more expensive house at retirement ... bad idea???

[Ronstar]

I'm running into a similar problem. We're selling a condo and a house and buying a new house. I'd like to buy a house equal to the combined proceeds from the sale of the house and condo. But if we go berserk, we could buy a new house that will cost $200k more than the combined proceeds.

I'd say run the numbers and see what you can cut to get to where you need to be. Can you start taking SS to put toward the house?
And it may make sense to take out a mortgage rather than taking $ from an IRA that could push you into a higher tax bracket.

 

[Dtail]

We just recently bought a 2,866 sq ft house for 4 people. However we paid cash and plan to stay in it for 20+ years. We love the house.
Go for it if the retirement calculators spit out the high success rates. Life is short.

 

[jIMOh]

I will be running Firecalc, etc over the next 2 days, at night. Working full time so no time to run numbers during the day.


We are selling now, before retirement because we would like to have that big move behind us before we enter full retirement. I plan to retire next year but, my wife plans to work another 3 yrs beyond me. We have the option of just renting for awhile and take our time for a house.
Why sell now?? We had some impending expenses that we can avoid (replacing front and back decks). Also, we will be in a strong position to buy. We will not have contingencies on selling a house to get in the way of a P&S.


BTW ... berm was a typo .. should be bdrm.

All good info

I would want to know the following
1) what % of networth will be tied into house equity
2) how long will you stay in new house?
2a) over under is usually 7 years- if less than 7, buying will likely lose money.

3) is there a prospect of house being paid off, or will mortgage be carried for 7-15 years before another move?
4) what is asset allocation before buying? Would the purchase change the asset allocation?

 

[jimandthom]

wouldn't you rather be kayaking--than working another year?

 

[Teacher Terry]

I really don’t understand buying big houses when older. Who wants to do all that work. Some friends of ours are still working at 73 because they bought a 3k sq ft house 6 years ago.

 

[jimandthom]

I really don’t understand buying big houses when older. Who wants to do all that work. Some friends of ours are still working at 73 because they bought a 3k sq ft house 6 years ago.

Our new-old house when we retired and moved to the land of the Anishinaabe is larger than we need at about 2500sq ft.

It was also only 100K and allows us to walk to bars, eats, grocery, post office, parks, hardware, hospital, university, river front and listen to the soundings of lake freighters as they make their way. The lifestyle aspect of the location is far more important than all those custom built things that are so highly regarded on the HGTV porn shows.

The only needs and wants we have is to have as much time together as possible. Everything over and above that is fluff and fleeting.

 

[Teacher Terry]

That sounds nice but I would probably close off half the house and never clean it)

 

[albireo13]

wouldn't you rather be kayaking--than working another year?

That's for sure.

Actually looking to downsize, not larger house. The location is great though. Close to downtown in a great town. 15 minutes to the ocean. Lots of biking, kayaking, etc.

 

[Bamaman]

And to think my wife had the nerve to complain about spending yesterday cleaning two bathrooms.

I asked her when she was going to get around to cleaning the other three bathrooms.

(I had spent the day cleaning beds and re-mulching landscaping in the hot sun.)

 

[albireo13]

Well, ran some numbers ..
Firecalc gives my 95.6% success rate and FRP gives me 100% success rate.
This seems optimistic ... not sure I trust it all.

Currently, house equity is < 5% of net worth.

This assumes I retire next year, and wife in 2023.
We both pull SS at our FRA.
we yank out $150K (pre-tax) from 401K this year to put towards house.
35yr simulation run

The goal in the new construction is not to upgrade or get bigger but, to get into a house that will be low maintenance and easy to age in as we get older. I consider it an investment for the future. We plan to be here for the next 20yrs, the last stop before a CCRC.

 

[Katsmeow]

We both pull SS at our FRA.
we yank out $150K (pre-tax) from 401K this year to put towards house.
35yr simulation run

To avoid taxes you may want to do a more minimal down payment and draw out the down payment money over a few years (if you decide to do it) and then possibly recast the loan.

 

[albireo13]

Yes, the challenge isn't so much the amount but, how to negotiate the tax hit.
Taking out a lump sum now, right before retirement, is a big tax mushroom cloud. A disbursement at our max income level!

Need to do more research. Maybe a 401K loan?

 

[albireo13]

Thinking now of renting while we look. Renting for a year and waiting until I retire before buying. That way our income will be much lower and the tax hit on a 401K withdrawal will be less.

 

[RunningBum]

As someone said earlier, your needs and wants may change once you retire. You may not even want to stay in the area. I'd probably hold off unless you are certain this is where you want to be.

 

[albireo13]

Well, all family are in the area, we enjoy the area, and my wife will still be working for the next 4 years. We already committed on the sale of our house.
Perhaps we should have waited until I retired to sell but, it's all ok.

 

[brucethebroker]

I'm not a fan of really stretching a budget when entering retirement. Carrying a mortgage isn't at all a problem. Not having sufficient budget is a huge problem.

If it were me, I'd look for a different solution.

I agree. Which rule in the "official retirement guide" is going to be broken if you take out a small mortgage at today's (nearly) historic low rates??

I know of several retirees/semi-retirees who did this in the last ten years. Some have payments as low as $600 a month, on fixed, 3-4% 30 year mortgages. Imagine: bankers loaning money for 30 years to retirees!!

Remember, only the interest paid out is "new money" coming out of your budget. The taxes and insurance are paid regardless of a cash or mortgage plan. With that in mind, is an extra $250 a month, or so, going to crash your plans? Keep your powder dry, and $ in the bank. Good luck.

 

[freedomatlast]

Well, it is $45K above our target max so, into the uneasy territory.

For many / most of us, $45K is nothing more than the equivalent of a market fluctuation. If $45K puts you into uneasy territory, you may want to rethink when to retire.

 

[ivinsfan]

Well, ran some numbers ..
Firecalc gives my 95.6% success rate and FRP gives me 100% success rate.
This seems optimistic ... not sure I trust it all.

Currently, house equity is < 5% of net worth.

This assumes I retire next year, and wife in 2023.
We both pull SS at our FRA.
we yank out $150K (pre-tax) from 401K this year to put towards house.
35yr simulation run

The goal in the new construction is not to upgrade or get bigger but, to get into a house that will be low maintenance and easy to age in as we get older. I consider it an investment for the future. We plan to be here for the next 20yrs, the last stop before a CCRC.

You say the house is 45K over your max budget but you plan to 150K from your 401? You apparently planned to pull a 100K from it anyway. Why would do that, why don't you build while you are still working get a conventional mortgage with a nice down payment and simply make a house payment? The tax hit alone would give me second thoughts.

 

[albireo13]

You say the house is 45K over your max budget but you plan to 150K from your 401? You apparently planned to pull a 100K from it anyway. Why would do that, why don't you build while you are still working get a conventional mortgage with a nice down payment and simply make a house payment? The tax hit alone would give me second thoughts.

Yup. That's what the plan is. The $150K is towards a nice down payment.
I have looked into buying a lot and building but, that would run more expensive. Buildable real estate is pricey around here.

Yup, the tax hit is the real stumbling block.

 

[ivinsfan]

Yup. That's what the plan is. The $150K is towards a nice down payment.
I have looked into buying a lot and building but, that would run more expensive. Buildable real estate is pricey around here.

Yup, the tax hit is the real stumbling block.

I'd probably seriously consider extending my ER date under those circumstances.

 

[COcheesehead]

Tightrope without a net.

 

[HI Bill]

Thinking now of renting while we look. Renting for a year and waiting until I retire before buying. That way our income will be much lower and the tax hit on a 401K withdrawal will be less.

Or just take out a 15-year mortgage and pay it off in 3 or 4 years. The interest for 3 years at 3.74% would be about $6K/year, and you could write it off. This would be less than the taxes on a lump sum distribution in one year, and less than the cost of renting.

 

[COcheesehead]

Or just take out a 15-year mortgage and pay it off in 3 or 4 years. The interest for 3 years at 3.74% would be about $6K/year, and you could write it off. Would be less than the taxes on a lump sum distribution in one year.

IF you itemize and are over the new standard deduction limit.

 

[NoiseBoy]

If you defer this decision until after you retire, will your wife's income be enough to qualify you for the mortgage amount you may need? There have been a few posts from retirees living only, I believe, on their invested assets (no pension or annuity income) who have had hard times getting mortgages. At least mortgages with good rates. So that is something to consider if you wait to buy until after you retire.

I can relate to the difficulty of finding a small ranch home. The smaller homes in my area tend to be older, with only one bathroom and a one car garage, or other limitations that would be costly to try to remodel around. I also want a little bit of elbow room, maybe a 1/2 acre or larger lot, and these are really hard to find without a McMansion plopped down in the center. Good luck with your hunt for the perfect home.

 

[jimandthom]

Well, all family are in the area, we enjoy the area, and my wife will still be working for the next 4 years. We already committed on the sale of our house.
Perhaps we should have waited until I retired to sell but, it's all ok.

You have eliminated the concern of possibly having 2 mortgages at once. Just don't rush into a new purchase.

This could be a great time to downsize your stuff. Keep what you need for the rental and keep what you must keep for family reasons.

We had been having periodic garage sales before the big move to our home in the north. When we were done, all we needed for the move was a 12ft UHaul--- and there was still space.

The only furniture we kept was our bed, 2 Stressless recliners purchased well before they became "popular" and a couple of smallish pieces of family furniture. Everything else is being purchased when we see a need. Its amazing how little we actually need or want.

Its not for everyone to downsize stuff collected for many years. For us it was part of the journey to simplify life.