How Much House Can You Afford as a Retiree?

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  • It's a good idea to keep your housing costs to 30% of your income or less both during your working years and retirement.
  • If your healthcare costs are higher than average, you may want to spend more conservatively on housing.

You don't want housing costs to take up too much of your financial resources.

Once you retire, you may have to get used to living on less income than you did during your working years. Even if you have access to multiple sources of income, like monthly Social Security benefits and withdrawals from an IRA account or 401(k) plan, you might still have to consider cutting back on spending if you're nowhere close to replacing your pre-retirement paycheck in full.

Now, as is the case during your working years, one of your biggest expenses in retirement may be none other than housing. So it's important to know how much house you can afford during that stage of life.

Generally speaking, you should aim to keep your total housing costs to 30% of your income or less. This holds true whether you're working or retired. But depending on your situation, you may want to go below that 30% threshold when it comes to housing during retirement -- especially if there's another large expense eating up a lot of your budget.

Know how to calculate that 30%

When we talk about keeping housing costs to 30% of your retirement income or less, we're not just talking about the cost of mortgage payments. Rather, that 30% should encompass all predictable and recurring housing expenses, from property taxes to homeowners insurance to HOA fees.

The good news is that many people end up fully paying off their homes by the time they retire. So if you land in that boat, it may be conceivable that you're able to keep your housing costs to 30% or less of your retirement income.

But remember, 30% is really the most you should be looking to spend on housing. And you may want to go below that limit if healthcare in particular is becoming increasingly expensive for you.

When you need to spend even less on housing

Some retirees find that it's not housing, but rather, healthcare, that constitutes their largest monthly expense. Now the amount of money you'll need to spend on healthcare as a retiree will hinge on different factors, a big one being the state of your health and how well you take care of yourself.

But one thing you should know is that healthcare in retirement may be more expensive than you're anticipating. Fidelity reports that an average 65-year-old couple retiring in 2022 is looking at spending about $315,000 on healthcare throughout retirement. Ouch.

Reading between the lines, if you don't have "average" health, but rather, poor health, then your medical bills might be even higher. So in that case, you may need to compensate by spending less on housing. After all, healthcare is something you don't want to skimp on -- not when you're younger, and definitely not when you're older.

Once your career wraps up, you may find yourself spending more time at home than you did when you were working. So it's important to have a comfortable living space. But it's also important not to go overboard on housing costs -- especially at a time when your income is fixed and you may have other expenses monopolizing your budget.

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