Balancing savings and home fix-up needs

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Dear Dr. Don,
My husband and I are 67 and 66, respectively. We work and take home approximately $5,000 monthly combined. In addition, I have monthly Social Security income of $1,350. My husband has been advised to wait to take his Social Security until he retires. He’s planning to work for at least two more years, hoping to hold off on collecting Social Security when he turns 70. That should maximize his benefits by earning all the delayed retirement credits available to him.

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We do not have any debt other than the mortgage. Our home is worth approximately $500,000. Our automatic mortgage payment is about $2,000 per month. The loan will be paid off in April 2027 with a current balance of $87,331. We have a pension valued at $457,000, Roth individual retirement accounts valued at $88,000 and additional stocks valued at $105,000. We also own property worth approximately $300,000. Our basic savings account has about $10,000 in cash.

My question is whether we should save more for our emergency reserve account or put the money into our Roth IRA? We would also like to do some home improvements such as new appliances, a deck and a new kitchen floor. We estimate spending as much as $50,000 on these projects. How much can we spend and still feel secure?

Thank you,
— Pansy Ponders

Dear Pansy,
You have enough financial flexibility that you really don’t need to worry about ramping up emergency fund savings. What you’re trying to do by keeping an emergency fund is to avoid selling investments at a loss to get cash for an urgent financial need.

While I don’t know how your Roth IRA is invested, you have the ability to tap those funds tax-free. With $88,000 in the account and plans to add more, there’s a large amount of funds available to you to act as a reserve outside of your savings.

You’re both still working with a combined net worth of well over $1 million. You want the go-ahead to spend $50,000 to fix up the house? You have it, even though my personal experience has been that you should take your initial estimate and double it if you want a better idea about the final cost of the work. Write back when the project is done and let me know which of us is closer to being correct.

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