How much should I spend on retirement house

[COcheesehead]

We built a $770,000 house the year after we retired in a town we enjoyed with a view that we loved. We got a low interest rate loan and never looked back. The house has appreciated and now represents only 12% of our net worth. I have zero motivation to pay off the mortgage - we’re making almost 2.5X the mortgage interest rate in our bond ladder.

As to the OP, all that worked for us has changed today. I would not build a house in today’s environment. I certainly would not devote more than 15%-20% MAX of our net worth to a house.

 

[jgman]

Lots of great info. Looking at the current properties on the market, I will most likely have to pay in the 500s. Should be able to pay cash from after-tax savings and cover most of the cost. I should be able to live off my 5k/month pension and not have to tap to much into my retirement. Buying a little nicer property now will hopefully payoff when I ultimately sell.

 

[Alex The Great]

For me, condo would be a tough choice especially at retirement age. Because I lived in SFH for a while and got used to nice feeling that I do not have neighbors above, below and on sides. In a condo, you pretty much depend on your neighbors, their character and life style.
Would I buy a house at retirement age? May be if I decide to move to less expensive area.

 

[cyber888]

Retired last year and just sold my single family house and am looking to downsize into my retirement house. My question is how much is too much for my retirement house. I am 58, divorced, no kids and no debt. I have about $1.6 million in savings and retirement accounts. I also receive a 5k per month Federal government pension. Ideally I would like to pay all cash for the house but wonder if its wise to sink 700k in a house. Any thoughts or advice?

Thanks

Should be fine - I would try to find something worth $600k, then u still have $1 million left + your pension

 

[Midpack]

Our retirement home was 5% of our NW, I wouldn’t be comfortable with much more. But our retirement spending is entirely self funded, other than a small amount from SSA when we turn 70. There is no right amount, depends on how SI you are, your risk tolerance, etc.

 

[TripleLindy]

If you have 55+ communities in the area, look into those. Most have 2 bedroom homes with small yards and many include lawn maintenance in the HOA fees. The best thing about these communities is access to all kinds of activities and amenities. Prices are often less than communities where things like schools are important.

 

[ncbill]

Just make sure you can modify it to live on one level.

Here our two-story townhouses have the laundry room downstairs in the finished basement.

Several older neighbors have remodeled the large master bath to remove the oversized "garden tub" replacing it with a walk-in, curb-less shower.

And replaced the freestanding corner shower with washer & dryer so they no longer need to go downstairs to do laundry.

 

[cyber888]

Thanks for your perspective. I am definitely a homebody and just enjoy working out and going on long bike rides. That's why I am looking to stay near the nice bike trail here in Northern Virginia.

We're all different and, for a home body, a home is not just money. If you consider your home to be critical to your well being and happiness, then spend spend more on it. It seems that the $5000/month can meet your expenses. So, I don't see it a problem if you spend more.

 

[meleana]

Retired last year and just sold my single family house and am looking to downsize into my retirement house. My question is how much is too much for my retirement house. I am 58, divorced, no kids and no debt. I have about $1.6 million in savings and retirement accounts. I also receive a 5k per month Federal government pension. Ideally I would like to pay all cash for the house but wonder if its wise to sink 700k in a house. Any thoughts or advice?
Thanks

When we did this almost 3 years ago, I was adamant that all the proceeds we received from the sale of our paid off home would have to cover not only our downsized house but all the expenses involved in the move itself plus anything extra we had to do in the house.


I'm talking not just the new home purchase, but moving twice (moving company bills), 5 month home rental cost until the new home was completed and my husband retired, all the atty and real estate fees and closing costs for both homes, things needed in the new home like a radon mitigation system, a whole house generator, medicine cabinets, etc etc.(that alone totaled $25, 000) I could go on and on. But I refused to spend one more dime over what we received for our former home.



This was no small feet, especially since we were moving to New England from Hudson Valley, NY. But we pulled it off!


Sale price of first home was $317,000. Purchase price of brand new tiny cottage $274,400. Money put into new home ($25,000) All other expenses related to the move $17,600.00.


(We are in a small HOA community in a vacation area.)

 

[roh3]

I look at the house itself as more of an investment. You’re not spending the money away, you’re just investing it elsewhere. The big question for me would be how much the tax bill would increase. That is spent money.
700k in my area would have a significant tax burden.

 

[Librarian]

Our experience (YMMV)

We downsized 4 yrs ago.
Sold 5 BR home 4 $300K.
Bought 1800 sq ft 3 BR townhome 4 $225K (selling for $300K now…our home would sell for $425K+ now)
It’s just right for us—no lawn work, rooms for DD when in town, space for ourselves, not much to maintain
Have looked at pricier options but don’t want to lock up so much in a house.

 

[Bamaman]

If I was a single gentleman, I would certainly think twice about spending $700K on any residence. The only reason to spend that much is if the price was substantially lower than market value and if I could quickly double my money on a resale.

But what scares me is the fast appreciation of houses. With increasing interest rates, inflation on building supplies and expensive labor costs, many commentators on business television are looking for a really big downturn in home demand and prices. And rents are simply out of sight for renters with normal incomes.

My primary goal in 1992 was downsizing to a home we could quickly payoff and be mortgage free. And that plan was executed. I honestly don't know how I could afford the quality of life we have with a mortgage payment. And for that position we are very thankful. And with the current economic climate, we remain very, very conservative in our financial matters.

 

[smickey]

When I retired we downsized from a SFH to a condo. We pocketed 500K and also pay 5K less in annual property taxes. The condo meets our needs and gives us the flexibility to lock and leave for extended trips. Communal living (condos and townhomes) has some downsides, with noise being an irritant for us, but the downsides are more of an annoyance (versus disruptive) and have no significant impact on our quality of living. The money we pocketed generates 25K in annual investment income (plus the additional savings in annual property tax). Even though our SFH was mortgage free, the ‘cost’ of staying in the home was significant compared to buying the condo and investing the difference. Of course money is only one of many considerations when it comes to choosing a place to live. We each have our own priorities, needs and wants. Good luck with your decision!

 

[Tuirc]

Retired last year and just sold my single family house and am looking to downsize into my retirement house. My question is how much is too much for my retirement house. I am 58, divorced, no kids and no debt. I have about $1.6 million in savings and retirement accounts. I also receive a 5k per month Federal government pension. Ideally I would like to pay all cash for the house but wonder if its wise to sink 700k in a house. Any thoughts or advice?
Thanks

I am in a somewhat similar circumstance. I just sold my house in NOVA last year. Still have not bought a place yet. After 30 years in the DC area, we’ve had it. It’s not just the high price of housing (with Amazon HQ2, and AWS HQ and Facebook, Google, VA Tech campus going in and Capital One all making huge personnel investments) I wouldn’t depend on prices dropping in NOVA. Aside from that gas and food prices are at a premium in NoVA and always will be. Traffic will never get better. Taxes are higher and the list goes on. Bottom line, it’s a place that you’ll get the least for your money.

I don’t know if this will provide any insight, but since selling my house I’ve been renting a house in Richmond, VA. In town, my wife and I can walk everywhere. Lots of bike-able areas and trails and more on the way. Prices are a bit more moderate compared to NOVA. Prices for food, gas etc. are comparable with outlying counties in NOVA. It’s no more expensive to live in town than in the suburbs around here, except city taxes and meal taxes are considerable and property taxes in the city have been moving up considerably in the last couple years. That said, you are a 2 hour drive from NOVA if you want to go or a similar time for train ride. I haven’t retired yet, my company has a large office complex going in here and I can just hang around until the economy figures itself out (don’t have a bad boss). I was scheduled to retire in the spring but pushed it a year. Good luck!

 

[jgman]

I look at the house itself as more of an investment. You’re not spending the money away, you’re just investing it elsewhere. The big question for me would be how much the tax bill would increase. That is spent money.
700k in my area would have a significant tax burden.

If this were the case, wouldn't spending more on a retirement house be prudent if you look at it as an investment and based on the premise that a more expensive modern property will appreciate more?

 

[COcheesehead]

If this were the case, wouldn't spending more on a retirement house be prudent if you look at it as an investment and based on the premise that a more expensive modern property will appreciate more?

To earn more on a house - if you think it will continue to appreciate - is to have more leverage, i.e. a bigger loan vs the down payment. The house will appreciate on its market value while the investment return is vs your equity.

 

[Looking4Ward]

I am also one who is having to make the same decision over the next 4-5 months.

My thoughts:

• Paying cash for a home doesn't mean the money is "spent" - it's simply less liquid. If I spend 30% of my portfolio on a home and can live comfortably on the remaining 70% then I'm okay knowing I could always sell and rent or downsize later if I needed to.
  
• Having a mortgage requires insurance and property taxes being paid. I tend to self-insure (have never made a homeowner's claim in 35 years of home ownership) and in Texas one can "defer" property taxes when turning 65. They don't have to be paid each year but will accrue at 5% interest. The balance becomes due if I sell the property (a spouse can continue the deferral in the event I pass away). My portfolio has a better performance history and the home itself should never be underwater in terms of outstanding property taxes.
  
• My goal is $0 housing costs outside of utilities and maintenance

When I run the numbers, my "cost" of paying cash for a house is the lost investment returns of those funds being removed from my portfolio. But then, my thinking is those gains would be consumed by an amortized mortgage where much of the initial years of payments are towards interest.

 

[Sunset]

The larger the house, the larger the costs of the house:
Taxes
Heat
A/C
Electricity
Maintenance
Repairs - some big houses require 2 furnaces and 2 or more A/C units

We have a friend that complains about the costs of her big house a lot.
We are glad to have a 1,000 sq foot home.

 

[ncbill]

I am also one who is having to make the same decision over the next 4-5 months.

My thoughts:

• Paying cash for a home doesn't mean the money is "spent" - it's simply less liquid. If I spend 30% of my portfolio on a home and can live comfortably on the remaining 70% then I'm okay knowing I could always sell and rent or downsize later if I needed to.
  
• Having a mortgage requires insurance and property taxes being paid. I tend to self-insure (have never made a homeowner's claim in 35 years of home ownership) and in Texas one can "defer" property taxes when turning 65. They don't have to be paid each year but will accrue at 5% interest. The balance becomes due if I sell the property (a spouse can continue the deferral in the event I pass away). My portfolio has a better performance history and the home itself should never be underwater in terms of outstanding property taxes.
  
• My goal is $0 housing costs outside of utilities and maintenance

When I run the numbers, my "cost" of paying cash for a house is the lost investment returns of those funds being removed from my portfolio. But then, my thinking is those gains would be consumed by an amortized mortgage where much of the initial years of payments are towards interest.

It's changing your asset allocation...drastically if the OP spends neatly half of their retirement savings on a single family residence (SFR)...a highly illiquid asset with a high expense ratio.

As i've said before I cringe when I see posts (usually over on bogleheads) such as "I'm worth $4 million, a $3 million house and $1 million in liquid assets" given the expense of maintaining the real estate 'asset'...homes are both an asset and significant ongoing expense.

 

[Looking4Ward]

It's changing your asset allocation...drastically if the OP spends neatly half of their retirement savings on a single family residence (SFR)...a highly illiquid asset with a high expense ratio.

As i've said before I cringe when I see posts (usually over on bogleheads) such as "I'm worth $4 million, a $3 million house and $1 million in liquid assets" given the expense of maintaining the real estate 'asset'...homes are both an asset and significant ongoing expense.

I see your point. Being house poor is not a smart decision at all. But at least in my case, what I'm willing to pay in cash for a home is determined by how much more my portfolio is in excess of what my ER needs are.

In other words, if I have $2M in stocks/bonds but my retirement "number" is $1.5M for a 30 year 100% success rate, then I'm okay with paying $500k cash on a home.

 

[jgman]

It's changing your asset allocation...drastically if the OP spends neatly half of their retirement savings on a single family residence (SFR)...a highly illiquid asset with a high expense ratio.

As i've said before I cringe when I see posts (usually over on bogleheads) such as "I'm worth $4 million, a $3 million house and $1 million in liquid assets" given the expense of maintaining the real estate 'asset'...homes are both an asset and significant ongoing expense.

In my situation, real estate can also generate passive income.

 

[ncbill]

In my situation, real estate can also generate passive income.

Sure, but not off a SFR while you're living there.

 

[Surewhitey]

I'm in the move south camp. Pay half for the house and budget visits back home and give them a place to visit too. Maybe look at cheap flights to & from locations... Tons of places out there for $300k...just not city centers.

 

[jgman]

Sure, but not off a SFR while you're living there.

I had a roomie in my last SFR as I didn't use the upstairs. Having said that, I wouldn't want to rely on rental income.

 

[jgman]

I'm in the move south camp. Pay half for the house and budget visits back home and give them a place to visit too. Maybe look at cheap flights to & from locations... Tons of places out there for $300k...just not city centers.

I'm actually going to look a little further west from DC, but still close enough to family and friends. Should be able to find something in the 500k area instead of the 600k plus area.