MW 'I'm in California and plan to stay here': I'm 61, lost my job and live off my $425K IRA. My house has $650K in equity. Do I sell?

By Quentin Fottrell

'A very stressful year-long job search yielded less than satisfactory results'

Dear Quentin,

Five years ago, at 59, I lost my job due to COVID-19. Since that time, a very stressful year-long job search yielded less than satisfactory results and I decided to retire early. At 61, I started withdrawing from my IRA, which I live off of. It has a balance of $425,000.

I own a home with a current market value of about $975,000, carrying a $325,000 mortgage; I have a tiny savings account with $20,000. My monthly spend is about $3,500. I plan to downsize: sell my home and purchase something small, with a $200,000 max mortgage.

This will give me some much-needed savings and a smaller monthly outlay. I'm in California and plan to stay here. I plan to live off the net proceeds, collect Medicaid at 65 and hold off on claiming Social Security until I am 70. Do you think my plan is a sensible one?

Reluctant Retiree

Related: We're living in 'end times' when you can't retire on $1 million

Dear Retiree,

You have formulated a plan and, all going well, you will make it to 67 in good shape.

The energy I get from your letter - it's true, you can tell a lot about someone by reading between the lines and from what they choose to say and not say - is that you have a calm head on your shoulders. You're making sober, sensible decisions.

You know what you want: You are happy in California; though it's one of the most expensive places to live in the U.S., there's no point in moving somewhere where you would be lonely and unhappy. You have navigated these rough waters with a steady hand.

I also implore you to think about the current high 30-year mortgage rate, which currently hovers at 6.7%. Factor that into your calculations if you are giving up a mortgage with a low rate. Ideally, buying a place for cash would be a huge advantage, especially as you will likely have trouble qualifying for a mortgage given your reduced income.

A quick back-of-the-napkin calculation: If you were to take 4% a year from your $425,000 IRA retirement savings ($17,000 a year or $1,417 a month) that would last you 25 years or 30 years, assuming your investments will continue to grow.

That does not include the money you will hopefully save by downsizing your home and reducing your monthly costs. Be warned: The costs of selling a property can be steep, including city/state taxes, and real-estate and lawyer fees.

You have navigated these rough waters with a steady hand.

Talk to your accountant about capital-gains tax on selling your home. Your basis for capital-gains tax when selling will be the "cost basis" - the price at which you bought your property, plus the cost of any improvements you've made over the years. Capital-gains tax home-sale exclusion is $250,000 for single tax filers and $500,000 for married taxpayers who file jointly.

A note for others who have not lived in their house for two of the last five years and, therefore, don't qualify for the home-sale exclusion. "If you're forced to sell your home due to a job relocation, health condition, or other major life change, the IRS may let you exclude a portion of your capital gain, even if you didn't live in the home for the full 2 years," says Rocket Mortgage.

"For instance, if you lived in the home for one year but have to relocate 75 miles away for a new job, you might be eligible to exclude half of the standard exclusion," it adds. "Tax preparers and financial professionals can help you document and validate the reason for your move and ensure the IRS recognizes your exception."

Your savings of $20,000 may not have an extra zero, but it's still a good emergency fund. You could consider putting some of it into a CD or high-yield savings account to get an interest rate of around 4.4%. Nice work, if you can get it.

Hopefully, you will find something that can help you free up some equity and reduce your expenses. The average house price in California is around $787,508, according to Zillow (Z) , almost unchanged from the prior year. The median list price is $699,000.

As you face required minimum distributions, you may also wish to convert your IRA to a Roth IRA. "Those who are temporarily in a lower tax bracket, either due to a drop in income or higher deductible expenses, are often considered to be the best candidates for a Roth IRA conversion," says Mass Mutual.

"The income tax you pay, of course, is determined by your tax bracket. For the same reason, younger savers who expect their income to climb in future years may also benefit from a conversion," it adds. "You need not convert all your pretax savings to a Roth IRA."

Don't miss: When is a Roth conversion a good idea? How to know when to make a move.

Medicare vs. Medicaid

As for reaching retirement age, I think you meant to say that you will sign up for Medicare health insurance when you are 65. Medicaid, as you probably know, is a needs-based program, and from what you outline in your letter, you don't qualify for that.

To be eligible, a person must have no more than $2,000 in countable assets, which includes bank accounts and investments, and no more than $2,829 a month in income, so you are a long way from being able to qualify for that.

As for Social Security, if you are 61 now, your full retirement age will be 67. If you draw your Social Security benefits before that, you will get a lesser amount. If you started claiming when you hit 62, you would only get $1,400 a month if your full benefit was $2,000.

You get 100% of your Social Security benefit at full retirement age, which is 67 for anyone born in 1960 or after, and you receive a lesser amount if you claim at any time from the age of 62 until full retirement age.

You are, scary as it was to lose your job, still doing well with your savings.

The average 401(k) balance hovers at around $242,200 for baby boomers (born 1946-1964) and $182,100 for Generation X (born 1965-1980), according to Fidelity, and across all age groups, it's $127,100. You are, scary as it was to lose your job, still doing well with your savings.

Some 75% of non-retired adults had at least some savings, but 25% had no retirement savings, the report added. "Among those with retirement savings, these savings were most frequently in defined contribution plans, such as a 401(k) or 403(b)," according to the Federal Reserve.

By 63, you should have around 57% of your savings in equities to protect against the kind of market correction we experienced in April, and may do again before the year is out, at least according to the "120 minus age" rule. It's a guide; it's not set in stone.

The rule of 120 stipulates that you can subtract your age from 120 to give you an approximate, sensible weighting in equities that would match your age. It's also known as the "100 minus age rule," so opinions on that differ. It's meant as a guide.

Whatever you can do to reduce your expenses will obviously serve you in the long run, and you seem to have gotten by thus far. Overall, your plan is a good one. It's definitely time to stick to a strict budget and cut down on miscellaneous expenses.

Being a reluctant retiree is not easy, but you're in a better position than millions of Americans.

Related: 'Is it finally time to freak out?' I'm in my 50s and worried about the $650K in my 401(k).

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.

The Moneyist regrets he cannot reply to questions individually.

Previous columns by Quentin Fottrell:

I'm 85 with 2 kids and $4 million. My daughter wants a larger share of my estate than my son to compensate for unequal treatment by her father.

'I do all the yard work, cooking and cleaning': I live with my daughter and her lazy boyfriend. She wants me to buy her house. Do I say yes?

'I'm single': At 70, I have $500,000 in stocks and $220,000 in savings. How do I invest my $130,000 windfall?

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-Quentin Fottrell

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July 13, 2025 16:13 ET (20:13 GMT)

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