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Retirement home as percentage of networth

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  • Retirement home as percentage of networth

    Curious on thoughts from people who are or were in similar situations.

    Recently early retiree (mid 50s). We never lived in a home that was greater than 1x of my gross income. Was looking to retire with a goal of 4-5 million but with some luck in the market and extra savings the last few years have ended up with 8+ figure account. We are looking to relocate near our children in a high cost of living area. We could find a home in the area that would be nice but not in our most desired area. We could go for less space (we are minimalists) with close views of the ocean and steps from the beach and close to the town center but that would mean putting 40-50% of our net worth into housing. While that would have seemed absurd in the past, the reality is that we would still have our original savings goal outside the home and at some point it seems irrelevant how much we have in the bank if we could live in a dream location after being such good savers for the next few decades compared to spending less and not taking full advantage of this area. Anyone else face this situation? Putting 50% of our net worth into our home seems a bit crazy but it is far different doing it with where we are now than it would have been with our original retirement goal.
    Last edited by Arkad; 10-17-2021, 05:56 PM.

  • #2
    If your net worth was 1 million I'd think it was crazy to spend 50% on housing but since you intended to retire with 4.5 million you actually have an extra 3+ that gives you a lot of creative freedom. I would probably try to spend only the actual excess as the windfall it is. I'm structuring my retirement based on the notion that I will spend the majority early while I'm hopefully active and tighten the belt in later years when pudding and Depends are probably going to be the highlight of my grocery list. And hey congratulations on retiring early and enjoying the fruits of your labor.

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    • #3
      Originally posted by StateOfMyHead View Post
      If your net worth was 1 million I'd think it was crazy to spend 50% on housing but since you intended to retire with 4.5 million you actually have an extra 3+ that gives you a lot of creative freedom. I would probably try to spend only the actual excess as the windfall it is. I'm structuring my retirement based on the notion that I will spend the majority early while I'm hopefully active and tighten the belt in later years when pudding and Depends are probably going to be the highlight of my grocery list. And hey congratulations on retiring early and enjoying the fruits of your labor.
      Thanks for your thoughts. I corrected the typo. I meant 8+ figure and I will have a fairly significant source of income for a few more years so we would only need to use some of that for now. I agree with you. As much as the idea of paying that kind of money for a home seems crazy to us, we want to be near our family and we have started to think if we could wake up each day in an incredible location at the beach and still keep what we had intended to have in the bank when we were originally planning it would be worth it.

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      • #4
        Will you still feel that way after the next market crash?

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        • #5
          Even at 50% you're ahead of your previous retirement goal. Even then you're free and clear.on the house. The only.real expense are.taxes and 5M will cover that.

          Go for it.

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          • #6
            Originally posted by Larry Ragman View Post
            Will you still feel that way after the next market crash?
            I have lived through a few of these crashes during my career and never blinked. I think I can handle it knowing we otherwise live well below the withdraw number even at the original number

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            • #7
              Originally posted by Arkad View Post
              I have lived through a few of these crashes during my career and never blinked. I think I can handle it knowing we otherwise live well below the withdraw number even at the original number
              In that situation then I would buy the house. All of your reasons are valid.

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              • #8
                i think this is far from crazy.

                you are going to pay cash for something you can afford and that meets all of your needs.
                it's a little bit unconventional, but it's not like you are lighting the money on fire.
                say the house loses 50% of it's value. ok now you're worth $7.5M. that's in the event of a housing catastrophe.
                if you have an ocean view i'd say the chance that it loses value is basically zero unless you're in some kind of crazy flood zone.

                if you aren't willing to do something like this, why in the ************************ did you bother to save so much money?

                "fly first class or your kids will."

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                • #9
                  So... if hypothetically you have a 5MM house and a 5MM next egg, and the house is paid off, what are you looking at in terms of cost to run the house and maintain it?

                  Would that be perhaps 60k per year in property taxes and 20k in maintenance, utilities and repairs? If you were to estimate a total of 80k all in to run the house, that would be way too much for me to feel comfortable with 5MM in retirement assets.

                  A 5MM nest egg would give you 200k per year at the 4% withdrawal level, and that has to cover health care, the house, taxes, food, travel, and everything else. I say no way, but that is just me.

                  And things like property taxes on a 5MM house vary massively around the country from something like a low of 0.5% to more than 3% (in Scarsdale), meaning on that 5MM house, property taxes could be as low as 25k per year, or as high as 150k per year. What kind of property tax levy are you looking at? And what is the forward looking pension funding for the public servants in your target area?

                  Most homes have something like a $100k unfunded future pension obligation attached to them, but that amount is proportional to the value of the home. It is estimated that property taxes will double in many jurisdictions over the next generation to cover the unfunded public pension obligations for teachers, cops, firemen, etc.

                  https://www.wsj.com/articles/the-ste...use-1533496243

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                  • #10
                    Originally posted by Arkad View Post
                    I have lived through a few of these crashes during my career and never blinked. I think I can handle it knowing we otherwise live well below the withdraw number even at the original number
                    You had a high income then.

                    It is completely within the realm of possibility that your $5m nest egg and $5m house become a $3m nest egg and $4m house - and not bounce back. As long as you feel capable of handling that, your plan is ok.

                    Part of the reason you have an 8 figure NW is that money isn't worth what it used to be. Inflation means you have less purchasing power than you thought 8 figures would have.ake sure your expenses are in real terms, too.

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                    • #11
                      Originally posted by FIREshrink View Post

                      You had a high income then.

                      It is completely within the realm of possibility that your $5m nest egg and $5m house become a $3m nest egg and $4m house - and not bounce back. As long as you feel capable of handling that, your plan is ok.

                      Part of the reason you have an 8 figure NW is that money isn't worth what it used to be. Inflation means you have less purchasing power than you thought 8 figures would have.ake sure your expenses are in real terms, too.
                      Op would still have 7M in your scenario. . . Not exactly a pauper.

                      Op why not take out a mortgage on some of it? Rates are so stupid low, then you can keep more in the market for long term growth. But honestly this is basically impossible to mess up so buy the 5M house however you are most comfortable.

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                      • #12
                        Agree with paying attention to taxes and general increased COL for everything to include factoring in the "rich house" fee schedules from any contractor. If that doesn't give you pause, then go for it!

                        Also, I think WOS has solid advice--consider covering half the cost with a mortgage. You are in a "rich get richer" situation.

                        Congrats, enjoy the kids and (God willing) grandkids!

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                        • #13
                          Originally posted by wideopenspaces View Post

                          Op would still have 7M in your scenario. . . Not exactly a pauper.

                          Op why not take out a mortgage on some of it? Rates are so stupid low, then you can keep more in the market for long term growth. But honestly this is basically impossible to mess up so buy the 5M house however you are most comfortable.
                          Yes more than half in housing, nothing wrong with that but not everyone will be comfortable with that

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                          • #14
                            If your original target was met, was it based on living in the VHCOL house? Recalculate what your burn rate is, pretty simple solution.
                            Definitely see the desire for the next 10/20 years. No idea if some of it is in pre tax etc.

                            One thing, down scaling is things don't go right is much more difficult, at least emotionally. I would run the numbers. Likely it will work but the liquidity from 50-60 an the 70-72 year marks are kind of important. I wouldn't make the move without running the numbers. For sure recalculate your spend rate in the new location. The house sounds nice and reasonable for what you are looking for. However, 50% doesn't really mean much until you know your spend rate.

                            You are probably ok, but finish your plan for the new set of facts and circumstances. Back up plan would be ? When things go wrong, usually more than one happen.
                            The 50 leave many miles of life ahead. Plan for the worst, but hope for the best. You can afford to try it. The question is whether you want to really.


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                            • #15
                              I’d do it!

                              What are the tax implications of coming up with the money for the 5 million i.e. are you selling from a taxable account? What’s the tax bill going to be?

                              These are good problems to have. Congrats!

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