Photo Credit:

I’m at a financial crossroads and I’m hoping you can help. My husband and I are both 67 years old and we just sold our house for $2.5 million. Believe it or not, we bought it 40 years ago for $350,000, so we are ecstatic at the return on our money. Anyway, we both plan to stop working in the next few years. We have some savings in various accounts. What should we do with the proceeds from the sale of our home? – Anonymous, Brooklyn, NY



This is a very common question that I deal with multiple times every year. However, before jumping into solutions, it’s worth pointing out that the return on your home is mediocre relative to other investments. A $350,000 investment that grows to $2.5 million over 40 years has an approximately 5% annual rate of return. Furthermore, that return is gross of all expenses and upkeep costs. After factoring those in, your actual annual rate of return is likely closer to 3% to 4%, which basically only slightly outpaces the historical rate of inflation. These facts are not meant to indicate that buying your home was a poor decision, rather it is just helpful context when discussing a home as part of a person’s overall financial picture. A home is typically a good lifestyle choice, a place to build memories, and is a helpful way to force folks to save money by slowly paying down a mortgage and building equity in their house. However, when comparing the actual net rate of return when selling a primary residence versus the stock market, or other investments, it looks far less attractive.

Nevertheless, $2.5 million is significant and it should be managed prudently. The key to properly managing this money is first to determine your goals. Goals are personal and may vary greatly by family. Sit down with your husband (and other trusted advisors) to flesh out and articulate your personal goals. Only then will it be possible to determine how to handle these funds.

To get you started, below I share some common discussion points that come up frequently in my practice when strategizing with folks who just sold their primary residence and are also approaching retirement.

Do you need the funds to buy a new home? Typically, folks need the money from the sale of one home to purchase a new home. If this is the situation, I recommend keeping two things in mind. First, it’s essential to significantly downsize to a smaller and more manageable home in retirement. This will help keep your housing expenses lower, which is important when you are no longer working. It is also helpful as one ages, as a smaller home is easier to navigate and upkeep is simpler.

The second item to keep in mind is not to discount the option of renting. Depending on where you plan to move, the rental market may be more attractive than the buying market. If it is, you can use this pool of assets to generate cash flow to pay your rent and other expenses instead of using it to buy a home, which will not generate any income for you.

Do you need these funds to support your lifestyle in retirement? Continuing from my previous comment, many folks may need to use at least a portion of the proceeds to help provide them with income in retirement. In such a situation, it’s important to determine how much additional income you will need in retirement to supplement the cash flow from social security, pension, annuity, or any other investments. Doing that exercise is instructive on how much you can spend on another home or on other goals. Being able to pay your bills in retirement is of utmost importance. Everything else is secondary.

This is a great opportunity to de-risk your portfolio: One great opportunity that many people don’t consider is being able to “de-risk” their personal finances. Previously, your money was concentrated in one asset class (real estate). It may not feel risky because you don’t see the value of your house fluctuate day to day like the stock market. However, for most Americans, a home is a concentrated investment, in one asset class, in one market, that is highly leveraged. That is literally the definition of risky. Once a home is sold, you now have a wonderful opportunity to diversify, or allocate the funds to many other investments, in order to minimize your risk and potentially generate superior returns on your money.

Consider gifting a portion of the funds to your heirs: Some families don’t need all these funds for housing or expenses. This is a wonderful financial situation in which to be. In this case, the home sale should be part of a broader estate planning discussion with your significant other and advisors.

For example, there are families with whom I work who have plenty of money in their retirement accounts and want to help their kids out financially today. This may mean leaving less funds to their children and other beneficiaries upon their death, but it also means assisting them when they need the money the most. Leaving funds to kids through inheritance when they are in their 50s and 60s is great, but how much more impactful would the funds be for their kids who are in their 30s and 40s? Parents gifting the proceeds from the sale of their home during their lifetime can be an immense help for their kids working to afford a frum lifestyle.

Give some of this money to charity: Giving tzedakah is always a worthwhile endeavor. It will serve as a zchus in the future, it’s educational for your kids and other family members, and mostly importantly, it benefits those in our community who need help. Experiencing a large liquidity event is a wonderful opportunity to harness the power of giving. Consider giving maaser from your net profit on the sale.

It’s very common for a person’s home to make up a significant portion of their overall assets. If that’s the case, you can’t afford to make a bad decision for how to handle the proceeds from the sale of your home. Ultimately, your decision needs to be personal. Put in the time up front to take stock of your life and determine the best usage of these funds to help you achieve your goals. This will ensure you are making a prudent decision for the best path forward for your family as you enter retirement.


Previous articleQ & A: Which Is Preferred For Kiddush Levana: B’rov Am Or Zerizin?
Next articleThe Proud And The Prejudiced (Part X)
Jonathan I. Shenkman, AIF® is the President and Chief Investment Officer of ParkBridge Wealth Management. In this role he acts in a fiduciary capacity to help his clients achieve their financial goals. He publishes regularly in financial periodicals such as Barron’s, CNBC, Forbes, Kiplinger, and The Wall Street Journal. He also hosts numerous webinars on various wealth management topics. Jonathan lives in West Hempstead with his family. You can follow Jonathan on Twitter/YouTube/Instagram @JonathanOnMoney.