (Photo subjects are models.) – Getty Images\/iStockphoto <\/p>\n
My wife and I are retired. We are in our early 70s. We have close to $1 million in investment accounts, some in IRAs and some in regular accounts. We have $30,000 in an emergency fund. Our house is paid off. We live on Social Security and pensions. We would like to make home improvements to the tune of about $50,000 to $60,000.<\/p>\n
Should we take money from our investment accounts or take out a loan against our home to pay for the upgrades?<\/p>\n
Septuagenarian<\/p>\n
Related: 2025 has been one hell of a year. Consumers should expect more \u2018silent pain\u2019 in 2026.<\/a><\/p>\n Your emergency fund is one possible source of funds, but the decision ultimately comes down to a combination of mathematics, risk and age \u2014 the latter two being closely connected.<\/p>\n With roughly $1 million in investment accounts, your required minimum distributions will begin (or may have already begun) at age 73. You are also facing current borrowing costs of roughly 5.5% on a 10-year mortgage or about 7.4% on a home equity line of credit.<\/p>\n On the other side of the ledger is the opportunity cost of spending cash rather than investing it \u2014 often cited as roughly 7% based on long-term stock market averages. However, those historical averages assume a portfolio heavily invested in equities.<\/p>\n Most couples in your age group have a more conservative allocation, which likely lowers expected future returns closer to the 4%-5% range. Viewed through that lens, the financial advantage of borrowing largely disappears.<\/p>\n First, it generally does not make sense to take on new long-term debt in your 70s if you have sufficient assets to pay cash. Second, because traditional IRA withdrawals are subject to ordinary income tax, you want to be mindful not to push yourself into a higher tax bracket as required minimum distributions begin.<\/p>\n If you were sitting across from me right now, I would urge you to fund the renovation primarily out of your taxable investment accounts. Consider supplementing this with a portion \u2014 not necessarily all \u2014 of your $30,000 emergency fund, while still maintaining a cash cushion.<\/p>\n When selling investments, focus on assets with long-term capital gains, which are taxed at lower rates than short-term gains. Ideally, spread the withdrawals over two tax years to soften the tax impact.<\/p>\n Taking out a small HELOC or short-term loan could make sense only if selling investments in a single year would trigger an unusually large taxable event. Even then, such borrowing should be viewed as a temporary measure. Ultimately, you would still rely on Social Security, pensions and investments to pay the loan off.<\/p>\n Your mortgage is paid off. Once you account for property taxes, homeowners insurance, Medicare premiums, groceries, utilities, transportation and discretionary spending, you\u2019ll have a clearer picture of whether adding loan payments would meaningfully affect your lifestyle. If you claimed Social Security at 70, you are already receiving your maximum benefit.<\/p>\n Because your portfolio is likely more conservatively invested at this stage of life, the comparison between borrowing at 6%-7% and forgoing potential investment returns is close to a wash. You may even come out slightly ahead by paying cash.<\/p>\n Paying for your renovation from taxable investment accounts, which trigger long-term capital gains rather than ordinary income, would not push you into a higher tax bracket.<\/p>\n (Consider a partial Roth conversion during your early retirement years, before required minimum distributions increase your taxable income. Coordinating renovation-related withdrawals with Roth conversions, which triggers income tax, could help you stay within your current tax bracket.)<\/p>\n Ultimately, while the math is close, the lifestyle implications are not. Taking on new debt locks you into fixed payments at a time when flexibility matters most. From a retirement perspective \u2014 while acknowledging that market returns are not guaranteed \u2014 reducing stress, risk and tax complexity should take precedence over marginal financial gains.<\/p>\n You deserve the most comfortable home you can afford.<\/p>\n Don\u2019t miss: \u2018It\u2019s my money\u2019: My $800K inheritance is paying for a $1.6 million house. Shouldn\u2019t I decide where my husband and I live?<\/a><\/p>\n Previous columns by Quentin Fottrell:<\/p>\n \u2018The house has quadrupled in value\u2019: I bought a house with my brother, but he did not contribute. How do I fix this?<\/a><\/p>\n I would urge you to fund your renovation from your taxable investment accounts. – MarketWatch illustration <\/p>\n