I don’t know if my dilemma should involve some complicated equation or if it can be approached as a simple question with a simple answer. I’m 65 years old, and two years away from claiming Social Security benefits of approximately $1,800 a month. After an exhausting and traumatic career in crisis management, I pulled the plug about 10 years ago and have been doing the super-low-cost, nomadic long-distance-hiking thing, with nannying in between. My wants and needs are few.
I have zero debt, no upcoming tax liabilities and no inheritance on the horizon. I have $1.2 million in an IRA and $1.2 million in CDs. I have $1.1 million in pretty standard equities, $400,000 in exchange-traded funds and a share in a $1.5 million family investment trust that produces income from assets that are best left untouched for the time being. I live off income from my family trust, and I live simply. I don’t have long-term-care insurance.
I’m betting on another 22 spins around the sun, given all relevant factors. I would like to settle down. My question: Responsibly, how much can I afford to spend to buy a home?
Settling Down
Go big on the details and modest on the overall expenditure. You can afford to buy or build a house that fits your needs and takes into account potential future mobility issues. We are, if we are lucky to live long enough, all temporarily abled. So keep that in mind when you are choosing or building a house. Make sure there is room for a downstairs bathroom and sleeping area. But in general, the answer to your question will depend on where you would like to live and your monthly income.
The general rule is not to spend more than 30% of your gross income on housing. Given your considerable assets and presumed income after you factor in Social Security, I would be inclined not to spend more than 20% of your net income on housing, taking property taxes and maintenance costs into account. Assuming you are buying a house outright, a $500,000 maximum seems reasonable. The median price of a house in the U.S. is roughly $421,000.
