Retire at 52, Max House$ to Purchase

[Sinz]

Hi to all , new to this forum -

I really appreciate all of the insight that I've been provided already by reading threads on all topics. While I don't have anywhere close to the lingo and acronyms down, I did want to solicit general and specific advice regarding retirement and the max you would recommend spending on a new house that I'd like to have custom designed, employing an architect, and buying land to place it on.

First, a background: I'm planning to retire 7/1/2020, and I'll be 52, my wife will be 57. I am self-employed and own a percentage of a company with a few other people. My company is nearly 20 years old. My income is highly irregular, but for the next 3 years should average conservatively at $500K. My wife works and makes about $50K per year. We have 3 daughters that are 16-25. College is paid for entirely via 529s.

We both are remarried, and no expenses are owed to exes, except -$80K over the next 3 years. Cash on hand is $115K. We have no debt, except our house. We have $110K equity. House is valued at $510K.

We have $1.4M in accessible savings, and $1.8M in retirement, heavily weighted to profit sharing plan funds by 80/20. The PSP will be funded at another $200K for next 3 years. 401k will increase by $50K. Confident in that. Additional savings for those 3 years will be $300K.

After I retire at 52, I have a 15-year buyout of of ownership interest in my company. While not guaranteed anything, the structure is to be paid at a % of income of the company based on ownership. Conservatively, at 50% of expectation, I will NET $100K on average, for those years. Nothing's guaranteed, again.

Monthly expenses have been very high over the last several years due to paying off exes. Average net/month expenses have been $15K. Upon retirement, would average expenses of $10K/month, but need to add in healthcare for 2, at per month of $3K.

My question overall is - given the defined costs, income, etc., what could be recommended as the MAX to custom design a final new home ($125K for land, $50K for architect), to be safe?

Thank you in advance for your thoughts and comments!

 

[exnavynuke]

Assuming your numbers for adding to your investments are total and not annual (i.e. PSP will be funded at another $200K for next 3 years" means funding $200k over 3 years and not $200k added per year for a total of $600k), that would put $550,000 more into the portfolio over the next three years.

Your retirement spending is estimated at ~$156k/year ($13k/month). $100k/year of that is taken care of with the ownership interest for the first 15 years, leaving $56k/year spending for 15 years and then $156k/year after that.

So, in FIRECalc I entered your current portfolio ($3.2M), 40 year retirement, spending of $156k/year, off-chart spending of $-100k starting in 2020 then offset that by $100k off-chart spending in 2035 (to show a $100k "income" for each of those 15 years), and a retirement date of 2020 with 1/3rd of the $550k being added to the portfolio per year.

With those inputs, I did an "investigate" for starting portfolio balance needed for a 95% success rate. The results were a starting portfolio balance of $2,842,373. That leaves ~$375k + your current equity (that I didn't account for, assuming you sell the current house) available to purchase/build a home and maintain a 95% chance of being financially successful for FIRE in 2020. I'm guessing that your current projected budget could probably be dropped by some margin by reducing discretionary spending in any tough years to bump that chance up to effectively 100%.

 

[Live And Learn]

I plugged the follwoing into Firecalc:

156k spending for 40 year retirement.
100k / year from 2020 to 2035, inflation adjusted
60 / 40 Asset Allocation, .35% expense ratio
95% success rate

Minimum portfolio needed is $2.8mm. So you need to figure out how much you can spend and still have a portfolio value (excluding home equity) of $2.8mm

 

[Live And Learn]

ExNavyNuke and I came up with the same portfolio requirement despite us approaching the input from different perspectives. Gotta love it.

 

[pb4uski]

I suggest that you flip the question around.... how much would a house that meets your needs and lifestyle cost to build and then... can you afford to spend that much on a house?

We have lived in a nice house but much less of a house than we could afford given our income for our entire adult life and that is part of the reason that we were able to retire early with the degree of financial security that we have. In fact, we probably continue to live in less house than we could afford.

I have a friend who built a beautiful retirement lakehouse about 5 years ago... fast forward 5 years and they are now Florida residents and have a beautiful condo down there and much more house than they need. He has said numerous times that if he knew the position that they would be in today that he would have built a more modest house.

 

[OldShooter]

I suggest that you flip the question around.... how much would a house that meets your needs and lifestyle cost to build and then... can you afford to spend that much on a house?

We have lived in a nice house but much less of a house than we could afford given our income for our entire adult life and that is part of the reason that we were able to retire early with the degree of financial security that we have. In fact, we probably continue to live in less house than we could afford.

I have a friend who built a beautiful retirement lakehouse about 5 years ago... fast forward 5 years and they are now Florida residents and have a beautiful condo down there and much more house than they need. He has said numerous times that if he knew the position that they would be in today that he would have built a more modest house.

This.

 

[slv1]

I plugged the follwoing into Firecalc:

156k spending for 40 year retirement.
100k / year from 2020 to 2035, inflation adjusted
60 / 40 Asset Allocation, .35% expense ratio
95% success rate

Minimum portfolio needed is $2.8mm. So you need to figure out how much you can spend and still have a portfolio value (excluding home equity) of $2.8mm

Quick question and a little off topic.

Where in firecalc do you place the earned income from part time work?

 

[Live And Learn]

Quick question and a little off topic.

Where in firecalc do you place the earned income from part time work?

Other income / spending tab; on the bottom. You can do it as pension income in the year you start working and then off chart spending starting in the year you stop working. Use net income (after tax).

 

[Live And Learn]

I suggest that you flip the question around.... how much would a house that meets your needs and lifestyle cost to build and then... can you afford to spend that much on a house?.

Excellent point ! I used to live in 1/2 the house I could afford and it was way too big with way too much empty space. Now I live in 1/4 the house I can afford and it "fits" much nicer. No empty space. So much easier to clean. And much less expensive to maintain. Outdoor space is important to me so I did make sure that I have a nice view and greenspace behind me. I love my house. Bigger would not make my life any better.

 

[euro]

This.

+1 For us, housing has never been that important (we do live in a nice place, but could have always afforded much more - never had the desire to spend on it though). That said, SOME people derive a great deal of joy and satisfaction from their "dream home", so while I may not be able to fully understand that, I can see that it might be worthwhile to them. Same goes for cars - I couldn't care less what car I drive (within reason of practicality for what I want to do). Others do love their Mercedes, Lexus, BMW, whatever. Fair enough!

 

[Sinz]

So, if I spend $800K on the home, what would be the necessary investment situation July, 2020?

 

[pb4uski]

You can use Quicken Lifetime Planner, included in Quicken Deluxe and higher versions to show your plan with an $800k house.

But if you spend $800k on a new house and have $115k in equity, then you'll have $685k less than your plan has today all else being equal.... right? If so, then $685k less than you expect to have if you stay in your current house... but you should probably also adjust your expenses for the cost of a $800k house vs a $500k house (higher property taxes, insurance, maintenance, etc).