Dear Helaine: I am 68. I recently sold my condo, and I am purchasing a new home in a state popular with retirees. The home will cost about $250,000. Should I get a mortgage or pay cash?
Here's the situation: I've got enough cash to pay about half outright, and then I'd need to unravel some investments. I'd still have several hundred thousand dollars remaining, something that will throw off about $15,000 annually in dividends and interest payments. In addition, I have a decent income from Social Security, and I believe I can get a part-time job, one I think will add at least $10,000 in income a year.
My accountant says I would have no tax advantage getting a mortgage, but my broker says I should mortgage the purchase since my portfolio return well exceeds the mortgage rates of 3.75% to 4%. I don't plan to make any other major purchases except maybe a new car in a year or two.
I really don't want to take on a mortgage of $1,000 per month or more. To me, paying cash is like 3.75% to 4% guaranteed money. Your thoughts? — Soon To Start Over
Dear Soon To Start Over: There is no reason to take on a $1,000-a-month mortgage payment at your age if you've got the cash to pay the home down immediately, while still leaving you with a tidy nest egg. Common sense says we should minimize regular, repeating expenses when we leave the workforce, not pile them on. That goes double when, as in your case, you'll have an adequate income in retirement, but not an overly generous one.
The bigger question is why your broker is suggesting otherwise. I hate to be cynical, but I suspect the answer is weighted in the broker's self-interest. All that money you are putting into a home means less money for your broker to make investment suggestions on. That, in turn, means less money in your broker's pocket.
When you clean house prior to moving, let me suggest one other item to discard: your broker. I suspect someone getting paid by the hour would be best for you. You need a plan, not trading advice. When you seek a replacement, find someone who has a legal duty to put your interests ahead of their own at all times when giving financial guidance. And the only way you will know this is if you ask about it.
Good luck with your new home — and your new financial adviser!