How much house can a retired person afford
"Consider property taxes (school, municipal, county, etc.) summing to 10% of the property value.  So each year, another .02N is removed.  Assume the property value rises with inflation.  Allow for a 5% after inflation return on a 70/30 stock bond mix for N.   After inflation return.   Let's assume a 20% rate.  And let's bump the .05N after inflation to .07N before inflation.  Inflation is still taxable.   Result  Drop in value of investment funds due to purchase.   Return after inflation.   After-inflation return minus property taxes.   Taxes are on the return including inflation, so we'll assume .06N and a 20% rate (may be lower than that, but better safe than sorry).   Amount left.   If no property, you would have .036N to live on after taxes.  But with the property, that drops to .008N.  Given the constraints of the problem, .008N could be anywhere from $8k to $80k.   So if we ignore housing, can you live on $8k a year?  If so, then no problem.  If not, then you need to constrain N more or make do with less house.   On the bright side, you don't have to pay rent out of the .008N.  You still need housing out of the .036N without the house.   These formulas should be considered examples.  I don't know how much your property taxes might be.  Nor do I know how much you'll pay in taxes.  Heck, I don't know that you'll average a 5% return after inflation.  You may have to put some of the money into cash equivalents with negligible return.  But this should allow you to research more what your situation really is.   If we set returns to 3.5% after inflation and 2.4% after inflation and taxes, that changes the numbers slightly but importantly.  The ""no house"" number becomes .024N.  The ""with house"" number becomes  So that's $24,000 (which needs to include rent) versus -$800 (no rent needed).  There is not enough money in that plan to have any remainder to live on in the ""with house"" option.  Given the constraints for N and these assumptions about returns, you would be $800 to $8000 short every year.   This continues to assume that property taxes are 10% of the property value annually.  Lower property taxes would of course make this better.  Higher property taxes would be even less feasible.   When comparing to people with homes, remember the option of selling the home.  If you sell your .2N home for .2N and buy a .08N condo instead, that's not just .12N more that is invested.  You'll also have less tied up with property taxes.  It's a lot easier to live on $20k than $8k.   Or do a reverse mortgage where the lender pays the property taxes.  You'll get some more savings up front, have a place to live while you're alive, and save money annually.   There are options with a house that you don't have without one." Consider a single person with a net worth of N where N is between one and ten million dollars.  has no source of income other than his investments How much dividends and interest do your investments return every year?  At 5%, a US$10M investment returns $500K/annum.  Assuming you have no tax shelters, you'd pay about $50% (fed and state) income tax. https://budgeting.thenest.com/much-income-should-spent-mortgage-10138.html A prudent income multiplier for home ownership is 3x gross income.  Thus, you should be able to comfortably afford a $1.5M house. Of course, huge CC debt load, ginormous property taxes and the (full) 5 car garage needed to maintain your status with the Joneses will rapidly eat into that $500K.
Your long-term saving targets will include retirement, kids' college, house, etc. Medium-term might be your college, or a car. Short-term might be a vacation somewhere or a new laptop. In all cases saving, then spending money you do have is better than spending money you don't have. I think that's the first takeaway of this truism. However, I also believe 10% is said as a retirement target. Retirement is very important and this advice is stressed by many financial planners because it's very easy to underestimate how expensive it is. By the same token, it's recommended that you spend 2 months' salary on an engagement ring, and that particular truism can be traced back to a DeBeers ad. I personally don't know whether 10% as a retirement target is sage - it sounds right but I haven't followed it for a variety of reasons. Please corroborate against multiple sources and apply to your own financial person. "I argued for a 15% rule of thumb here: Saving for retirement: How much is enough? Though if you'll let me, I'd refine the argument to: use a rule of thumb to set your minimum savings, then use Monte Carlo to stress-test and look at any special circumstances, and make a case to save more. You're right that the rule of thumb bakes in tons of assumptions (great list btw). A typical 15%-works scenario could include: If any of those big assumptions don't apply to you (or you don't want to rely on them) you'd have to re-evaluate. It sounds like you're assuming 4-5% investment returns? As you say that's probably the big difference, 4-5% is lower than most would assume. 6-7% (real return) is maybe a middle-of-the-road assumption and 8% is maybe an unrealistic one. Many of the assumptions you list (such as married/kids, cost of living, spouse's income, paying for college) can maybe be bundled up into one assumption (percentage of income you will spend). Set a percentage budget and as you go along, stay within your means by sacrificing as required. Also smooth out income across layoffs and things by having an emergency fund. By staying on-budget as you go you can remove some of the unpredictability. The reason I think the rule of thumb is still good, despite the assumptions, is that I don't think a ""more accurate"" number based on a lot of unpredictable guesses is really better; and it may even be harmful if you use it to justify saving less, or even if you use it to save far too much. See also http://en.wikipedia.org/wiki/Precision_bias Many (most?) important assumptions are not predictable: investment returns, health care inflation, personal health, lifestyle creep (changing spending needs/desires), irrational investment behavior. I agree with you that for many scenarios and people, 15% will not be enough, though it's a whole lot more than most save already. In particular, low investment returns over your time horizon will make 15% insufficient, and some argue that low investment returns over the coming 30 years are likely. Without a doubt, 20% or more is safer than 15%. Do consider that ""saving enough"" is not a binary thing. If you save only 15% and it turns out that doesn't completely replace your income, it's not like you're out on the street; you might have to retire a few years later, or downsize your house, or something, but perhaps that isn't a catastrophe. There's a very personal question about how much to sacrifice now for less risk of sacrifice in the future. Maybe I'd better qualify ""not a binary thing"": some savings rates (certainly, anything less than 10%), make major sacrifices pretty likely... so in that sense there is a binary distinction between ""plausible plan"" and ""denial."" Also, precise assumptions and calculations get a lot more useful as you approach retirement age. You can pretty much answer the question ""is it reasonable to retire right now?"" or ""could I retire in 5 years?"" (though with a retirement that could last 30 years, plenty of unknowns will remain even then). I think at age 20 or 30 though, just saving 15% (20% if you're conservative), and not spending too much time on a speculative analysis would be a sound decision. That's why I like the rule of thumb. Analysis paralysis (saving nothing or near-nothing) is the real danger early in one's career. Any plausible percentage is fine as long as you save. As your life unfolds and you see what happens, you can refine and correct, adjusting your savings rate, moving your retirement age around, spending a little less or more. The important thing earlier in life is to just get in the right ballpark." Comedy answer The McDonalds corporation thinks about $600 or 30% The real answer is: Whatever you can part with and still have money left over for the rest of your budget.  Don't consider your savings, consider your monthly income. This type of question is exactly why you need a budget.  A budget isn't just a tool for getting out of debt, it is a tool to help you understand your money and show you how much to spend on stuff. So based on your costs (utilities, food, shopping, auto expenses, savings, etc) how much is left from your monthly income?  That would be what you can afford in rent. Also, please notice that I still suggest you save money each month. You have a great habit going and to lose it now would be a shame in my opinion.  Maybe while you are planning a budget, you can start to roughly plan for buying a house, or having a new car fund, or having a pile of money for starting a family. (Along with an emergency fund and a fully funded retirement.)   You don't have to save 2/3, but save a dime of every dollar at least. Two dimes is better.  In the future, you will probably find it easier to spend more money rather than less; and you will never get back the chance to save. Don’t take the cash deposit whatever you do. This is a retirement savings vehicle after all and you want to keep this money designated as such.   You have 3 options:  1) Rollover the old 401k to the new 401k. Once Your new plan is setup you can call who ever runs that plan and ask them how to get started. It will require you filling out a form with the old 401k provider and they’ll transfer the balance of your account directly to the new 401k.  2) Rollover the old 401k to a Traditional IRA. This involves opening a new traditional IRA if you don’t already have one (I assume you don’t). Vanguard is a reddit favorite and I can vouch for them as Well. Other shops like Fidelity and Schwab are also good but since Vanguard is very low cost and has great service it’s usually a good choice especially for beginners.  3) Convert the old 401k to a ROTH IRA. This is essentially the same as Step 2, the difference is you’ll owe taxes on the balance you convert. Why would you voluntarily want to pay taxes f you can avoid them with options 1 or 2? The beauty of the ROTH is you only pay taxes on the money you contribute to the ROTH, then it grows tax free and when you’re retired you get to withdraw it tax free as well. (The money contained in a 401k or a traditional IRA is taxed when you withdraw in retirement).   My $.02. 401k accounts typically have higher fees than IRAs, even if they own the same mutual funds the expense ratios are usually more in the 401k. The last 2 times I’ve changed jobs I’ve converted the 401k money into my ROTH IRA. If it’s a small sum of money and/or you can afford to pay the taxes on the money I’d suggest doing the same.  You can read up heavily on the pros/cons of  ROTH vs Traditional but My personal strategy is to have 2 “buckets” or money when I retire (some in ROTH and some in Traditional). I can withdraw as much money from the Traditional account until I Max out the lowest Tax bracket and then pull any other money I need from the ROTH accounts that are tax free.This allows you to keep taxes fairly low in retirement.  If you don’t have a ROTH now this is a great way to start one. Well, if you worked in the United States you have social security, and medicare and medicaid in most cases as well.  So you have a small amount of income to spend every month to cover your most basic living expenses, as well as your basic medical expenses.  At least, that's the idea. In reality, it probably isn't anywhere near enough money for most to live comfortably.  Also, there is a real fear that the US will have to inflate itself out of its debt to some extent in the future.  This theory implies that the money retired individuals have saved or are receiving down the road could buy significantly less in the future than they expect. If you have the ability to put money away into an IRA or 401K early in your life, it will be greatly beneficial to do so.  However, that is another issue I won't begin to discuss fully here. Edit since your question was restated after I typed my initial response, the final answer is:  You will receive some assistance from Social Security, Medicare, and Medicaid.  You will most likely need to either continue working, draw on savings such as an IRA or 401k, or will need assistance from others.  If none of those are options, you would most likely end up living in poverty or worse. A $250K earner might have $4M in retirement savings and $500K in available funds, but doesn't wish to spend all his liquidity on the house. In general, a house might cost 2-3 times one's annual income. It would take many years to get that saved up. They might want to have the house sooner.  It all goes back to choice, priorities, personal preference. Is my financial status OK? If not, how can I improve it? I'm going to concentrate on this question, particularly the first half.   Net income $4500 per month (I'm taking this to be after taxes; correct me if wrong).  Rent is $1600 and other expenses are up to $800.  So let's call that $2500.  That leaves you $2000 a month, which is $24,000 a year.   You can contribute up to $18,000 a year to a 401k and if you want to maintain your income in retirement, you probably should.  The average social security payment now is under $1200.  You have an above average income but not a maximum income.  So let's set that at $1500.  You need an additional income stream of $900 a month in retirement plus enough to cover taxes.  Another $5500 for an IRA (probably a Roth).  That's $23,500.  That leaves you $500 a year of reliable savings for other purposes.  Another $5500 for an IRA (probably a Roth).  That's $23,500.  That leaves you $500 a year of reliable savings for other purposes.   You are basically even.  Your income is just about what you need to cover expenses and retirement.  You could cover a monthly mortgage payment of $1600 and have a $100,000 down payment.  That probably gets you around a $350,000 house, although check property taxes.  They have to come out of the $1600 a month.  That doesn't seem like a lot for a Bay area house even if it would buy a mansion in rural Mississippi.  Perhaps think condo instead.   Try to keep at least $15,000 to $27,000 as emergency savings.  If you lose your job or get stuck with a required expense (e.g. a major house repair), you'll need that money.   You don't have enough income to support a car unless it saves you money somewhere.  $500 a year is probably not going to cover insurance, parking, gas, and maintenance.   It's possible that you could tighten up your expenses, but in my experience, people are more likely to underestimate their expenses than overestimate.  That's why I'm saying $2500 (a little above the high end) rather than $2000 (your low end estimate).  If things are stable, wait a year and evaluate.  Track your actual spending.  Ask yourself if you made any large purchases.  Your budget should include an appliance (TV, refrigerator, washer/dryer, etc.) a year.  If you're not paying for that now (included in rent?), then you need to allow for it in your ownership budget.   I do not consider an ESPP to be a reliable investment vehicle.  Consider the Enron possibility.  You wake up one day and find out that there is no actual money.  Your stock is now worthless.  A diversified portfolio can survive this.  If you lose your job and your investment, you'll be stuck with just your savings.  Hopefully you didn't just tie them up in a house that you might have to sell to take your next job in a different location.  An ESPP might work as savings for the house.  If something goes wrong, don't buy the house.  But it's not retirement or emergency savings.   I would say that you are OK but could be better.  Get your retirement savings started.  That does two things.  One, it gives you money for retirement.  Two, it keeps you from having extra money now when it is easy to develop expensive habits.  An abrupt drop from $4500 in spending to $1200 will hurt.  A smooth transition from $2500 to $2500 is what you would like to see.  You are behind now, but you have the opportunity to catch up for a few years.   Work out how much you'll get from Social Security and how much you need to cover your typical expenses with the occasional emergency.  Expect high health care costs in retirement.  Medicare covers a lot but not everything, and health care is only getting more expensive.  Don't forget to assume higher taxes in the future to help cover that expense and the existing debt.  After a few years of catch up contributions, work out your long term plan assuming a reasonable real (after inflation) rate of return.  If you can reduce the $23,500 in retirement contributions then, that's OK.  But be pessimistic.  Most people overestimate good things and underestimate bad things.  It's much better to have extra than not enough.   A 401k comes with an administrator and your choice of mutual funds.  Try for diversification.  Some money in bonds (25% to 30%).  The remainder in stocks.  Look for index funds.  Try for a mix of value and growth, as they'll do better at different times.  As you approach retirement, you can convert some of that into shorter term, lower yield investments.  The rough rule of thumb is to have two to five years of withdrawals in short term investments like money market funds.  But that's more than twenty years off.   You have more choices with an IRA.  In particular, you can choose your own administrator.  But I'd keep the same stock/bond mix and stick to index funds if you're not interested in researching the more complex options.  You may want to invest your IRA in a growth fund and your 401k in value funds and bonds.  Then balance the stock/bond mix across both.   When you invest each year, look at the underrepresented funds and add the most to them.  So if bonds had a bad year and didn't keep pace, invest in bonds.  They're probably cheap.  You don't want to rebalance frequently, but once a year might be a good pace.  That's about how often you should invest in an IRA, so that can be a good time.   I'll let the others answer on the financial advisor part. My sister just purchased a house for $35k in moderate sized midwestern city. Even fully financed, that's &lt;$200/month. The house has 3 bedrooms and a decent sized yard. There's lots of houses in that area for similar prices, some in better shape than others.