Retirement and Real Estate Issues Are Intermingled

Updated: July 9, 2019

Real estate is a common way to build assets; several people do so then sell their property to fund retirement.

They sometimes downsize, purchasing a smaller piece of real estate and using the rest of the money towards a more comfortable retirement. Others rent instead and thereby avoid many of the costs of property maintenance.

The whole subject of real estate and retirement is worth closer examination.

Age is always a factor. The older you are the closer you need to consider the potential consequences of how you want to live, in your own property or someone else’s.

There are balancing factors to consider as well as the stark figures themselves.


Buy or Rent?

It is logical to buy real estate during a working life but it gets more complicated for those close to, or already retired. One of the motivations for buying and retaining real estate is to leave it to surviving members of the family.

It is generally more expensive to buy than rent in retirement according to a report from Trulia so it is a decision that is clearly affected by personal circumstances and whether sufficient provision has already been made to fund a comfortable retirement.

The report from the mentioned US-based online real estate site, which looked at 100 cities with the largest retired population, found that in 98 of them it was cheaper to rent. The only reason to buy was that inheritance factor.

Those two places, The Villages in Florida and Danville in Virginia had cheap property and relatively high rent.

For example in Danville, reasonable property was available at an average of $65,000 while rent was $800 a month. Within Florida, people who wanted to leave something to their families could often find cheap property to do so.

Trulia made a couple of assumptions in their report:

  • Buyers paid 15% tax
  • They would stay in the property for 15 years

Withdrawing Money out of Retirement Provisions

You may have been putting away money into a retirement account you might consider taking out some money to put a deposit on real estate but there are implications in doing that:

  • Funds taken from a 401(k) will be taxed and you will face penalties. A better alternative is to borrow from your 401(k) accepting the obligation of having to pay it back. You can get $50,000 or half of the balance whichever is the lesser but the later you are in life, and closer to retirement the greater the burden that will be. Too many people are already running expensive debt, typically credit card balances and they should pay that off with , not 401(k) money.
  • If you have a traditional IRA, you will have $10,000 per person and therefore would potentially have double that available towards real estate purchase. There are no penalties involved but the amount withdrawn is taxable.
  • Roth IRAs are completely tax free because tax has already been paid on the balance. As long as you have had the account for a minimum of 5 years or you are under 60 you will pay no penalties except where the money comes from investment savings.

The crucial question is whether it makes sense to withdraw anything to buy real estate.


  • You could can earn interest from yourself by borrowing from your 401(k). The rate of interest set should be reasonable. It will compensate to some extent for the growth you will lose on the money you withdraw.
  • Private Mortgage Insurance (PMI) generally applies to mortgages that represent more than 80% of the purchase price. Ensuring that this withdrawal ensures you have at least 20% deposit means you will avoid PMI.
  • You are still investing by buying real estate. The factors to consider remain your location, rental rather than purchase issues and you longer term plans.


  • You do lose earning potential on existing accounts. Compound interest is a powerful source of growth and withdrawing money stops that amount from growing.
  • It can be hard to claw back what you are losing by withdrawing money. Given you would now have mortgage payments that can be especially difficult.

You must give this a great deal of thought. There is no hard and fast rule because of individual circumstances including location and age.

This article is written by Paul Guillaume, a realtor from Texas.

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