This retired reader wants to know if it’s better to rent an apartment or buy a home with retirement savings.

Q: My wife and I are retired and renting an apartment for $600 a month. I am 64 and she is 63. We want to buy an inexpensive house that costs around $50,000 to $60,000 dollars.

I have $76,000 in an IRA account and $20,000 in a savings account. I receive a pension of about $1,000 a month and around $1,100 in social security payments. My wife only receives $350 in social security monthly and nothing else.

Should we buy a house outright and lose the savings and IRA money, or continue to rent? I want to add we previously had a house, but gave it up during a rough financial period before we retired. At this moment, my credit is good. But I not sure which is better, to buy or rent. Your thoughts?

A: There is so much to unpack in your question that it’s hard to know where to start. We think the best place to start is with one of the most basic questions out there: Is it better for you to rent or to buy?

We ask this question in this manner because renting is better for some people. Ilyce’s parents had family friends that rented an apartment for more than 50 years (the wife still rents her apartment) and never owned any real estate. It worked for them and they were happy renters, although if they had bought a similar apartment, it would have gone up in value by more than 10 times during the course of those 50 years, and they would have had a very nice asset at the end of that time.

To properly answer the question about whether you should rather own a home or rent, you need to consider not just the costs of homeownership (mortgage, taxes, insurance and ongoing maintenance and upkeep) but what you might want to do to the property (and that cost) in order to be comfortable living there.

There are lots of reasons people buy rather than rent. Some may like living in a highly-customized space. Others will own real estate with the hopes that over time that home’s value will appreciate and they will end up with an asset and savings for their retirement. Still others find that they want to live in a certain area and want their home to be theirs, free of any landlord issues.

We don’t know where you stand on any of these issues, but you need to walk through these questions and make sure that owning is right for you. Generally, when you rent a home, many of the repair and big ticket items in the home are taken care of by the landlord. The landlord will generally pay for the real estate taxes on the home, the insurance on the structure and take care of the structure itself. The landlord will repair or replace broken appliances. While you as a tenant may have to take care of ordinary and routine maintenance items, when the roof must be replaced, the landlord is usually the one to pay for the replacement.

The big difference is that landlords want to make a profit. Over time, the rent a tenant pays goes to the landlord and the landlord uses that rent to cover the expenses of owning the home and even to manage the investment. Over time, the landlord, too, wants the home investment to pay off and when the landlord sells the home, the landlord hopes to reap the rewards of the investment.

Your question seems to imply that you want to cash out a good part of your IRA account or a mix and match between cash in your savings account and cash from your IRA account.

If you withdraw cash from your IRA account, you may have taxes to pay on any appreciation that you may have had in that investment. Since you’re over 59 ½, you won’t have to pay a penalty.

But is this the right move? Maybe not. If we assume that you’d have 15 percent tax on the amount withdrawn, you might have to pay $7,500 in taxes when you take out $50,000 from the IRA account. (Please note, we are only estimating this numbers and yours may be considerably lower or higher depending on how well you have done in your IRA investments, and whether you’re at a higher or lower tax bracket.)  

If you want to know precisely how much it will cost you to withdraw the IRA money, you’ll need to calculate that amount with the help of an IRA withdrawal calculator or talk to the company in which you have your IRA investments.

If you decide that it won’t cost you much, if anything, to take out the IRA money, then you have to decide whether spending $60,000 on a home is right for you. And, remember, that $60,000 is only the start when you buy a home. You have closing costs, moving expenses, and then improvements you might want to make to the home. When you’re done, you might spend $70,000 of the $96,000 total cash that you have. You must be comfortable having $26,000 in savings for your retirement (hello, healthcare costs!) and having the rest of your money locked up in the value of the home.

We don’t know if you’d qualify for a mortgage given your income, but you might want to talk to a mortgage lender or mortgage broker to walk through the numbers. If you qualify, you’d have a mortgage payment to make to the lender but you’d have most of your savings still invested in the IRA and in your savings account.

Another factor you should consider is what your monthly costs will be when you own a home. You pay $600 now to rent a place. You need to understand exactly what it will cost you on a monthly basis to own a home and then factor in other costs of ownership such as roof replacements, additional insurance, other repairs and replacements and other expenses that come with the home that you don’t have when you rent.

Once you have all this information, you can sit down and evaluate your current situation, compare it to owning a home, see how it affects your finances, determine your financial comfort level and then decide. Hope this helps. Good luck.