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mortgage in retirement
Old 01-20-2011, 09:51 PM   #1
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mortgage in retirement

Recently retired and have decided to build our dream home. New home will cost 350,000 with a 20% down payment from savings and investments. My pension income is 70,000 with an annual cola coming at 3% annually starting in 2013. I also draw 4% from my 457 account for an annual present income of 80500. When we sell our present home even with a low ball offer we should clear 100,000. All added up my taxable and tax deferred investments will be close to 400,000. By the way I do not have any other debt. Does this sound reasonable to anybody?
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Old 01-20-2011, 10:30 PM   #2
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Golly, I would hate to build my financial future based on promises of cola.

On the other hand when will you fulfill your dreams

We paid more than $350,000 for our retirement home, cash. IMHO the major issue is whether or not your ongoing cost to live in your home is affordable and whether or not your dream home value is similar to neighboring properties.
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Old 01-20-2011, 11:00 PM   #3
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Does this sound reasonable to anybody?
Depends on what your mortgage payments are. We carry a relatively large amount of mortgage debt (see my profile) and we're blissfully confident that our pension and our COLA will be paid. (Well, except for that last three years of COLA...) You'll have to persuade the mortgage lender that you have the cash flow, not the assets, to make the mortgage payments.

But I wouldn't consider the debt the issue. Building a "dream home" is frequently a nightmare and should be approached with due caution plus extensive & detailed planning. You've certainly managed to be responsible for your own entertainment and for "What will you DO all day?!?" However if this is what gives you value for your spending then have a blast.
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Old 01-21-2011, 06:22 AM   #4
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My pension income is 70,000 with an annual cola coming at 3% annually starting in 2013. I also draw 4% from my 457 account for an annual present income of 80500.
So the $80,500 is sum of pension and 4% 457 draw ? Or in addition ?

To me, the phrase "dream house" is an oxymoron....
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Old 01-21-2011, 08:30 AM   #5
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70,000 pension and 10,500 from 457 which is roughly 4% annually.
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Old 01-21-2011, 09:02 AM   #6
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I would never consider building my "dream" home near retirement. Much too risky. I don't believe debt and retirement mix very well. (notwithstanding Nord's position). Good luck.
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Old 01-21-2011, 09:11 AM   #7
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Danmar did build his dream home, but he's trying to sell the DanMar Manor now for $19 million:
Home in The Woodlands on the block for $19 million - Houston Community Newspapers: Homes
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Old 01-21-2011, 09:19 AM   #8
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Mortgage/taxes would be $20k+ which would be 25%+ of your annual income.

All depends on how much "house love" you have. I personally wouldn't want that much of my income committed, nor the risk, in retirement.

I also want my retirement to have "location independence" - either no house (preferred) or a house that I could rent and live elsewhere.

Others have a lot of "house love" and want a significant amount of their retirement time and resources committed to nurturing, developing, and enjoying a house somewhere. Nothing "wrong" with that - just not for me....
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Old 01-21-2011, 09:33 AM   #9
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Depends on what your mortgage payments are. We carry a relatively large amount of mortgage debt (see my profile) and we're blissfully confident that our pension and our COLA will be paid. (Well, except for that last three years of COLA...) You'll have to persuade the mortgage lender that you have the cash flow, not the assets, to make the mortgage payments.

But I wouldn't consider the debt the issue. Building a "dream home" is frequently a nightmare and should be approached with due caution plus extensive & detailed planning. You've certainly managed to be responsible for your own entertainment and for "What will you DO all day?!?" However if this is what gives you value for your spending then have a blast.
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I would never consider building my "dream" home near retirement. Much too risky. I don't believe debt and retirement mix very well. (notwithstanding Nord's position). Good luck.
I agree with Danmar completely, at least for me. A paid off home gives me immeasurable peace of mind (YMMV). I love the fact that I have zero debt. This may not be a great inflation-fighting strategy, but for me it is worth it ten times over and adds to my carefree enjoyment of retirement these days.

Also, I agree with Nords about not wanting to build a house in retirement. Sure sounds like w*rk to me and I don't want to do it. When attending open houses I have been amazed to find that (despite a very active imagination) for me there are a number of iterations of "the perfect house" that I never imagined.
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Old 01-21-2011, 09:52 AM   #10
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Danmar did build his dream home, but he's trying to sell the DanMar Manor now for $19 million:
Home in The Woodlands on the block for $19 million - Houston Community Newspapers: Homes
Ya but I paid cash
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Old 01-21-2011, 09:56 AM   #11
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Just checked the link. Pure coincidence on the name.
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Old 01-21-2011, 10:00 AM   #12
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An inexpensive mortgage is a different proposition from a big one. Everyone has to live somewhere, and unless you are going to be homeless or live in your car, I fail to see why a $1000 monthly house mortgage is very different from the same or similar amount in rent. Each of these has its own set of protections and its own set of vulnerabilities.

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Old 01-21-2011, 10:14 AM   #13
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I will never tie up all my money in a house again. I made the mistake of paying off my previous in 10 years and ended up taking a HELOC to pay for college tuition. I believe my retirement income and investments to be secure and more than enough to handle this mortgage. I would rather put down 20% and invest the rest. With the mortgage interest deduction the real cost of the money is 4%. I believe I can do better than that and have the liquidity available for any future expense. I am also only 55 so I will probably go back to work in some capacity to stay busy perhaps. My wife and I have always lived under our means and sacrificed for the kids. This is just our time and we are going for it.
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Old 01-21-2011, 10:26 AM   #14
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We built our 'dream home' a year before retiring. After construction cost, we ended up with a $100,000 mortgage, which we can pay with no problem. We did not encounter any problems with the house. I guess it depends on your personality and your builder. I and DW are glad we did it, and really enjoy the margaritas on the deck. We have the money to pay off the mortgage and may do it. Maybe I could start a thread and see if this is a good idea!

As to weather you can make it on $80,000, without more information of your other living expenses and desires in retirement, i.e. travel, I am not sure anyone can really give you a good answer as to whether it is enough.
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Old 01-21-2011, 10:29 AM   #15
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We have the money to pay off the mortgage and may do it. Maybe I could start a thread and see if this is a good idea!
Don't be silly. Buy an equity indexed annuity - and use the guaranteed 8% annuity income to make the mortgage payments!
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Old 01-21-2011, 10:48 AM   #16
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Well, that's the thing, Rustic, I could liquidate most of my investments to pay off the mortgage and live off my pension. But why would I do that. This business about being debt free is overblown. A lot of people think that this current financial mess we are in is going to last forever. I guess I am going to be a contrarian and not follow the herd.
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Old 01-21-2011, 12:15 PM   #17
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I would not want a mortgage. Reduces your flexibility. Of course being debt free is better. It's how you get there that is important. If you LBYM'd and paid your mortgage off before retirement why would you want another? Now if you didn't LBYM and don't want fo liquidate part of the portfolio to pay off the mortgage, I guess you don't have a choice.
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Old 01-21-2011, 12:54 PM   #18
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Please explain 'Reduces your flexibility' I don't understand.
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Old 01-21-2011, 12:56 PM   #19
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For the last few years I have been in the pay off mortgage camp. But when rates got so low this last house I bought I put a small mortgage on it and will carry it into retirement. I did not leverage to the hilt with it.

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Old 01-21-2011, 02:16 PM   #20
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Even if you pay off your mortgage you still have upkeep, utilities, and taxes. Depending where you live that could be pretty costly. So that never goes away.
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