My retired parents live on $2,400 a month and still owe $100k on their home – should they sell and move somewhere cheaper?

A Reddit user is trying to figure out how to help his parents, who are getting ready for retirement with very little money. He explained that his father became disabled after an incident at work and received a $100,000 settlement that his parents have been living on as they waited to file for Social Security. His mother brings in a little bit of money from a home daycare, but not much. 

Ultimately, the parents will end up retiring with around $2,400 per month in Social Security benefits and no other savings. They do have a home in California that is worth around $500,000. However, they still owe $100K on it, and their mortgage costs them $1,500 a month. Their situation isn’t sustainable, and the poster thinks they should sell the house and move somewhere cheaper. But, is that the right move for them to make?

Would cashing in home equity help parents with too little retirement income? 

With a $1,500 per month mortgage payment and a $300 per month car payment, the Redditor’s parents are obviously not in a very good financial position.  Their best option would likely be to talk to a financial advisor who could help them determine the right course of action to improve their situation, as an advisor could take a big-picture look at their finances, help them make informed choices about selling the home, and work with them to determine what a realistic budget looks like.

Most likely, though, the advisor would probably agree with the Reddit poster that selling the house is a good idea. If the parents could get $500,000 for the property, they could walk away with $400,000. All of this money could be invested and, at a safe 3.7% withdrawal rate, could provide the couple with another $14,800 per year or $1,233 per month. That would give them a bit more of a financial cushion to add to their $2,400 from Social Security.

Alternatively, they could buy an affordable condo somewhere for around $100,000 to $150,000 in a place with a low cost of living and have no housing payment and a $300K nest egg to offer support. A financial advisor could help them to decide which of these approaches is best, although the benefits of renting would be that they don’t have to worry about unexpected repairs. 

Relocating to a low-cost-of-living area is important when you have too little retirement savings

Ultimately, the best bet this couple has of achieving some semblance of financial security in retirement is going to be moving to a place where the cost of living is very low.

Trying to survive on Social Security alone is a huge challenge since benefits only replace 40% of pre-retirement income, and for this couple, a $2,400 monthly benefit puts them pretty close to the poverty line for a family of two. Finding a cheap place to live is possible, and it would both help them to keep their housing costs down and allow them to stretch their money as far as it can go. 

Having to relocate as a retiree isn’t necessarily pleasant, but for those who don’t have savings, it could be the only option. This is one key reason why it is important to try to invest throughout your career. If you don’t, your choices for what you do in retirement are going to be severely restricted by your available funds, just as they are for this couple who is clearly having a hard time.