House conundrum Solved

[Katsmeow]

I previously posted about our house conundrum:

http://www.early-retirement.org/forums/f28/house-conundrum-48007.html

I always hate it when someone posts a question and gets all sorts of responses and never comes back and tells what decision was made.

For those who didn't read thread:

We will retire soon, own house with mortgage that we want to sell, were considering buying a downsized retirement house and uncertain whether to take out a mortgage before retiring or to withdraw money to pay for it out of retirement funds which would cause a huge hit on taxes (marginal tax rate would be 33 to 35%).

...Sigh. Subject should be House Conundrum Solved. Hit submit too quickly.

I did consider what everyone said, discussed with DH. Solution:

We found a house in a great location. We were able to get it below our initial price range. In fact, for about $100k less than we were prepared to spend. So that gave us more flexibility.

The location is really great and houses sell very quickly in the area. If for some reason we changed our mind I have no doubt we could sell it quickly.

Given the low price of the house, we realized that between some non-retirement money we have now, a bonus DH is getting in a couple of months, and a 401(k) loan (which will not have to be repaid immediately on retirement. That is the loan remains in effect) that only about 1/3 of the purchase price would need to be paid from retirement funds so the tax hit to us wasn't that great.

We were able to contract for a closing 2 months from now. I've decided to likely extend my own retirement until the end of April, maybe some time in May. DH is adding a couple of extra weeks to his plans so that gives us a little more funds.

We are still going to retire even if this house hasn't sold but I've run the numbers very pessimistically and it still works.

 

[W2R]

(fixed the title)

Glad you found a solution to your house conundrum that works for you!

 

[lhamo]

Congratulations! Wonderful that you were able to find such a great fit for your housing needs at a good price. best of luck selling the other place. Re that -- have you thought about renting the guest house on a month-to-month basis? That way you could have someone to keep an eye on the property if it doesn't sell immediately. Just a thought I had when you posted originally that I didn't get around to posting.

lhamo

 

[smjsl]

marginal tax rate would be 33 to 35%

Quick note: you have probably done this, but I find that when people try to estimate marginal tax rate too quickly, they sometimes forget:
(a) state/local taxes (if applicable)
(b) AMT, if they fall under it given the circumstances they consider

 

[walkinwood]

Congratulations on making the decision and acting on it. All the best.

 

[Katsmeow]

smjsl - Yes I have considered those factors (we have no state/local income tax however)

Another data point. It has been suggested to me that when I retire that I actually keep working 1 day a week. Haven't decided whether to do that but if our current house hasn't sold by then, it would be nice to have that option.