Recently retired and have decided to build our dream home. New home will cost 350,000 with a 20% down payment from savings and investments. My pension income is 70,000 with an annual cola coming at 3% annually starting in 2013. I also draw 4% from my 457 account for an annual present income of 80500. When we sell our present home even with a low ball offer we should clear 100,000. All added up my taxable and tax deferred investments will be close to 400,000. By the way I do not have any other debt. Does this sound reasonable to anybody?
mortgage in retirement
- Thread starter ripper1
- Start date
Recently retired and have decided to build our dream home. New home will cost 350,000 with a 20% down payment from savings and investments. My pension income is 70,000 with an annual cola coming at 3% annually starting in 2013. I also draw 4% from my 457 account for an annual present income of 80500. When we sell our present home even with a low ball offer we should clear 100,000. All added up my taxable and tax deferred investments will be close to 400,000. By the way I do not have any other debt. Does this sound reasonable to anybody?
Brat
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Golly, I would hate to build my financial future based on promises of cola.
On the other hand when will you fulfill your dreams
We paid more than $350,000 for our retirement home, cash. IMHO the major issue is whether or not your ongoing cost to live in your home is affordable and whether or not your dream home value is similar to neighboring properties.
On the other hand when will you fulfill your dreams
We paid more than $350,000 for our retirement home, cash. IMHO the major issue is whether or not your ongoing cost to live in your home is affordable and whether or not your dream home value is similar to neighboring properties.
Depends on what your mortgage payments are. We carry a relatively large amount of mortgage debt (see my profile) and we're blissfully confident that our pension and our COLA will be paid. (Well, except for that last three years of COLA...) You'll have to persuade the mortgage lender that you have the cash flow, not the assets, to make the mortgage payments.
But I wouldn't consider the debt the issue. Building a "dream home" is frequently a nightmare and should be approached with due caution plus extensive & detailed planning. You've certainly managed to be responsible for your own entertainment and for "What will you DO all day?!?" However if this is what gives you value for your spending then have a blast.
Delawaredave5
Full time employment: Posting here.
- Joined
- Dec 22, 2004
- Messages
- 699
So the $80,500 is sum of pension and 4% 457 draw ? Or in addition ?
To me, the phrase "dream house" is an oxymoron....
Danmar
Thinks s/he gets paid by the post
I would never consider building my "dream" home near retirement. Much too risky. I don't believe debt and retirement mix very well. (notwithstanding Nord's position). Good luck.
LOL!
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Jun 25, 2005
- Messages
- 10,252
Danmar did build his dream home, but he's trying to sell the DanMar Manor now for $19 million:
Home in The Woodlands on the block for $19 million - Houston Community Newspapers: Homes
Home in The Woodlands on the block for $19 million - Houston Community Newspapers: Homes
Delawaredave5
Full time employment: Posting here.
- Joined
- Dec 22, 2004
- Messages
- 699
Mortgage/taxes would be $20k+ which would be 25%+ of your annual income.
All depends on how much "house love" you have. I personally wouldn't want that much of my income committed, nor the risk, in retirement.
I also want my retirement to have "location independence" - either no house (preferred) or a house that I could rent and live elsewhere.
Others have a lot of "house love" and want a significant amount of their retirement time and resources committed to nurturing, developing, and enjoying a house somewhere. Nothing "wrong" with that - just not for me....
All depends on how much "house love" you have. I personally wouldn't want that much of my income committed, nor the risk, in retirement.
I also want my retirement to have "location independence" - either no house (preferred) or a house that I could rent and live elsewhere.
Others have a lot of "house love" and want a significant amount of their retirement time and resources committed to nurturing, developing, and enjoying a house somewhere. Nothing "wrong" with that - just not for me....
W2R
Moderator Emeritus
I agree with Danmar completely, at least for me. A paid off home gives me immeasurable peace of mind (YMMV). I love the fact that I have zero debt. This may not be a great inflation-fighting strategy, but for me it is worth it ten times over and adds to my carefree enjoyment of retirement these days.
Also, I agree with Nords about not wanting to build a house in retirement. Sure sounds like w*rk to me and I don't want to do it. When attending open houses I have been amazed to find that (despite a very active imagination) for me there are a number of iterations of "the perfect house" that I never imagined.
Danmar
Thinks s/he gets paid by the post
Danmar
Thinks s/he gets paid by the post
Just checked the link. Pure coincidence on the name.
haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
An inexpensive mortgage is a different proposition from a big one. Everyone has to live somewhere, and unless you are going to be homeless or live in your car, I fail to see why a $1000 monthly house mortgage is very different from the same or similar amount in rent. Each of these has its own set of protections and its own set of vulnerabilities.
Ha
Ha
ripper1
Thinks s/he gets paid by the post
I will never tie up all my money in a house again. I made the mistake of paying off my previous in 10 years and ended up taking a HELOC to pay for college tuition. I believe my retirement income and investments to be secure and more than enough to handle this mortgage. I would rather put down 20% and invest the rest. With the mortgage interest deduction the real cost of the money is 4%. I believe I can do better than that and have the liquidity available for any future expense. I am also only 55 so I will probably go back to work in some capacity to stay busy perhaps. My wife and I have always lived under our means and sacrificed for the kids. This is just our time and we are going for it.
Rustic23
Thinks s/he gets paid by the post
We built our 'dream home' a year before retiring. After construction cost, we ended up with a $100,000 mortgage, which we can pay with no problem. We did not encounter any problems with the house. I guess it depends on your personality and your builder. I and DW are glad we did it, and really enjoy the margaritas on the deck. We have the money to pay off the mortgage and may do it. Maybe I could start a thread and see if this is a good idea!
As to weather you can make it on $80,000, without more information of your other living expenses and desires in retirement, i.e. travel, I am not sure anyone can really give you a good answer as to whether it is enough.
As to weather you can make it on $80,000, without more information of your other living expenses and desires in retirement, i.e. travel, I am not sure anyone can really give you a good answer as to whether it is enough.
REWahoo
Give me a museum and I'll fill it. (Picasso) Give
Don't be silly. Buy an equity indexed annuity - and use the guaranteed 8% annuity income to make the mortgage payments!
ripper1
Thinks s/he gets paid by the post
Well, that's the thing, Rustic, I could liquidate most of my investments to pay off the mortgage and live off my pension. But why would I do that. This business about being debt free is overblown. A lot of people think that this current financial mess we are in is going to last forever. I guess I am going to be a contrarian and not follow the herd.
Danmar
Thinks s/he gets paid by the post
I would not want a mortgage. Reduces your flexibility. Of course being debt free is better. It's how you get there that is important. If you LBYM'd and paid your mortgage off before retirement why would you want another? Now if you didn't LBYM and don't want fo liquidate part of the portfolio to pay off the mortgage, I guess you don't have a choice.
Rustic23
Thinks s/he gets paid by the post
Please explain 'Reduces your flexibility' I don't understand.
For the last few years I have been in the pay off mortgage camp. But when rates got so low this last house I bought I put a small mortgage on it and will carry it into retirement. I did not leverage to the hilt with it.
Tomcat98
Tomcat98
Danmar
Thinks s/he gets paid by the post
Well it certainly uses up some of your debt capacity in case of emergency. If you sold your house to downsize, you would get more equity out. My feeling (and this may be a Canadian thing) is that you should pay your mortgage off before you retire. I know there may be cases where this is impossible or doesn't make sense but leverage is generally not good in retirement, IMHO.
LOL!
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Jun 25, 2005
- Messages
- 10,252
I think one reason to pay off mortgage in retirement has to do with social security benefits taxation. If you need the cash flow to pay the mortgage, that may cause your above-the-line AGI to be higher than it needs to be and more of the SS benefits will be taxed at a higher rate. Without the mortgage, it may be possible for some folks with low enough expenses to keep all the SS benefits untaxed.
Anyways, I understand the invest vs pay-off scenarios and would fall in the invest camp until I started SS benefits. At that point, I would surely run a couple of scenarios in TT to see the affect of mortage payments or not.
Anyways, I understand the invest vs pay-off scenarios and would fall in the invest camp until I started SS benefits. At that point, I would surely run a couple of scenarios in TT to see the affect of mortage payments or not.
Rustic23
Thinks s/he gets paid by the post
As one can see, this is why this thread 'should I pay off the mortgage' has been around so long. One size does not fit all. In my case, my mortgage represents seven tenth of one percent of my income. Whether I pay it off or not makes absolutely no difference in my daily life. There is no right or wrong answer to this question.
GusLevy
Recycles dryer sheets
- Joined
- May 8, 2008
- Messages
- 98
One item to note in this discussion as it relates to Canada vis a vis the USA is that there is no mortgage interest deduction allowed in Canada to my knowledge. Therefore, imo, the incredibly low mortgage rates that exist in the US make a compelling case to carry a relatively small mortgage (perhaps relative to total liquid assets or net worth excluding house value) even before the tax implications were/are factored in. Then, when factoring in the mortgage interest deduction and how mortgages amortize so that interest represents most of the mortgage payment in the front end, it seems to me that many people - retired or not - are basically incentivized to carry a mortgage these days.
From my point of view, I refi'd to a 30yr fixed at 4.375% in 2009 which makes, in essence, my cost of carrying some of my home equity probably less than 2% in the near term and not exceeding 3% for several yrs.
From my point of view, I refi'd to a 30yr fixed at 4.375% in 2009 which makes, in essence, my cost of carrying some of my home equity probably less than 2% in the near term and not exceeding 3% for several yrs.
Rustic23
Thinks s/he gets paid by the post
I never really bought into 'carry a mortgage to get a tax deduction'. I should pay $6,000 a year in interest so I can get back a thousand or so. Now if you have to have the mortgage to afford the house, then it is a nice discount, but, imho, never to save money on taxes.
