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Dear Senior Living Adviser,

I am 61 years old and have been on Social Security disability for the past 18 months. I have a pension from my workplace, and when I am 66 I can take a lump sum of $174,000.

I am unmarried and haven’t owned a home since 2000, so I am going to buy a home for myself with the money. If I use all of the money for a home, will I owe taxes on the lump sum payout?

— Pamela Place

Dear Pamela,

I’m not aware of any tax break on taking the lump sum benefit because you’re buying a home with the money.

RATE SEARCH: Get a great rate on a mortgage.

As you get closer to the decision date, it would be worth it to meet with a tax professional to discuss the implications, and a fee-only financial planning professional to discuss your sources of retirement income that will cover your expenses in retirement.

You may own your own home but you still have to pay the homeowners insurance, taxes and keep the place up.

The Consumer Financial Protection Bureau has published a guide to help consumers make a decision concerning their pension benefit payout options from a private sector plan.

Don’t forget about taxes on a lump-sum payout

The guide states, “You will pay taxes on your lump-sum payout. Your lump-sum money is generally treated as ordinary income for the year you receive it (rollovers don’t count; see below). For this reason, your employer is required to withhold 20% of the payout.”

Seniors raiding their pensions or retirement accounts to purchase a home or other big ticket purchase should do so with caution. It’s taken your working career to build up these assets.

An alternative to spending all of the lump-sum benefit on a home would be to buy a home with a reverse mortgage. Roughly speaking, it’ll take only about half of the home’s purchase price for the down payment, and there’s no monthly mortgage payment — just like it would be if you had bought it for cash.

You’ve got time to research this option as well. Good luck.

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