QI am a 59-year-old divorced man with only about $30,000 saved for retirement. My ex and I are preparing to sell our homestead and hope to realize about $40,000 to $50,000 each from the sale. I am handy with construction projects and own many tools. I make about $40,000 per year and have both health and life insurance benefits.

I am considering using some of the proceeds from the home sale to buy a home or condo that needs work but can be comfortably lived in while I fix it up. I hope to lower my housing costs as well as provide myself with housing and something extra for retirement. Does this scenario seem reasonable?


AThe answer to your question should be part of an overall plan for what you want during the traditional retirement years. Plenty of people your age are in a comparable financial circumstance when it comes to their retirement savings. That's why I want to emphasize that the typical solution involves working well into the traditional retirement years. This way, you don't have to tap your savings early and you can continue to add to your savings out of monthly earnings.

Even more important, working longer allows you to postpone filing for Social Security benefits, which increase by about 8 percent a year between ages 62 and 70. (There is no financial benefit for waiting to file after age 70). I would focus on what kind of work do you plan on doing in coming years (it may be your current job or something else). What kind of learning or networking do you need to do to make sure you can keep earning an income and, hopefully, doing something that gives purpose and meaning?

Now to your specific question: I admired a late, former colleague who was brilliant at overhauling homes. He made money on his home renovation side business and he loved the job. I've also dealt with a number of folks who ended up in a house they didn't really want, were unable to unload and their finances ripped apart. The questions I would ask yourself all involve risk management.

We can't predict the future, whether it's the outlook for the economy, the housing market or your side business. So for your first option, you might consider parking the money from the sale of the homestead into safe savings. You'll get a nice boost to your savings cushion and you can add to it in coming years. An alternative is to build a well-diversified portfolio. The downside? Returns could be disappointing.

I would then evaluate your renovation idea as a business. What is the cost of investing and running the business? How much debt will you carry? What about price of materials? What is your market research? What kind of return could you expect considering the state of the housing market? Most important, how serious are the consequences on your finances if it turns out you invest in renovating a home and can't sell it? 

"You should try to maximize return only if losses would not threaten your survival and if you have a compelling future need for the extra gains you might earn," the late Peter Bernstein, a leading philosopher of risk, wisely advised.

In other words, the key investment question in planning what to do with this money is, "What is the downside?"

Chris Farrell is economics editor for "Marketplace Money." His e-mail is cfarrell@mpr.org.