Personal Finance

I'm 60 and I want to borrow from my 401(k) with $750k in it for a home purchase - is this a foolish idea?

Marc Guberti

Published: January 22, 2025 2:34 pm

A 60-year-old Redditor recently posted in the Retirement 401(k) subreddit about buying a house with 401(k) funds. The Redditor is 60 years old and has $750,000 saved up in their 401(k). The Redditor is single and has $250k in life insurance for one college-aged child.

The Redditor sold their old house to move to another state and doesn’t have as much equity as anticipated. The Redditor is considering using the 401(k) to make a big down payment so mortgage payments are manageable. The Redditor plans to work part-time starting at 65. 

Is it prudent for the Redditor to use 401(k) funds to buy the new house, or does it make more sense to rent instead? I’ll share my thoughts, but it is always good to speak with a financial advisor if you can.

Understanding the Gap

The Redditor offered some additional numbers when a commenter asked for more information. The $150k down payment would go toward a home that’s valued between $350k-$380k. Furthermore, the Redditor spends above $60,000/yr in total expenses, which comes to $5,000 per month.

Social Security would come to $2,300/mo if the Redditor retires in seven years. However, waiting 10 years results in $2,900/mo from Social Security. The Redditor still makes money that they contribute to their 401(k), so it can still grow. Furthermore, the Redditor expects to work until reaching at least 67. 

The Redditor doesn’t have much debt. Just $1k-$2k in credit card debt at any given time and the car is fully covered.Ultimately, the retirement account has to provide at least $3,700/mo, assuming the Redditor retires at 67. It’s better to think of this goal so the Redditor doesn’t feel forced to work until turning 70.

Can the 401(k) Plan Cover the Gap?

If you want to take out $3,700/mo from a 401(k) plan ($44,400/yr) using the 4% withdrawal rule, the account needs to be valued at $1.11 million. That’s less than the current balance of $750k. 

The 401(k) plan is already a little short, and pulling additional funds out of the account can put the retiree further behind. Classic suggestions like picking up a side hustle and reducing expenses come to mind. That way, using the 401(k) funds to buy the house is still feasible, but the setup isn’t ideal.

However, it’s also possible that the Redditor gets laid off. While the Redditor asserts this is a highly unlikely scenario, it’s highly likely that expenses continue to rise due to inflation. What costs $60k/yr will cost more than $65k/yr after five years, assuming an annualized 2% inflation rate.

How It Could Possibly Work

While the odds don’t look good for the Redditor, I’ll share some ways it could possibly work. I don’t like these options, but some choices can be viewed as last resorts. 

First, buying the house may make sense if the monthly mortgage payment is lower than the monthly rent payment. However, there is a big caveat. This rule should hold true if the Redditor only makes a 20% down payment. That’s $50k-$76k for the Redditor’s price range. It’s easier to put that type of money into a house, but only if the mortgage payments are lower than rent payments.

Then, each of your monthly payments goes toward building equity. If necessary, you can fund the rest of your retirement with a HELOC or a reverse mortgage. Both of those options carry some risks, with the main one being outliving your equity. This strategy won’t leave much home equity for the beneficiary. 

Even if you’re considering the HELOC or reverse mortgage route, it still doesn’t make sense to take $150k out of a 401(k) plan under these conditions. Furthermore, it only makes sense to put 20% down if it results in a lower mortgage payment compared to rent. Rent payments also tend to inflate over time, while a fixed-rate mortgage has steady monthly payments. 

The Redditor can also consider more affordable homes or wait a few years until they have a $1 million 401(k) plan.