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

[albireo13]

I am about 1 yr from retirement and we have been house hunting. We just sold our home and am looking for the right house to live in until CCRC time. .... low maintenance, 1st floor master berm, etc.

We have found that homes that meet this description are few and pricey.
We have found new construction which we love and great location. But, it is really stretching our budgets. It would mean taking a chunk out of our retirement savings to do it.
Just put down a refundable small deposit. Will also mean carrying a mortgage.
Are we crazy??

I am going back and forth on it and losing some sleep. Will spend the next few days running all the calculators on it. It might mean having to put off retirement for 6mo to a year to handle it.

 

[Bamaman]

Only reason we went up to a much larger home is because we found a great foreclosure in really good shape. And since I had the funds to pay cash and do an immediate purchase, I bought it for much, much les than it was worth from a credit union.

New construction today will not be inexpensive anywhere, and the resale value in most locales will probably not rise as fast as a carefully purchased existing home. If you're intending to go into a CCRC later, we've found it's best to remain very liquid. There again, I'm very conservative and don't care for substantial mortgages for retirees.

 

[COcheesehead]

We just went down this road. We were going to build. The price per sq ft in our area was in the $300-$350 range. Nice existing homes with everything we wanted were in the $200-$220 range. We bought an existing home, paid cash, put about $15,000 into refreshing the interior and we still came out thousands ahead.
Personally I would rather have the funds in our brokerage rather than in house equity.

 

[joeea]

I am about 1 yr from retirement and we have been house hunting. We just sold our home and am looking for the right house to live in until CCRC time. .... low maintenance, 1st floor master berm, etc.

We have found that homes that meet this description are few and pricey.
We have found new construction which we love and great location. But, it is really stretching our budgets. It would mean taking a chunk out of our retirement savings to do it.
Just put down a refundable small deposit. Will also mean carrying a mortgage.
Are we crazy??

I am going back and forth on it and losing some sleep. Will spend the next few days running all the calculators on it. It might mean having to put off retirement for 6mo to a year to handle it.

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.

 

[racy]

If I had 33X what I needed to withdraw from our portfolio for living expenses (i.e. 3% withdrawal rate), then I'd do it.

 

[Dawg52]

If I had 33X what I needed to withdraw from our portfolio for living expenses (i.e. 3% withdrawal rate), then I'd do it.

This. I wonder what 'pushing the budget' means for the OP? If my numbers stayed at 100% success rate with Firecalc, I wouldn't have a problem doing it. That was the deciding factor when I made my upgrade purchase.

 

[RunningBum]

I am about 1 yr from retirement and we have been house hunting. We just sold our home and am looking for the right house to live in until CCRC time. .... low maintenance, 1st floor master berm, etc.

We have found that homes that meet this description are few and pricey.
We have found new construction which we love and great location. But, it is really stretching our budgets. It would mean taking a chunk out of our retirement savings to do it.
Just put down a refundable small deposit. Will also mean carrying a mortgage.
Are we crazy??

I am going back and forth on it and losing some sleep. Will spend the next few days running all the calculators on it. It might mean having to put off retirement for 6mo to a year to handle it.

I assume "berm" is a type for "bdrm. Hard to believe they are that few. Doesn't a ranch fit that? Or maybe it's not a typo and "berm" is something unique?

What is your definition of "low maintenance"? Are there houses you like that do not quite fit that definition, and would it be cheaper to hire someone to help you maintain rather than pay extra?

Does "etc" cover something unique?

Or is it just high real estate prices in general that are throwing you off? Are you in a high cost area? Can you move?

 

[jollystomper]

If it will cause you worry and stress, and a perceived stretching of the budget, I would not do it. Retirement is a time for less stress and worry about money, not more.

 

[ivinsfan]

ab13 new construction in a "great location" is always going to be the most expensive option. A lot of time great location can translate into higher property taxes..Have you accounted for that number, remember every little goodie you add into your new home will cost more in your RE tax number.

Where are you living now that your home is sold? Is it possible to stay in place there while you diligently search for a used home or slightly widen your target living area?

I'd have a different answer if you said that you had always planned for a new home and it was little higher then you expected. It looks like the aggravation of finding the "right" house coupled with the seduction and staging of a beautiful new home made you pull out your checkbook.

 

[38Chevy454]

I agree new build will be the most costly. What is not known is what OP says is the stretch in budget and how that affects the numbers. If OP can't sleep well, then best to not buy new and keep looking for the used house.


Are there no ranch type single story houses in OP's search area? I think there are, may just need to evaluate the search criteria and also require some patience.


Carrying a mortgage is a personal choice, if it works for your budget numbers there is not any major problem with having one in retirement. But a lot of people also prefer to be mortgage-free in retirement and like that better. There is not a single right answer that works for all.

 

[jimandthom]

You are already having sleepless nights-- presumably about the $$ near and long term.

You say that working 6months to a year longer, makes everything work out OK.

Must be a ton of cash to be made in such a short period of time to go from sleepless to no worries.

 

[SumDay]

We did this a few years ago. We live in a LCOL area, and our new house was twice what we got for our old, much larger house. We put 75% down and got a <4% loan with lower payments than most people pay for their car payments. No PMI, so that helps too. This is our only debt and while I wasn't completely comfortable with it initially, I am now. It was the right move for us. Having the yard work and snow removal done for us has been a big load off DH who has some residual issues from health issues a few years ago.

If we have extra $$ left from our IRA withdrawals each year, I may start throwing it at the mortgage. Otherwise, I'll just keep plugging away at it.

Every circumstance is unique.

 

[Midpack]

If I had 33X what I needed to withdraw from our portfolio for living expenses (i.e. 3% withdrawal rate), then I'd do it.

Best answer IMO. If you were house rich, you can probably afford a more expensive retirement house. If you were house poor, maybe/probably not. We’re actively trying to buy our “forever home” now, and our next house is going to cost about double our present house (we’ve lived in a modest house in a LCOL area for over 25 years).

 

[Aerides]

Not sure what drove the OP to sell now, but personally this is either something you do before you bake in your retirement date and expenses (ie, time to adjust), or a couple years after (ie, time for reality to sink in).

With a new home, you'll have new expenses. Taking on a mortgage at 1 year to ER, unless you have a LOT of buffer in your SWR, is not something most of us would do. Ideally, it's something you do a few years beforehand so the dust can settle, and expenses be measured and factored into your plans.

Or, retire, sit tight for a year or so and make sure that 3.5% WD doesn't really mean 4%, let things simmer a bit, and then move, when you have a more realistic idea of your wiggle room.

Given the OP here has already sold, I would not be making a purchase of a new place that required a mortgage, and would look for something in just a small margin of the current sale, since this extra cost was not already planned. I would not be holding that ER date firm...

 

[RunningBum]

You are already having sleepless nights-- presumably about the $$ near and long term.

You say that working 6months to a year longer, makes everything work out OK.

Must be a ton of cash to be made in such a short period of time to go from sleepless to no worries.

"losing some sleep" is not the same as "sleepless nights".
"to handle it" is not the same as "no worries".

It's best not to overstate a poster's situation.

 

[albireo13]

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.

 

[pb4uski]

Take your baseline FIRECalc with assets including the net proceeds from the sale of you current home less a down payment on your new home. Then include your annual mortgage payments as fixed off-chart spending beginning at retirement with a corresponding fixed pension on the same amount when the mortgage is done. How does it change your success rate? IMO if you can live with the change in success rate then you're all set (assumes that spending level can cover and differences in property taxes, insurance, etc).

 

[albireo13]

I'll try doing that tonight with Firecalc. Will also be running FRP as well.

 

[W2R]

Pardon this rambling post, but here are a few thoughts that came to mind.

I guess I was lucky because I did not find my (more expensive) Dream Home until 5-6 years after I retired. By that time, I was well settled into retirement, knew I could easily afford the new home, and did not have to worry so much about possible Sequence of Returns problems.

You are smart to get a house that is suitable for you as you age. You would probably want/need to do that at some point anyway. Also, I doubt that such houses will be getting any cheaper in the next five years or so. But like you, I would be a little unnerved at the thought of doing this right before retirement.

Another factor is that what I thought I would want out of life during retirement, and what I actually wanted once I was retired, were different. Before retirement we were absolutely sure that we wanted to move to Springfield. After retirement we changed our minds and decided to stay here.

 

[Katsmeow]

Last year we bought a house that was a little more expensive than the house we sold but the mortgage is larger. The house we sold had a lot of equity and we had taken a mortgage on it at the bottom of interest rates. The new mortgage is at a higher rate and does have quite a bit of equity in it.

The new house is actually smaller and older than the house we sold? Why is it more money? Far better location. The new house is in a location where we will always be close to amenities even if we were to get to a point where we couldn't drive. Lots of grocery stores nearby deliver so we could manage pretty well if we couldn't drive at some future point.

After I sold my mom's house after she died, I could have recast my mortgage and gotten the mortgage payment down to about what it was at the old house (which was just a little over $800 a month so not a huge amount. Current mortgage payment is around $1440 a month).

But, after thinking about, I decided not to recast the mortgage and to invest the money I would have spent on recasting. The main reason was I recognized that my mortgage payment is a fixed rate mortgage. When using Firecalc I don't include the mortgage payment in the regular spending. I do it separately as non-inflation adjusted. We do have quite a bit of equity in the current house so if we had to sell it (only situation where that would likely happen is when one of us dies if we don't want to keep the house). While in a way it would make me feel better to have a small mortgage like the last one, I just didn't really think it made sense to recast the current mortgage to get there. I could always do it in the future if I wanted to, though.

The thing for us was that we wanted a house that we could live in even if we got to a point where we couldn't drive. The old house we couldn't do it. This house is in a perfect location to allow that. Perfect locations cost more money.

 

[Midpack]

Another factor is that what I thought I would want out of life during retirement, and what I actually wanted once I was retired, were different. Before retirement we were absolutely sure that we wanted to move to Springfield. After retirement we changed our minds and decided to stay here.

Probably worthy of another thread, I suspect we've all experienced this to some degree.

Life is what happens to you while you’re busy making other plans. - attributed to several people

 

[Nick12]

" when you had much money and lost it, it's much worse than having any money at all" - quote from the Charlie Sheen and Michael Douglas movie Wall Street. Not saying that losing money is in the cards in this matter but I'd be downsizing and enjoying life that way. I would not consider carrying a mortgage in retirement.

 

[jimandthom]

"losing some sleep" is not the same as "sleepless nights".
"to handle it" is not the same as "no worries".

It's best not to overstate a poster's situation.

Yep--did overstate the sleep part.

The other part, I don't know. In my mind, "handling it" as the OP mentioned implies in my mind that it will be bit of a struggle.

It just seemed that if 6-12 months of extra work is all that is needed, the sum must not be huge-- 50K or less, Admittedly don't know the income etc.

Since wife still works, they could take if from retirement and greatly increase wifes 401k assuming its available to replenish. Might take longer due to limits.

 

[HI Bill]

What are your priorities? If you were to buy the house and pay cash, or just raise your annual expenditures to cover the new annual budget, what does Firecalc say? After the purchase, would you still have adequate cash flow to cover your remaining expenses and desires? Some folks would rather buy a better house than travel, and others vice versa.

My plan it to sell our inexpensive (for HNL) condo, rent while we travel, then come back and quite possibly buy a house that costs twice what our condo will sell for, paying cash. Then, our retirement nest egg will be quite a bit smaller, and we'll have to drop our travel budget by $20K. I've let my wife know that we can't do both (maintain a 60% travel budget AND buy an expensive house).

This decision as to whether one wants a mortgage in retirement is personal, but I would never want a mortgage in retirement. Have you calculated the difference between paying cash and lowering your annual budget vs. including the mortgage?

 

[albireo13]

Well, it is $45K above our target max so, into the uneasy territory.
I'll run numbers and see what comes out. Just got home from work.


If I work another year, focused on saving, I could make most of that up.