Budgeting for Retirement- Home Repairs

[nico08]

I am reading The Boglehead's Guide to Retirement Investing. In the book, they discuss budgeting for retirement and what they consider a good rule of thumb for repairs. They suggest budgeting 1 percent annually of the value of a new home or 2 to 3 percent annually of the value of an older home.

If I am considering a home built in the 1950s and valued at approximately $300,000, does this mean I need to budget $9,000 a year for repairs? I know home repair and maintenance can be expensive, but this seems like a lot of money to me.

Can anyone comment on the amount they plan to budget for this expense in retirement or, if in retirement, the amount, on average, that you actually spend?

Thank you for your comments.

 

[LARS]

Some years (most I would think) 2 to 3% will be too much, but a few big items can swing you into real money. The question is what shape is the house you are living in in? Are the mechanicals (furnace, a/c) relatively new... is the roof three years old or 20... does the driveway need repaving... does the house need painting?

That having been, to me it is hard to imagine spending $9,000 a year on average if the house has been well maintained.

 

[Nords]

If I am considering a home built in the 1950s and valued at approximately $300,000, does this mean I need to budget $9,000 a year for repairs? I know home repair and maintenance can be expensive, but this seems like a lot of money to me.
Can anyone comment on the amount they plan to budget for this expense in retirement or, if in retirement, the amount, on average, that you actually spend?

There's a difference between redecorating a room and having to replace the roof. The former can be cheap & discretionary while the latter is generally expensive and essential.

You might be able to come up with a budget projection for the new roof, septic-tank cleaning, major appliances, and anything else that needs an overhaul (like a 1950s bathroom or kitchen?). It could be "spend $12,315 to replace the roof in October 2014" or "have a $15K roof fund in CDs and ready to use before 2015".

If you don't see any major surprises on the horizon then you could budget 1% for the first year. Whatever you don't spend gets rolled over to the second year's 1% fund. After 3-4 years of this you could continue to budget 1% while knowing that you've built up a reserve to handle a major flail like a broken sewer pipe.

If you have the time, the best way to save money on maintaining a 1950s house is to educate yourself (to avoid getting ripped off by contractors) and learn the skills (to avoid having to use contractors at all). The only remaining paid magazine subscription we have is Family Handyman, and that's mainly for the tool porn. You can solve a lot of problems on their website for free.

 

[samclem]

Any rule of thumb based on the price of the house will be very rough. There are some ornate 4,000 sf mansions in downtown areas near me that you could buy for $75K, but their slate roofs are caving in and have been for years. You could spend 100% of the purchase price in maintenance/rehab every year and they wouldn't be liveable for a decade. OTOH, a simple, modest older 1500 sf house in good repair in some parts of the country where land is expensive could sell for $500K, and it might not need more than $5K in upkeep annually.

With an older home, everything depends on the condition it is in now, the type of construction (wood clapboards with small eaves=frequent repainting. Brick veneer=very little maintenance, occasional tuck pointing), any hidden problems (foundation work, radon, buried utility issues, termites, etc), how much you can/will do yourself, and labor costs in your area.

My house was built in the late 1950s, it is 2200sf, and the actual maintenance (as opposed to upgrades) has not been very much--maybe $3K per year (I needed a roof). But a house this old does need upgrades if they haven't been done. You can't get home insurance if you've still got screw-in fuses in your electrical panel. You really don't want to go through another winter with those drafty aluminum-framed single pane windows. So, before you buy, figure out a realistic cost for those things.

 

[nico08]

There's a difference between redecorating a room and having to replace the roof. The former can be cheap & discretionary while the latter is generally expensive and essential.

You might be able to come up with a budget projection for the new roof, septic-tank cleaning, major appliances, and anything else that needs an overhaul (like a 1950s bathroom or kitchen?). It could be "spend $12,315 to replace the roof in October 2014" or "have a $15K roof fund in CDs and ready to use before 2015".

If you don't see any major surprises on the horizon then you could budget 1% for the first year. Whatever you don't spend gets rolled over to the second year's 1% fund. After 3-4 years of this you could continue to budget 1% while knowing that you've built up a reserve to handle a major flail like a broken sewer pipe.

If you have the time, the best way to save money on maintaining a 1950s house is to educate yourself (to avoid getting ripped off by contractors) and learn the skills (to avoid having to use contractors at all). The only remaining paid magazine subscription we have is Family Handyman, and that's mainly for the tool porn. You can solve a lot of problems on their website for free.

Thank you for your advice Mr. Nords. I am trying to develop my "handyman" skills- I took a home repair/maintenance course this past winter at a local community college and I volunteer to help my brother-in-law with home repair projects because he is a little more adept in that department, I learn along the way while he works through unforeseen problems. The people at Home Depot/Lowes are, on average, pretty helpful too. And you are right, knowledge is power (and cost savings)!

 

[arebelspy]

I am reading The Boglehead's Guide to Retirement Investing. In the book, they discuss budgeting for retirement and what they consider a good rule of thumb for repairs. They suggest budgeting 1 percent annually of the value of a new home or 2 to 3 percent annually of the value of an older home.

If I am considering a home built in the 1950s and valued at approximately $300,000, does this mean I need to budget $9,000 a year for repairs? I know home repair and maintenance can be expensive, but this seems like a lot of money to me.

Can anyone comment on the amount they plan to budget for this expense in retirement or, if in retirement, the amount, on average, that you actually spend?

Thank you for your comments.

I've been reading a lot of land lording books recently and they also estimate (what seems like to me) huge costs for maintenance. Now obviously renters will be harder on a house than an owner, but I still can't imagine spending thousands per year on maintenance. Though it will vary based on the age of the home, it still sounds crazy to me. I'd imagine they know what they're talking about though, so though rules of thumb are overly broad, probably better to plan for a worse case scenario and be prepared in case, and then if it doesn't happen.. great!

 

[FreeAtLast]

I see that there is some logic. Perhaps a better measure might be square footage of the property. A larger home will no doubt have a higher upkeep cost.

There are going to be years that you only need a few drops of oil and other years you will be replacing the roof or the kitchen.

 

[W2R]

I am reading The Boglehead's Guide to Retirement Investing. In the book, they discuss budgeting for retirement and what they consider a good rule of thumb for repairs. They suggest budgeting 1 percent annually of the value of a new home or 2 to 3 percent annually of the value of an older home.

If I am considering a home built in the 1950s and valued at approximately $300,000, does this mean I need to budget $9,000 a year for repairs? I know home repair and maintenance can be expensive, but this seems like a lot of money to me.

Can anyone comment on the amount they plan to budget for this expense in retirement or, if in retirement, the amount, on average, that you actually spend?

Thank you for your comments.

That seems awfully high. I'd budget about 1/3 to 2/3rds of that on average. Of course, if the roof needs replacing that would cause a blip, but then there are other years when almost nothing is necessary.

For me, the average for my 1970's house has been about 1% for maintenance and about 1% for improvements. It is in better shape now than it was when I bought it. I haven't needed a roof, but did need to completely replace most/all parts of the HVAC system, which wasn't cheap.

 

[GregLee]

If I am considering a home built in the 1950s and valued at approximately $300,000, does this mean I need to budget $9,000 a year for repairs?

My home was built in the early 40s, is valued now at 600k, and I've had it for 17 years. I've never spent anywhere close to the Boglehead estimate for repairs. It's been more like $500 a year (including $100/year to trim my palm trees). But I may be living at a lower level than you would -- I have no air conditioning or heating systems, no dishwasher, and when my roof starts leaking, I hire local people to patch it up real cheaply. My driveway needs resurfacing, I guess, but I don't care.

 

[flyfishnevada]

If I was spending $9,000 a year in repairs, I'd consider a new home. I'm might consider a fund that has that much in it for unforeseen repairs, but not that much every year. You could make payments on a new house with that much money every year in some markets.

 

[donheff]

Any rule of thumb based on the price of the house will be very rough. There are some ornate 4,000 sf mansions in downtown areas near me that you could buy for $75K, but their slate roofs are caving in and have been for years. You could spend 100% of the purchase price in maintenance/rehab every year and they wouldn't be liveable for a decade. OTOH, a simple, modest older 1500 sf house in good repair in some parts of the country where land is expensive could sell for $500K, and it might not need more than $5K in upkeep annually.

+1 I live in a modest row house in an expensive core city area. If I had to pay 2-3% maintenance a year I would be moving into a rental today. For me it is more like 5% a decade.

A better guide is to evaluate your actual expenses over time along with a good review of the condition of your house. I got a home inspection (good deal through a local aging in place organization) since I am notoriously inept at repairs and recognizing developing problems.

 

[martyp]

Six months into my ER we decided to paint the house, replace the roof and skylight, and a few other minor repairs. This gets a few of the big things out of the way for 10+ years.

There are two types of expenses. Routine monthly/annual expenses and the occasional, often expensive, things that come up. You should be able to make a list of these with reasonable estimates of what you will need. Gardening is a routine expense but could be seasonal. Replacing the water heater is an occasional expense. Some things, like a foundation repair/replacement, can be very expensive. The routine stuff is part of your monthly budget. The big stuff needs to be saved for like saving for a new car. I would want about $10k set aside immediately for emergencies.

 

[unclemick]

Hmmm - 85k house built 1970. Repairs and remodeling(semi necessary floors and repainting etc) - 6k/yr when smeared over the 5 yrs I have owned this one.

Did I budget in retirement? - No not specifically. Just took it out of my one year MM reserve and portfolio as required.

heh heh heh - I try to mentally project my rough budget 50/50 - 50% for known/expected expenses and 50% for fun/travel/ and er ah surprises. .

 

[PR101]

My budget for home repairs is $0. I rent. ER would be much riskier for me if I still owned a home and had to worry about the costs of house maintainence and large expenses like replacing the roof, HVAC, etc.

 

[SteveL]

We have been in this house since 1980 when it was new. Last year the double oven stove finally bit the dust. Tried to buy another, but it isn't made anymore. Had to buy two items to replace it. The lower unit stove, and a range hood microwave. Had to have an electrician run an new 110 line for the upper unit. All the appliance stores said that new appliances won't last more than 7 years because the quality has declined so much.

My oldest son lives in the midwest and has recently bought a house built in the 50's. It is a nice house. It has Pella windows; old Pella windows. Even with storm windows, they freeze up on the inside in the winter. There is a built-in oven in the kitchen. It is the original oven. When it goes, he will need new cabinets as this size oven is no longer mfg.

I could give other examples such as EQ retro-fitting in California, lead paint, asbestos, mold, Chinese drywall, Cemwood siding, pbu water piping, aluminum wiring, are all on the endless list of the things one could have to deal with in an old house. Home inspectors look for these kinds of things, but often they aren't discovered until after you have moved in and have to fix them.

There is a reason newer homes are attractive. They will cost less to maintain, at least for the first five years, than older homes.

 

[arebelspy]

My budget for home repairs is $0. I rent. ER would be much riskier for me if I still owned a home and had to worry about the costs of house maintainence and large expenses like replacing the roof, HVAC, etc.

Unless you owned a home outright.. then that money going towards rent right now could go towards a maintenance fund and leave you some left over.

It's a difference of opinion, or a different way to look at things.

 

[Trawler]

Our expense tracking shows over a six year period routine maintence and repairs about 1/2% on our 1987 home in Ohio 2150 SF and approx $240K in value. When I add updating kitchen with granite new cook top and double convection oven and dishwasher, 2.5 bathrooms updated , new roof interior and exterior paint some new hardwood flooring. new landscaping including brick patio over the 15 year period it is about $40K so about 1.5% annually so a total of 2.0% per for us is about right. Did most of the work myself except the roof. As you can see much of this was really discretionary and did much of it after we paid of the mortgage (over past 4 years).
I have budgeted for the retirement plan a total of approx 1% per year as or $2400 per year. Some years will be more some years less depending on what breaks and what DW would like change.

 

[martyp]

I saw this link on another thread:

Is It Better to Buy or Rent? - Interactive Graphic - NYTimes.com

It compares renting with buying and has a home repair component to it.