Can We Afford to Splurge on Retirement Dream Home?

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VeganBH
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Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

Hello Bogleheads,
DH and I recently relocated to our new retirement(-like) community. We are currently remote working but planning to retire in ~6 months (but could extend). When we purchased our new home earlier this year, it was a feeding frenzy. We were afraid we were going to get priced out of the community - so, we purchased the 2nd home we toured (very limited supply, much demand). This new home/community upgrade cost us $300K over what our old home sold for – which we struggled with at the time (but we’re both very happy we made the move). Now, while we do like our new home quite a bit (and love our new community):

We ask ourselves daily this question: Can we afford a bit more of an upgraded home (view/privacy/outdoor living space) in this same community? Should we splurge (one more time) on what we think will be our last home? For an additional $150k-$250K, it’s possible to have a similar home but with better views (& privacy & outdoor living space) – the views really are spectacular and one of the draws to the community (we have a peek a boo view now). If this is our last home…should we, could we? Annual expenses would only increase slightly (Increased property taxes by $800-$1k/year)

Our numbers:
Age: 52 (him/her both)
Net worth: $3.22M ($1.6 is in taxable, $1.6 is 401K/457 – with $415K in 457) –25% Equities/75% bonds/cash
Approx. target retirement date (both of us): March, 2022
Other: Both working, we save $10K-$15k/month
Current home value: $900K
Debt: None
Annual budget: $120K (includes: $30K discretionary and $20K in taxes)
No kids – no need to leave money behind
No long-term care (plan: downsize the house, or Hemlock Society...)

Retirement Income:
Pension: $50K/year (with 2% COLA)— if work 2 additional years, $65K
Healthcare: 90% is paid for by state employer (results in current $250 month expense)
SS: Her at 62: $20K/year
SS: Him at 67: $34K/year ($43K/year at 70).

We’ve run models with Firecalc using conservative numbers, i.e, net worth of $2.7, an increased budget, collecting just $20K SS, living to 100 years, and we see no failures (but it’s a model!).
Should we “play it safe” and stay in our current home, or splurge on an upgraded retirement home (without extending out our retirement date)? Though we have considered working another year – to justify a splurge and buffer our savings - we’d rather not.
If we knew how long we'd live - this would be easy! :sharebeer
"Until we extend our circle of compassion to all living things, humanity will not find peace."​ ~ Albert Sc​hweitzer
L84SUPR
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by L84SUPR »

What could you remove from your budget to make the increase in house payment fit? That is the opportunity cost of the nicer home/view.

That is one way to look at it, might help.
1/3rd VTWAX, 1/3rd Wellington, 1/3rd G Fund | All models are wrong. Some are useful.
marcopolo
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by marcopolo »

With your pension, I am not sure I see how this is even a question. You must realize you can afford this

Little back of the envelope math.

$120k spending. $50k pension.
Need portfolio to fund $70k/yr
Let's be real conservative and assume a 2.5% Withdrawal Rate from the portfolio.
That would require $2.8M.
You have $3.2M, leaving $400k surplus that could easily be directed towards the home upgrade.
You also have sizable Soc Sec coming at a later date as an additional cushion.

What is your concern?

Of course only you can answer whether you should do this or not. But, financially, you certainly can.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Watty
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by Watty »

VeganBH wrote: Mon Sep 20, 2021 3:22 pm For an additional $150k-$250K, it’s possible to have a similar home but with better views (& privacy & outdoor living space) – the views really are spectacular and one of the draws to the community (we have a peek a boo view now). If this is our last home…should we, could we? Annual expenses would only increase slightly (Increased property taxes by $800-$1k/year)
.....
Annual budget: $120K ($10K month)
There are several variations on the saying, "You can have anything you want, but not everything you want."

One way of looking at it is if you financed the $250K then you would have a mortgage payment of around $1,000 a month so with the extra taxes you would need to budget for around $1,100 a month for the nicer place.

The big question is if you are willing to reduce your other spending by $1,100 a month to be able to afford the nicer place.

Living on around $106K a year instead of $120K, with a paid off house, would hardly be a dire situation but only you can say if the trade offs would be worth it to you or not.

In practice it would likely make sense to pay any additional costs in cash but then you would have a smaller nest egg and need to spend a bit less but the impact on your retirement budget would be about the same.
VeganBH wrote: Mon Sep 20, 2021 3:22 pm Net worth: $3.22M ($1.6 is in taxable, $1.6 is 401K/457 – with $415K in 457)
.....
Current home value: $900K
Debt: None
Just a quibble but your net worth includes your home equity so it would be around $4.1 million.
VeganBH wrote: Mon Sep 20, 2021 3:22 pm We’ve run models with Firecalc using conservative numbers, i.e, net worth of $2.7, an increased budget, collecting just $20K SS, living to 100 years, and we see no failures (but it’s a model!).
$250K is less that 8% of your $3.2 million nest egg. Any predictions have a lot more uncertainty than that so thinking that you can reliably predict the impact of an 8% change is not realistic.

If things do not work out like you hope then there are also ways to tap your home equity like a reverse mortgage if you need or want to.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by humblecoder »

Maropolo did the back of the envelope math, so I won't repeat that.

This thread (and other similar "can I afford it" threads) are very interesting to me.

I recently started listening to a podcast entitled "The Retirement and IRA Show". It is very informative and entertaining and I highly recommend it. The the reason why I am bringing the podcast up is that one of the themes of the podcast is that money unspent is potentially life unlived. Their view is that some people are so afraid of the downside risk of running out of money that they end of not spending money that they could easily afford to spend, thus depriving themselves of the fruits of their many years of labor in retirement. As the hosts of the podcasts state, there is no prize for dying with the most wealth.

Much of this fear, they say, is due to the fact that many people just have this big pile of money and when it is gone, it's gone. Therefore, they have the visceral fear of spending it down. Over the course of their lives, they have seen their nest egg generally increase as they save, so when they see their account balances falling because they are no longer in the accumulation phase, it gives them fear. This is compounded by the fact that most people SHOULD be spending their nest egg in the early years of retirement when they are still healthy and active enough to enjoy it. However, taking out more in the early years is tough to do because you always wonder if you are taking out too much too early.

To combat this, they suggest setting aside money that they call a "minimum dignity floor" which is money to cover food, shelter, health care, and other basics. Then the remaining money becomes your "fun money" that you use for discretionary spending. You can spend your fun money however you want and whenever you want since you know that your basic needs are going to be covered by your minimum dignity floor money. They also stress that as you get further into retirement, your ability to enjoy your fun money decreases so you might as well try to spend it early in your retirement. They divide retirement into "go-go", "slow-go", and "no-go". You get the most out of your fun money in the "go-go" years of retirement.

My point with all this is that it seems you have quite a nest egg built up. You also have a decent stream of guaranteed income through your pension and your social security. There is nothing wrong with taking some of your nest egg that is fun money and using it towards upgrading the quality of your retirement home. You need to give yourself permission to enjoy the fruits of your labor while you still can. Will you be happier with that great view, outdoor living space, etc? Or will you be happier dying with an extra $200K in your brokerage account that you didn't spend?
59Gibson
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by 59Gibson »

humblecoder wrote: Mon Sep 20, 2021 4:43 pm Maropolo did the back of the envelope math, so I won't repeat that.

This thread (and other similar "can I afford it" threads) are very interesting to me.

I recently started listening to a podcast entitled "The Retirement and IRA Show". It is very informative and entertaining and I highly recommend it. The the reason why I am bringing the podcast up is that one of the themes of the podcast is that money unspent is potentially life unlived. Their view is that some people are so afraid of the downside risk of running out of money that they end of not spending money that they could easily afford to spend, thus depriving themselves of the fruits of their many years of labor in retirement. As the hosts of the podcasts state, there is no prize for dying with the most wealth.

Much of this fear, they say, is due to the fact that many people just have this big pile of money and when it is gone, it's gone. Therefore, they have the visceral fear of spending it down. Over the course of their lives, they have seen their nest egg generally increase as they save, so when they see their account balances falling because they are no longer in the accumulation phase, it gives them fear. This is compounded by the fact that most people SHOULD be spending their nest egg in the early years of retirement when they are still healthy and active enough to enjoy it. However, taking out more in the early years is tough to do because you always wonder if you are taking out too much too early.

To combat this, they suggest setting aside money that they call a "minimum dignity floor" which is money to cover food, shelter, health care, and other basics. Then the remaining money becomes your "fun money" that you use for discretionary spending. You can spend your fun money however you want and whenever you want since you know that your basic needs are going to be covered by your minimum dignity floor money. They also stress that as you get further into retirement, your ability to enjoy your fun money decreases so you might as well try to spend it early in your retirement. They divide retirement into "go-go", "slow-go", and "no-go". You get the most out of your fun money in the "go-go" years of retirement.

My point with all this is that it seems you have quite a nest egg built up. You also have a decent stream of guaranteed income through your pension and your social security. There is nothing wrong with taking some of your nest egg that is fun money and using it towards upgrading the quality of your retirement home. You need to give yourself permission to enjoy the fruits of your labor while you still can. Will you be happier with that great view, outdoor living space, etc? Or will you be happier dying with an extra $200K in your brokerage account that you didn't spend?
+1 A ton of these "can I retire, can I buy, can I start spending.." are so engrossed in fear. I think this is right on the mark, no one wants to see a decreasing portfolio. It seems so obvious from an outsider but reality is totally warped, it's difficult to believe folks that save multi millions, paid for house, pension, SS.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by Broken Man 1999 »

humblecoder wrote: Mon Sep 20, 2021 4:43 pm Maropolo did the back of the envelope math, so I won't repeat that.

This thread (and other similar "can I afford it" threads) are very interesting to me.

I recently started listening to a podcast entitled "The Retirement and IRA Show". It is very informative and entertaining and I highly recommend it. The the reason why I am bringing the podcast up is that one of the themes of the podcast is that money unspent is potentially life unlived. Their view is that some people are so afraid of the downside risk of running out of money that they end of not spending money that they could easily afford to spend, thus depriving themselves of the fruits of their many years of labor in retirement. As the hosts of the podcasts state, there is no prize for dying with the most wealth.

Much of this fear, they say, is due to the fact that many people just have this big pile of money and when it is gone, it's gone. Therefore, they have the visceral fear of spending it down. Over the course of their lives, they have seen their nest egg generally increase as they save, so when they see their account balances falling because they are no longer in the accumulation phase, it gives them fear. This is compounded by the fact that most people SHOULD be spending their nest egg in the early years of retirement when they are still healthy and active enough to enjoy it. However, taking out more in the early years is tough to do because you always wonder if you are taking out too much too early.

To combat this, they suggest setting aside money that they call a "minimum dignity floor" which is money to cover food, shelter, health care, and other basics. Then the remaining money becomes your "fun money" that you use for discretionary spending. You can spend your fun money however you want and whenever you want since you know that your basic needs are going to be covered by your minimum dignity floor money. They also stress that as you get further into retirement, your ability to enjoy your fun money decreases so you might as well try to spend it early in your retirement. They divide retirement into "go-go", "slow-go", and "no-go". You get the most out of your fun money in the "go-go" years of retirement.

My point with all this is that it seems you have quite a nest egg built up. You also have a decent stream of guaranteed income through your pension and your social security. There is nothing wrong with taking some of your nest egg that is fun money and using it towards upgrading the quality of your retirement home. You need to give yourself permission to enjoy the fruits of your labor while you still can. Will you be happier with that great view, outdoor living space, etc? Or will you be happier dying with an extra $200K in your brokerage account that you didn't spend?
Very well said!

I have found I am much more willing to spend on "one-of" opportunities than I am adding to ongoing expenses. In my case, I wouldn't buy a nicer home, but I would shine up the one we have.

OP, you are in a good place to move up to your desired home. Good luck!

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
donwmc_987
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by donwmc_987 »

Yes - in your position, I would upgrade. You don’t mention how you would pay for it, but either cash or mortgage doesn’t matter. We are in a similar position, but with 1.5x networth, but the great view etc costs 1.5M more .. we decided against it, but it your position, I’d absolutely do it, especially as you still have the option of working longer (though I wouldn’t).

Enjoy!
Zeno
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by Zeno »

humblecoder wrote: Mon Sep 20, 2021 4:43 pm Maropolo did the back of the envelope math, so I won't repeat that.

This thread (and other similar "can I afford it" threads) are very interesting to me.

I recently started listening to a podcast entitled "The Retirement and IRA Show". It is very informative and entertaining and I highly recommend it. The the reason why I am bringing the podcast up is that one of the themes of the podcast is that money unspent is potentially life unlived. Their view is that some people are so afraid of the downside risk of running out of money that they end of not spending money that they could easily afford to spend, thus depriving themselves of the fruits of their many years of labor in retirement. As the hosts of the podcasts state, there is no prize for dying with the most wealth.

Much of this fear, they say, is due to the fact that many people just have this big pile of money and when it is gone, it's gone. Therefore, they have the visceral fear of spending it down. Over the course of their lives, they have seen their nest egg generally increase as they save, so when they see their account balances falling because they are no longer in the accumulation phase, it gives them fear. This is compounded by the fact that most people SHOULD be spending their nest egg in the early years of retirement when they are still healthy and active enough to enjoy it. However, taking out more in the early years is tough to do because you always wonder if you are taking out too much too early.

To combat this, they suggest setting aside money that they call a "minimum dignity floor" which is money to cover food, shelter, health care, and other basics. Then the remaining money becomes your "fun money" that you use for discretionary spending. You can spend your fun money however you want and whenever you want since you know that your basic needs are going to be covered by your minimum dignity floor money. They also stress that as you get further into retirement, your ability to enjoy your fun money decreases so you might as well try to spend it early in your retirement. They divide retirement into "go-go", "slow-go", and "no-go". You get the most out of your fun money in the "go-go" years of retirement.

My point with all this is that it seems you have quite a nest egg built up. You also have a decent stream of guaranteed income through your pension and your social security. There is nothing wrong with taking some of your nest egg that is fun money and using it towards upgrading the quality of your retirement home. You need to give yourself permission to enjoy the fruits of your labor while you still can. Will you be happier with that great view, outdoor living space, etc? Or will you be happier dying with an extra $200K in your brokerage account that you didn't spend?
This is a thoughtful and insightful perspective; thank you for sharing it.
Last edited by Zeno on Tue Sep 21, 2021 6:46 am, edited 1 time in total.
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ResearchMed
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by ResearchMed »

VeganBH wrote: Mon Sep 20, 2021 3:22 pm Hello Bogleheads,
DH and I recently relocated to our new retirement(-like) community. We are currently remote working but planning to retire in ~6 months (but could extend). When we purchased our new home earlier this year, it was a feeding frenzy. We were afraid we were going to get priced out of the community - so, we purchased the 2nd home we toured (very limited supply, much demand). This new home/community upgrade cost us $300K over what our old home sold for – which we struggled with at the time (but we’re both very happy we made the move). Now, while we do like our new home quite a bit (and love our new community):

We ask ourselves daily this question: Can we afford a bit more of an upgraded home (view/privacy/outdoor living space) in this same community? Should we splurge (one more time) on what we think will be our last home? For an additional $150k-$250K, it’s possible to have a similar home but with better views (& privacy & outdoor living space) – the views really are spectacular and one of the draws to the community (we have a peek a boo view now). If this is our last home…should we, could we? Annual expenses would only increase slightly (Increased property taxes by $800-$1k/year)

Our numbers:
Age: 52 (him/her both)
Net worth: $3.22M ($1.6 is in taxable, $1.6 is 401K/457 – with $415K in 457) –25% Equities/75% bonds/cash
Approx. target retirement date (both of us): March, 2022
Other: Both working, we save $10K-$15k/month
Current home value: $900K
Debt: None
Annual budget: $120K (includes: $30K discretionary and $20K in taxes)
No kids – no need to leave money behind
No long-term care (plan: downsize the house, or Hemlock Society...)

Retirement Income:
Pension: $50K/year (with 2% COLA)— if work 2 additional years, $65K
Healthcare: 90% is paid for by state employer (results in current $250 month expense)
SS: Her at 62: $20K/year
SS: Him at 67: $34K/year ($43K/year at 70).

We’ve run models with Firecalc using conservative numbers, i.e, net worth of $2.7, an increased budget, collecting just $20K SS, living to 100 years, and we see no failures (but it’s a model!).
Should we “play it safe” and stay in our current home, or splurge on an upgraded retirement home (without extending out our retirement date)? Though we have considered working another year – to justify a splurge and buffer our savings - we’d rather not.
If we knew how long we'd live - this would be easy! :sharebeer
As others have already mentioned, it's ALREADY "easy" !

🍷 🍷

Time to plan ENJOYING your retirement.
And also time to reduce the financial worrying now...

:happy

Or... what, exactly, are your concerns? Are there any other specific issues you haven't mentioned?
You'll still have resources for LTC should that be needed for a real "long" time. ("LTC for a relatively short time" isn't usually a problem, and that's what the situation usually is.)

RM
This signature is a placebo. You are in the control group.
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VeganBH
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

marcopolo wrote: Mon Sep 20, 2021 4:06 pm With your pension, I am not sure I see how this is even a question. You must realize you can afford this

Little back of the envelope math.

$120k spending. $50k pension.
Need portfolio to fund $70k/yr
Let's be real conservative and assume a 2.5% Withdrawal Rate from the portfolio.
That would require $2.8M.
You have $3.2M, leaving $400k surplus that could easily be directed towards the home upgrade.
You also have sizable Soc Sec coming at a later date as an additional cushion.

What is your concern?

Of course only you can answer whether you should do this or not. But, financially, you certainly can.
Thank you for your response. My (our) concern? Well, like you - I've read countless "Can we retire...Can we afford...., etc. threads" always with interest. The concern is getting it wrong. The consequences of not getting it right - running out of money, or having money concerns in retirement - that would not good! There are so many variables. Known unknowns. And I'm sure, unknown unknowns.... It is very helpful to hear you/others chime in with opinions and expertise! Thanks! :happy
"Until we extend our circle of compassion to all living things, humanity will not find peace."​ ~ Albert Sc​hweitzer
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VeganBH
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

humblecoder wrote: Mon Sep 20, 2021 4:43 pm Maropolo did the back of the envelope math, so I won't repeat that.

This thread (and other similar "can I afford it" threads) are very interesting to me.

I recently started listening to a podcast entitled "The Retirement and IRA Show". It is very informative and entertaining and I highly recommend it. The the reason why I am bringing the podcast up is that one of the themes of the podcast is that money unspent is potentially life unlived. Their view is that some people are so afraid of the downside risk of running out of money that they end of not spending money that they could easily afford to spend, thus depriving themselves of the fruits of their many years of labor in retirement. As the hosts of the podcasts state, there is no prize for dying with the most wealth.

Much of this fear, they say, is due to the fact that many people just have this big pile of money and when it is gone, it's gone. Therefore, they have the visceral fear of spending it down. Over the course of their lives, they have seen their nest egg generally increase as they save, so when they see their account balances falling because they are no longer in the accumulation phase, it gives them fear. This is compounded by the fact that most people SHOULD be spending their nest egg in the early years of retirement when they are still healthy and active enough to enjoy it. However, taking out more in the early years is tough to do because you always wonder if you are taking out too much too early.

To combat this, they suggest setting aside money that they call a "minimum dignity floor" which is money to cover food, shelter, health care, and other basics. Then the remaining money becomes your "fun money" that you use for discretionary spending. You can spend your fun money however you want and whenever you want since you know that your basic needs are going to be covered by your minimum dignity floor money. They also stress that as you get further into retirement, your ability to enjoy your fun money decreases so you might as well try to spend it early in your retirement. They divide retirement into "go-go", "slow-go", and "no-go". You get the most out of your fun money in the "go-go" years of retirement.

My point with all this is that it seems you have quite a nest egg built up. You also have a decent stream of guaranteed income through your pension and your social security. There is nothing wrong with taking some of your nest egg that is fun money and using it towards upgrading the quality of your retirement home. You need to give yourself permission to enjoy the fruits of your labor while you still can. Will you be happier with that great view, outdoor living space, etc? Or will you be happier dying with an extra $200K in your brokerage account that you didn't spend?
Such a thoughtful and insightful response - thank you! Sounds like a great Podcast - will check it out. Much appreciation for the comprehensive summary - it all makes sense to me (enjoy your "fun money" while you can, etc.). For the record, I think I'd be happier spending the $200K - or our nest egg down to $0 - but the fear of running out of money is real! :shock: I love the idea of a "minimum dignity floor" - that is a different way to view one's nest egg, for sure. Sincere thanks for your view/resource! :D
"Until we extend our circle of compassion to all living things, humanity will not find peace."​ ~ Albert Sc​hweitzer
marcopolo
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by marcopolo »

VeganBH wrote: Mon Sep 20, 2021 6:39 pm
marcopolo wrote: Mon Sep 20, 2021 4:06 pm With your pension, I am not sure I see how this is even a question. You must realize you can afford this

Little back of the envelope math.

$120k spending. $50k pension.
Need portfolio to fund $70k/yr
Let's be real conservative and assume a 2.5% Withdrawal Rate from the portfolio.
That would require $2.8M.
You have $3.2M, leaving $400k surplus that could easily be directed towards the home upgrade.
You also have sizable Soc Sec coming at a later date as an additional cushion.

What is your concern?

Of course only you can answer whether you should do this or not. But, financially, you certainly can.
Thank you for your response. My (our) concern? Well, like you - I've read countless "Can we retire...Can we afford...., etc. threads" always with interest. The concern is getting it wrong. The consequences of not getting it right - running out of money, or having money concerns in retirement - that would not good! There are so many variables. Known unknowns. And I'm sure, unknown unknowns.... It is very helpful to hear you/others chime in with opinions and expertise! Thanks! :happy
That is legitimate concern.
Also realize That you are not throwing away that money on a depreciating asset, you are putting into real estate that will likely at least keep up with inflation. If things go really south (< 2.5% WR plus SS as a buffer fails!), you could always scale back to something like the house you are in now and pull out the difference. You will have at least enjoyed the view for a good many years.

Just an an aside, with asset just a little more than yours and no pension, we retired a few years ago at age 51 and built a home that cost about 3x our previous house (also has spectacular views). We wake up every morning and appreciate our morning coffee on the lanai overlooking expansive ocean views. No regrets. You only get one ride on this merry go round.

Good luck to you whatever you decide.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by bhsince87 »

I'd be tempted to go ahead and buy it with a mortgage, and then commit to working two more years.

The extra $15k per year will more than cover the extra expense, and provide a major cushion for the rest of your life. That's a deal very few people can get these days.

You'll still be retiring by 55, right? And that's pretty sweet. And you don't sound like you're slogging your way through work at this point.
Time is what we want most, but what we use worst. William Penn
Walkure
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by Walkure »

humblecoder wrote: Mon Sep 20, 2021 4:43 pm Their view is that some people are so afraid of the downside risk of running out of money that they end of not spending money that they could easily afford to spend, thus depriving themselves of the fruits of their many years of labor in retirement. As the hosts of the podcasts state, there is no prize for dying with the most wealth.

Much of this fear, they say, is due to the fact that many people just have this big pile of money and when it is gone, it's gone. Therefore, they have the visceral fear of spending it down. Over the course of their lives, they have seen their nest egg generally increase as they save, so when they see their account balances falling because they are no longer in the accumulation phase, it gives them fear.
Somehow I suspect that for every person out there who is afraid of outliving their money, another person can’t bear to see the balance decline because giving themselves permission to spend down the nest egg would require an implicit acknowledgment of their own mortality.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by David Jay »

VeganBH wrote: Mon Sep 20, 2021 6:52 pmFor the record, I think I'd be happier spending the $200K - or our nest egg down to $0 - but the fear of running out of money is real! :shock:
Your home is an asset. It can be converted back to cash if necessary or one can do a reverse mortgage without leaving your home. So it remains part of your nest egg.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
marcopolo
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by marcopolo »

bhsince87 wrote: Mon Sep 20, 2021 7:04 pm I'd be tempted to go ahead and buy it with a mortgage, and then commit to working two more years.

The extra $15k per year will more than cover the extra expense, and provide a major cushion for the rest of your life. That's a deal very few people can get these days.

You'll still be retiring by 55, right? And that's pretty sweet. And you don't sound like you're slogging your way through work at this point.
You are worried a sub 2.5% WR (after buying the new house) is too risky, and OP should work 2 more years even though they are eyeing retirement in 6 months?
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by delamer »

humblecoder wrote: Mon Sep 20, 2021 4:43 pm Maropolo did the back of the envelope math, so I won't repeat that.

This thread (and other similar "can I afford it" threads) are very interesting to me.

I recently started listening to a podcast entitled "The Retirement and IRA Show". It is very informative and entertaining and I highly recommend it. The the reason why I am bringing the podcast up is that one of the themes of the podcast is that money unspent is potentially life unlived. Their view is that some people are so afraid of the downside risk of running out of money that they end of not spending money that they could easily afford to spend, thus depriving themselves of the fruits of their many years of labor in retirement. As the hosts of the podcasts state, there is no prize for dying with the most wealth.

Much of this fear, they say, is due to the fact that many people just have this big pile of money and when it is gone, it's gone. Therefore, they have the visceral fear of spending it down. Over the course of their lives, they have seen their nest egg generally increase as they save, so when they see their account balances falling because they are no longer in the accumulation phase, it gives them fear. This is compounded by the fact that most people SHOULD be spending their nest egg in the early years of retirement when they are still healthy and active enough to enjoy it. However, taking out more in the early years is tough to do because you always wonder if you are taking out too much too early.

To combat this, they suggest setting aside money that they call a "minimum dignity floor" which is money to cover food, shelter, health care, and other basics. Then the remaining money becomes your "fun money" that you use for discretionary spending. You can spend your fun money however you want and whenever you want since you know that your basic needs are going to be covered by your minimum dignity floor money. They also stress that as you get further into retirement, your ability to enjoy your fun money decreases so you might as well try to spend it early in your retirement. They divide retirement into "go-go", "slow-go", and "no-go". You get the most out of your fun money in the "go-go" years of retirement.

My point with all this is that it seems you have quite a nest egg built up. You also have a decent stream of guaranteed income through your pension and your social security. There is nothing wrong with taking some of your nest egg that is fun money and using it towards upgrading the quality of your retirement home. You need to give yourself permission to enjoy the fruits of your labor while you still can. Will you be happier with that great view, outdoor living space, etc? Or will you be happier dying with an extra $200K in your brokerage account that you didn't spend?
While conceding that the average 65-year-old has more willingness and ability to be active (travel, hobbies, etc.) than the average 80-year-old, it seems that some additional funds at 80 might make an activity still doable and enjoyable. For instance, a flight to Australia in coach seats at 65 is probably OK. At 80, the same trip is still a possibility but you’d want to buy seats in first-class.

The idea of a minimum dignity floor is being discussed — without using that phrase — in another thread. If you can, through Social Security, pensions, or SPIAs, derive enough annuitized income to cover your core living expenses or “needs” then the rest of your liquid assets can be used to indulge in your “wants.” The biggest issue seems to be that inflation-adjusted annuitized income is hard to come by over a 20 to 30 year period, other than through Social Security and the occasional government pension.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

ResearchMed wrote: Mon Sep 20, 2021 6:09 pm
VeganBH wrote: Mon Sep 20, 2021 3:22 pm
If we knew how long we'd live - this would be easy! :sharebeer
As others have already mentioned, it's ALREADY "easy" !

🍷 🍷

Time to plan ENJOYING your retirement.
And also time to reduce the financial worrying now...

:happy

Or... what, exactly, are your concerns? Are there any other specific issues you haven't mentioned?
You'll still have resources for LTC should that be needed for a real "long" time. ("LTC for a relatively short time" isn't usually a problem, and that's what the situation usually is.)


RM
Thank your for the well wishes and your positive take on the situation! :D Concern is just getting it wrong and then having to stress about getting it wrong - i.e., worry about $$ when retired. We just want our safety margin wide enough to account for all (most?) negative possibilities (poor sequence of returns, etc.).
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by Flyin55 »

Please upgrade! That is exactly what I would love to do, but am not in your position. You have decades to enjoy the view. Upgrade and enjoy it! :sharebeer
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

marcopolo wrote: Mon Sep 20, 2021 6:58 pm
VeganBH wrote: Mon Sep 20, 2021 6:39 pm
marcopolo wrote: Mon Sep 20, 2021 4:06 pm With your pension, I am not sure I see how this is even a question. You must realize you can afford this

Little back of the envelope math.

$120k spending. $50k pension.
Need portfolio to fund $70k/yr
Let's be real conservative and assume a 2.5% Withdrawal Rate from the portfolio.
That would require $2.8M.
You have $3.2M, leaving $400k surplus that could easily be directed towards the home upgrade.
You also have sizable Soc Sec coming at a later date as an additional cushion.

What is your concern?

Of course only you can answer whether you should do this or not. But, financially, you certainly can.
Thank you for your response. My (our) concern? Well, like you - I've read countless "Can we retire...Can we afford...., etc. threads" always with interest. The concern is getting it wrong. The consequences of not getting it right - running out of money, or having money concerns in retirement - that would not be good! There are so many variables. Known unknowns. And I'm sure, unknown unknowns.... It is very helpful to hear you/others chime in with opinions and expertise! Thanks! :happy
That is legitimate concern.
Also realize That you are not throwing away that money on a depreciating asset, you are putting into real estate that will likely at least keep up with inflation. If things go really south (< 2.5% WR plus SS as a buffer fails!), you could always scale back to something like the house you are in now and pull out the difference. You will have at least enjoyed the view for a good many years.

Just an an aside, with asset just a little more than yours and no pension, we retired a few years ago at age 51 and built a home that cost about 3x our previous house (also has spectacular views). We wake up every morning and appreciate our morning coffee on the lanai overlooking expansive ocean views. No regrets. You only get one ride on this merry go round.

Good luck to you whatever you decide.
Thank you! You make a great point about added purchase dollars going toward a non-depreciating asset - a good way to look at it (though it is costly to move w/realtor commissions, etc.). We do enjoy the simple things in life - having our coffee while taking in an enchanting red rock desert view - right at the top of the list :D (had considered an island move & ocean view!)

Happy for you and your choices in retirement! Best saying ever!
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

bhsince87 wrote: Mon Sep 20, 2021 7:04 pm I'd be tempted to go ahead and buy it with a mortgage, and then commit to working two more years.

The extra $15k per year will more than cover the extra expense, and provide a major cushion for the rest of your life. That's a deal very few people can get these days.

You'll still be retiring by 55, right? And that's pretty sweet. And you don't sound like you're slogging your way through work at this point.
Thanks for your response! Yes working another 2-years for the serious bump in pension is hard to walk away from (and I've bumped this date out a year already!). You're correct - it's no slog. I actually enjoy what I do, and have scaled back to 3 days a week - so, it's ideal in terms of work-life balance (combined with remote working ever since COVID began :happy). I may very well just keep pushing out the end date...
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

David Jay wrote: Mon Sep 20, 2021 7:10 pm
VeganBH wrote: Mon Sep 20, 2021 6:52 pmFor the record, I think I'd be happier spending the $200K - or our nest egg down to $0 - but the fear of running out of money is real! :shock:
Your home is an asset. It can be converted back to cash if necessary or one can do a reverse mortgage without leaving your home. So it remains part of your nest egg.
Thanks for pointing this out David Jay! It definitely helps when viewing it this way. And as Marcopolo mentioned above - a more expensive home purchase isn't a depreciating asset (usually).
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by bhsince87 »

marcopolo wrote: Mon Sep 20, 2021 7:16 pm
bhsince87 wrote: Mon Sep 20, 2021 7:04 pm I'd be tempted to go ahead and buy it with a mortgage, and then commit to working two more years.

The extra $15k per year will more than cover the extra expense, and provide a major cushion for the rest of your life. That's a deal very few people can get these days.

You'll still be retiring by 55, right? And that's pretty sweet. And you don't sound like you're slogging your way through work at this point.
You are worried a sub 2.5% WR (after buying the new house) is too risky, and OP should work 2 more years even though they are eyeing retirement in 6 months?
I'm not "worried" about it being too risky. I'm just saying sticking it out another 18 months in return for $15k per year, inflation adjusted, for the rest of his life (and possibly longer, depending on spousal benefits), is something to be seriously considered.

That could easily be a 40+ year benefit. And something like that cannot be purchased on the open market at this point in time. It's a very rare, but awesome benefit, and IMO, it shouldn't be dismissed without some serious consideration.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

delamer wrote: Mon Sep 20, 2021 7:21 pm
While conceding that the average 65-year-old has more willingness and ability to be active (travel, hobbies, etc.) than the average 80-year-old, it seems that some additional funds at 80 might make an activity still doable and enjoyable. For instance, a flight to Australia in coach seats at 65 is probably OK. At 80, the same trip is still a possibility but you’d want to buy seats in first-class.

The idea of a minimum dignity floor is being discussed — without using that phrase — in another thread. If you can, through Social Security, pensions, or SPIAs, derive enough annuitized income to cover your core living expenses or “needs” then the rest of your liquid assets can be used to indulge in your “wants.” The biggest issue seems to be that inflation-adjusted annuitized income is hard to come by over a 20 to 30 year period, other than through Social Security and the occasional government pension.
Good point. DH and I can relate (though only 52) - we used to enjoy camping. Now it's AirBNB. Same goes for backpacking - now we prefer to pay someone to schlep our stuff. 8-) ETC.

I'm very interested in learning more about the "minimum dignity floor" idea. I'll have to find the BH discussions.
Thanks for your comment!
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

bhsince87 wrote: Mon Sep 20, 2021 8:20 pm
marcopolo wrote: Mon Sep 20, 2021 7:16 pm
bhsince87 wrote: Mon Sep 20, 2021 7:04 pm I'd be tempted to go ahead and buy it with a mortgage, and then commit to working two more years.

The extra $15k per year will more than cover the extra expense, and provide a major cushion for the rest of your life. That's a deal very few people can get these days.

You'll still be retiring by 55, right? And that's pretty sweet. And you don't sound like you're slogging your way through work at this point.
You are worried a sub 2.5% WR (after buying the new house) is too risky, and OP should work 2 more years even though they are eyeing retirement in 6 months?
I'm not "worried" about it being too risky. I'm just saying sticking it out another 18 months in return for $15k per year, inflation adjusted, for the rest of his life (and possibly longer, depending on spousal benefits), is something to be seriously considered.

That could easily be a 40+ year benefit. And something like that cannot be purchased on the open market at this point in time. It's a very rare, but awesome benefit, and IMO, it shouldn't be dismissed without some serious consideration.
It is an awesome benefit - and does indeed have spousal survival benefits (100%) - which is one reason I've pushed the date out already (as my earlier post mentioned). And while work is not a "slog" - there's plenty of hobbies & volunteering I'm looking forward to doing. But w/regard to the pension: "Don't look a gift horse in the mouth" -- comes to mind. :P

Edited for poor grammar.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by tibbitts »

I wouldn't characterize this as a splurge, with or without working longer. Working longer is a more complicated decision but isn't a prerequisite for this purchase.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

L84SUPR wrote: Mon Sep 20, 2021 3:47 pm What could you remove from your budget to make the increase in house payment fit? That is the opportunity cost of the nicer home/view.

That is one way to look at it, might help.
Thanks for your comment. Though we'd likely be able to pay cash for the cost differential (we tend to hold too much cash) - I believe your reference to a modified "budget" & "opportunity cost" is your point - and is definitely another way to look at our decision. Thank you!
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

tibbitts wrote: Mon Sep 20, 2021 8:49 pm I wouldn't characterize this as a splurge, with or without working longer. Working longer is a more complicated decision but isn't a prerequisite for this purchase.
Thanks for another "yes" vote! :)
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by phxjcc »

<sigh>
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by TomatoTomahto »

You can afford it. Enjoy it.

On a slightly less positive note, real estate transactions are expensive. If mutual funds had the same expense ratios, BHs would discourage their use. While a house is not an inherently declining asset, it takes a lot of appreciation to overcome the friction of expenses. I told my child, a hockey goalie, to pick the helmet he needed/wanted regardless of expense and stop upgrading; I only wanted to buy one helmet because the resale value of a lightly used helmet is limited.
I get the FI part but not the RE part of FIRE.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by SQRT »

humblecoder wrote: Mon Sep 20, 2021 4:43 pm Maropolo did the back of the envelope math, so I won't repeat that.

This thread (and other similar "can I afford it" threads) are very interesting to me.

I recently started listening to a podcast entitled "The Retirement and IRA Show". It is very informative and entertaining and I highly recommend it. The the reason why I am bringing the podcast up is that one of the themes of the podcast is that money unspent is potentially life unlived. Their view is that some people are so afraid of the downside risk of running out of money that they end of not spending money that they could easily afford to spend, thus depriving themselves of the fruits of their many years of labor in retirement. As the hosts of the podcasts state, there is no prize for dying with the most wealth.

Much of this fear, they say, is due to the fact that many people just have this big pile of money and when it is gone, it's gone. Therefore, they have the visceral fear of spending it down. Over the course of their lives, they have seen their nest egg generally increase as they save, so when they see their account balances falling because they are no longer in the accumulation phase, it gives them fear. This is compounded by the fact that most people SHOULD be spending their nest egg in the early years of retirement when they are still healthy and active enough to enjoy it. However, taking out more in the early years is tough to do because you always wonder if you are taking out too much too early.

To combat this, they suggest setting aside money that they call a "minimum dignity floor" which is money to cover food, shelter, health care, and other basics. Then the remaining money becomes your "fun money" that you use for discretionary spending. You can spend your fun money however you want and whenever you want since you know that your basic needs are going to be covered by your minimum dignity floor money. They also stress that as you get further into retirement, your ability to enjoy your fun money decreases so you might as well try to spend it early in your retirement. They divide retirement into "go-go", "slow-go", and "no-go". You get the most out of your fun money in the "go-go" years of retirement.

My point with all this is that it seems you have quite a nest egg built up. You also have a decent stream of guaranteed income through your pension and your social security. There is nothing wrong with taking some of your nest egg that is fun money and using it towards upgrading the quality of your retirement home. You need to give yourself permission to enjoy the fruits of your labor while you still can. Will you be happier with that great view, outdoor living space, etc? Or will you be happier dying with an extra $200K in your brokerage account that you didn't spend?
Yes, very well said. This hits home for me. I’m 71 been retired 15 years. Portfolio near all time high. Very generous non cola pension. I’ve decided to really splurge on an upgrade to our lake house. Very expensive to do this but I figure if not now, probably never. It will reduce our portfolio by about 15-20% but there should be plenty left for a very well funded lifestyle. Many people here would laugh at any anxiety I might have. But anxious I am.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by Watty »

VeganBH wrote: Mon Sep 20, 2021 3:22 pm We’ve run models with Firecalc using conservative numbers, i.e, net worth of $2.7, an increased budget, collecting just $20K SS, living to 100 years, and we see no failures (but it’s a model!).
One more thought. When you are looking at models they often show the result as the percent odds of "success" of "failure". The problem is that with "failure" it sounds like you keep spending mindlessly until you are broke and homeless. In the real world if your portfolio is doing worse than hoped for then you might need to do something like reduce your spending or downsize to free up home equity when you are 75. That could be a problem if you were planning a bare bones retirement but you would have plenty of ways to adapt if you need to.

One thing I did when I was deciding if I should retire was that I set up my numbers in Firecalc for 100% success and then I keep increasing my spending by $10K a year to see how that impacted my success percentage. I even made a simple graph of how the odds declined to see if there was a sharp cliff that would be a problem. As I recall it required a huge difference to go between 95% and 100%.

Our situation was much different but we were OK with a 5% chance that we might need to reduce our spending at some point if that allowed us to retire years earlier. Of course we would still be reasonably comfortable if we needed to reduce our spending by 10 or even 20%.

You also need to keep in mind that for your retirement plans to actually fail that you would need to live to be a ripe old age. There is a very reasonable chance that for a couple that at least one of them will live to be 95+ so you need to be prepared for that but it is more likely that neither of them will live to be anywhere near that old. Running short of money at 90 is only a problem if one of you actually lives to be 90.

This is one of the few retirement calculators that I have seen that tries to factor in your mortality into calculating "success" or "failure"

"Rich, Broke, or Dead"

https://engaging-data.com/will-money-last-retire-early/
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by barnaclebob »

A good view never gets old. Buying a house with a killer view is one of the best decisions we've ever made. You can afford it.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

Watty wrote: Mon Sep 20, 2021 4:36 pm
VeganBH wrote: Mon Sep 20, 2021 3:22 pm For an additional $150k-$250K, it’s possible to have a similar home but with better views (& privacy & outdoor living space) – the views really are spectacular and one of the draws to the community (we have a peek a boo view now). If this is our last home…should we, could we? Annual expenses would only increase slightly (Increased property taxes by $800-$1k/year)
.....
Annual budget: $120K ($10K month)
There are several variations on the saying, "You can have anything you want, but not everything you want."

One way of looking at it is if you financed the $250K then you would have a mortgage payment of around $1,000 a month so with the extra taxes you would need to budget for around $1,100 a month for the nicer place.

The big question is if you are willing to reduce your other spending by $1,100 a month to be able to afford the nicer place.

Living on around $106K a year instead of $120K, with a paid off house, would hardly be a dire situation but only you can say if the trade offs would be worth it to you or not.

In practice it would likely make sense to pay any additional costs in cash but then you would have a smaller nest egg and need to spend a bit less but the impact on your retirement budget would be about the same.
VeganBH wrote: Mon Sep 20, 2021 3:22 pm Net worth: $3.22M ($1.6 is in taxable, $1.6 is 401K/457 – with $415K in 457)
.....
Current home value: $900K
Debt: None
Just a quibble but your net worth includes your home equity so it would be around $4.1 million.
VeganBH wrote: Mon Sep 20, 2021 3:22 pm We’ve run models with Firecalc using conservative numbers, i.e, net worth of $2.7, an increased budget, collecting just $20K SS, living to 100 years, and we see no failures (but it’s a model!).
$250K is less that 8% of your $3.2 million nest egg. Any predictions have a lot more uncertainty than that so thinking that you can reliably predict the impact of an 8% change is not realistic.

If things do not work out like you hope then there are also ways to tap your home equity like a reverse mortgage if you need or want to.
All very good points, Watty. You give us much to think about here.... Thank you very much for your insight.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

barnaclebob wrote: Tue Sep 21, 2021 9:45 am A good view never gets old. Buying a house with a killer view is one of the best decisions we've ever made. You can afford it.
Ah, another "point" in our favor! :D Thanks for your opinion, barnaclebob. Glad you are very happy with your decision - and your killer view! :beer
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by TXJeff »

Here are the things that stand out to me: 

- Retirement calculators and most posters here say that OP has enough to retire now, even with the purchase of the new home.
- The couple likes their jobs, but prefer to retire now.
- Two more years of work adds an additional $15,000 per year to a pension that is COLA'd, with 100% survivorship.
- The couple thinks longingly every day about upgrading their home.
- They worry regularly about having enough for retirement despite all retirement calculator results.

To me the answer is clear: buy the new house and work two more years. My guess is that the exciting project of settling into a dream home will make the two years fly by. Plus, if, a year into the new place, OP wants to tackle a big expensive house project, they'll have preserved their human capital, and can continue working a bit more if they want. Lastly, the two added years of work will put them way ahead financially, even after the new home cost. Here are the numbers:

- Cost of new house move, including upgrade and 2 real estate transactions: about $300,000
- "Loss" of the next two years of $50,000 pension: $100,000

- Savings, at current savings rate, from 2 more years of work: about $300,000
- Added value of pension over 30 years (in today's $$): $450,000
- Savings from not having to withdraw from portfolio for the next two years: $140,000 

Work two more years. Buy the dream home worry free. Eliminate your concerns about running out of $$, with about an additional $500,000.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

Watty wrote: Tue Sep 21, 2021 9:09 am
VeganBH wrote: Mon Sep 20, 2021 3:22 pm We’ve run models with Firecalc using conservative numbers, i.e, net worth of $2.7, an increased budget, collecting just $20K SS, living to 100 years, and we see no failures (but it’s a model!).
One more thought. When you are looking at models they often show the result as the percent odds of "success" of "failure". The problem is that with "failure" it sounds like you keep spending mindlessly until you are broke and homeless. In the real world if your portfolio is doing worse than hoped for then you might need to do something like reduce your spending or downsize to free up home equity when you are 75. That could be a problem if you were planning a bare bones retirement but you would have plenty of ways to adapt if you need to.

One thing I did when I was deciding if I should retire was that I set up my numbers in Firecalc for 100% success and then I keep increasing my spending by $10K a year to see how that impacted my success percentage. I even made a simple graph of how the odds declined to see if there was a sharp cliff that would be a problem. As I recall it required a huge difference to go between 95% and 100%.

Our situation was much different but we were OK with a 5% chance that we might need to reduce our spending at some point if that allowed us to retire years earlier. Of course we would still be reasonably comfortable if we needed to reduce our spending by 10 or even 20%.

You also need to keep in mind that for your retirement plans to actually fail that you would need to live to be a ripe old age. There is a very reasonable chance that for a couple that at least one of them will live to be 95+ so you need to be prepared for that but it is more likely that neither of them will live to be anywhere near that old. Running short of money at 90 is only a problem if one of you actually lives to be 90.

This is one of the few retirement calculators that I have seen that tries to factor in your mortality into calculating "success" or "failure"

"Rich, Broke, or Dead"

https://engaging-data.com/will-money-last-retire-early/
Thanks so much for your (additional) comments, Watty. Your 1st point is well taken. Though a future where thrift store shopping is the norm over Amazon purchases, etc., or fewer expensive vacations taken...Well, life could be much worse! But yes, having flexibility to downscale spending if things don't go as planned (modeled) is a valid strategy to consider.
Great tip about playing around with your spending numbers in Firecalc - We'll definitely take a closer look at different scenarios.

I'm going to have to noodle a bit on this one. Knowing one's planning horizon would make retirement planning easy (I don't think you're hinting at Dignitas in Switzerland) :)

Thanks for the model suggestion - looking forward to checking this out!
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by FandangoDave5010 »

We too spent more on our retirement home than we got for our house in NJ. With less than half the income and savings you have, we could have splurged more, such as a 3rd garage, addition deck, more granite, etc. Our retirement income now is more than we can spend, in low tax Nevada. To spend it we put couple of hundred thousand in a 529 account for our granddaughter. For ourselves, two new cars the past year and two vacations in Los Cabo coming up at their finest resorts. Next, maybe prepay for adjoining plots in an upscaled cemetery for our ashes.

Go ahead and splurge. You'll enjoy it.
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Re: Can We Afford to Splurge on Retirement Dream Home?

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FandangoDave5010 wrote: Tue Sep 21, 2021 12:36 pm We too spent more on our retirement home than we got for our house in NJ. With less than half the income and savings you have, we could have splurged more, such as a 3rd garage, addition deck, more granite, etc. Our retirement income now is more than we can spend, in low tax Nevada. To spend it we put couple of hundred thousand in a 529 account for our granddaughter. For ourselves, two new cars the past year and two vacations in Los Cabo coming up at their finest resorts. Next, maybe prepay for adjoining plots in an upscaled cemetery for our ashes.

Go ahead and splurge. You'll enjoy it.
Thanks FandangoDave! Glad your retirement is going well. What a lucky granddaughter you have! Enjoy your trips to Cabo - we love it down there (including the more off the beaten track towns/beaches). :beer
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by phxjcc »

Watty wrote: Tue Sep 21, 2021 9:09 am
VeganBH wrote: Mon Sep 20, 2021 3:22 pm We’ve run models with Firecalc using conservative numbers, i.e, net worth of $2.7, an increased budget, collecting just $20K SS, living to 100 years, and we see no failures (but it’s a model!).
One more thought. When you are looking at models they often show the result as the percent odds of "success" of "failure". The problem is that with "failure" it sounds like you keep spending mindlessly until you are broke and homeless. In the real world if your portfolio is doing worse than hoped for then you might need to do something like reduce your spending or downsize to free up home equity when you are 75. That could be a problem if you were planning a bare bones retirement but you would have plenty of ways to adapt if you need to.

One thing I did when I was deciding if I should retire was that I set up my numbers in Firecalc for 100% success and then I keep increasing my spending by $10K a year to see how that impacted my success percentage. I even made a simple graph of how the odds declined to see if there was a sharp cliff that would be a problem. As I recall it required a huge difference to go between 95% and 100%.

Our situation was much different but we were OK with a 5% chance that we might need to reduce our spending at some point if that allowed us to retire years earlier. Of course we would still be reasonably comfortable if we needed to reduce our spending by 10 or even 20%.

You also need to keep in mind that for your retirement plans to actually fail that you would need to live to be a ripe old age. There is a very reasonable chance that for a couple that at least one of them will live to be 95+ so you need to be prepared for that but it is more likely that neither of them will live to be anywhere near that old. Running short of money at 90 is only a problem if one of you actually lives to be 90.

This is one of the few retirement calculators that I have seen that tries to factor in your mortality into calculating "success" or "failure"

"Rich, Broke, or Dead"

https://engaging-data.com/will-money-last-retire-early/
^^^
My bold, italic and underlined.

This is very well said by Watty, far better than I have said before.

Unless one is living at an entirely subsistence only level, there is room to cut out fat in monthly spending without hitting muscle.

You don't NEED cable, but you have to eat.
You don't NEED to travel, but you have to have your meds.

I guess I spent too many years figuring out what the minimum run-rate was on businesses I was managing; but this is basic stuff.

Maslow's hierarchy: physiological needs first, self actualization last.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

TXJeff wrote: Tue Sep 21, 2021 12:07 pm Here are the things that stand out to me: 

- Retirement calculators and most posters here say that OP has enough to retire now, even with the purchase of the new home.
- The couple likes their jobs, but prefer to retire now.
- Two more years of work adds an additional $15,000 per year to a pension that is COLA'd, with 100% survivorship.
- The couple thinks longingly every day about upgrading their home.
- They worry regularly about having enough for retirement despite all retirement calculator results.

To me the answer is clear: buy the new house and work two more years. My guess is that the exciting project of settling into a dream home will make the two years fly by. Plus, if, a year into the new place, OP wants to tackle a big expensive house project, they'll have preserved their human capital, and can continue working a bit more if they want. Lastly, the two added years of work will put them way ahead financially, even after the new home cost. Here are the numbers:

- Cost of new house move, including upgrade and 2 real estate transactions: about $300,000
- "Loss" of the next two years of $50,000 pension: $100,000

- Savings, at current savings rate, from 2 more years of work: about $300,000
- Added value of pension over 30 years (in today's $$): $450,000
- Savings from not having to withdraw from portfolio for the next two years: $140,000 

Work two more years. Buy the dream home worry free. Eliminate your concerns about running out of $$, with about an additional $500,000.
Thanks for your thoughtful breakdown, the numbers and suggestion, TXJeff! The only hang up with the "just work two more years" is that: We're not getting any younger & we're not ever going to be more healthy than we are currently. A lot of what we enjoy doing currently* is physical (biking, hiking, backpacking) - and we worry that if we wait too long, it just might not be physically possible (or as fun) to do a lot of the the multi-day adventure type trips we've envisioned. Not knowing how long we'll be healthy and agile - is really what is driving us to a sooner rather than later retirement. As marcopolo said: You only get one ride on this Merry-go-round.
Running the same scenario - if we worked one more year - that would about pay for the home upgrade. Maybe we'll hedge our bets and do OMY. :D

* We recently took up pickle ball in our new community. Not hugely physically demanding - but oh my - is it fun (& social)!
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by Watty »

phxjcc wrote: Tue Sep 21, 2021 1:36 pm Unless one is living at an entirely subsistence only level, there is room to cut out fat in monthly spending without hitting muscle.

You don't NEED cable, but you have to eat.
You don't NEED to travel, but you have to have your meds.
I didn't lookup up the statistics but at the OPs budget and net worth cutting back would be more likely ge going from living the lifestyle of the top 2% to living the lifestyle of the top 10%.
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

SQRT wrote: Tue Sep 21, 2021 8:23 am
humblecoder wrote: Mon Sep 20, 2021 4:43 pm
My point with all this is that it seems you have quite a nest egg built up. You also have a decent stream of guaranteed income through your pension and your social security. There is nothing wrong with taking some of your nest egg that is fun money and using it towards upgrading the quality of your retirement home. You need to give yourself permission to enjoy the fruits of your labor while you still can. Will you be happier with that great view, outdoor living space, etc? Or will you be happier dying with an extra $200K in your brokerage account that you didn't spend?
Yes, very well said. This hits home for me. I’m 71 been retired 15 years. Portfolio near all time high. Very generous non cola pension. I’ve decided to really splurge on an upgrade to our lake house. Very expensive to do this but I figure if not now, probably never. It will reduce our portfolio by about 15-20% but there should be plenty left for a very well funded lifestyle. Many people here would laugh at any anxiety I might have. But anxious I am.
SQRT - Enjoy your lake house upgrade! I'm sure you will get a lot of enjoyment out of it! :beer
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by Artful Dodger »

humblecoder wrote: Mon Sep 20, 2021 4:43 pm Maropolo did the back of the envelope math, so I won't repeat that.

This thread (and other similar "can I afford it" threads) are very interesting to me.

I recently started listening to a podcast entitled "The Retirement and IRA Show". It is very informative and entertaining and I highly recommend it. The the reason why I am bringing the podcast up is that one of the themes of the podcast is that money unspent is potentially life unlived. Their view is that some people are so afraid of the downside risk of running out of money that they end of not spending money that they could easily afford to spend, thus depriving themselves of the fruits of their many years of labor in retirement. As the hosts of the podcasts state, there is no prize for dying with the most wealth.

Much of this fear, they say, is due to the fact that many people just have this big pile of money and when it is gone, it's gone. Therefore, they have the visceral fear of spending it down. Over the course of their lives, they have seen their nest egg generally increase as they save, so when they see their account balances falling because they are no longer in the accumulation phase, it gives them fear. This is compounded by the fact that most people SHOULD be spending their nest egg in the early years of retirement when they are still healthy and active enough to enjoy it. However, taking out more in the early years is tough to do because you always wonder if you are taking out too much too early.

To combat this, they suggest setting aside money that they call a "minimum dignity floor" which is money to cover food, shelter, health care, and other basics. Then the remaining money becomes your "fun money" that you use for discretionary spending. You can spend your fun money however you want and whenever you want since you know that your basic needs are going to be covered by your minimum dignity floor money. They also stress that as you get further into retirement, your ability to enjoy your fun money decreases so you might as well try to spend it early in your retirement. They divide retirement into "go-go", "slow-go", and "no-go". You get the most out of your fun money in the "go-go" years of retirement.

My point with all this is that it seems you have quite a nest egg built up. You also have a decent stream of guaranteed income through your pension and your social security. There is nothing wrong with taking some of your nest egg that is fun money and using it towards upgrading the quality of your retirement home. You need to give yourself permission to enjoy the fruits of your labor while you still can. Will you be happier with that great view, outdoor living space, etc? Or will you be happier dying with an extra $200K in your brokerage account that you didn't spend?
Sounds like a podcast worth checking out. Thanks, humblecoder!

OP, I think you should move ahead with your dream home. You can afford it. While not as large an expense as you are considering, we've put in about $50K in home improvements over the last 18 months, and I'm enjoying our upgraded kitchen and bath areas.
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Re: Can We Afford to Splurge on Retirement Dream Home?

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Watty wrote: Tue Sep 21, 2021 2:25 pm
phxjcc wrote: Tue Sep 21, 2021 1:36 pm Unless one is living at an entirely subsistence only level, there is room to cut out fat in monthly spending without hitting muscle.

You don't NEED cable, but you have to eat.
You don't NEED to travel, but you have to have your meds.
I didn't lookup up the statistics but at the OPs budget and net worth cutting back would be more likely ge going from living the lifestyle of the top 2% to living the lifestyle of the top 10%.
Ack - that doesn't sound great, Watty. I just input numbers into some random site, suggesting a NW of $3.2M dropping to $2.9M results in going from 96.5% to 95% - I like these numbers better. 8-)
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by Devil's Advocate »

It is a little concerning to me that after less than a year in your new home you are ready to upgrade. While your finances are clearly rock solid it seems your decision making process buying this last home was a bit off. Why didn't you just buy the dream home a year ago? Real estate transaction costs are quite high. What makes you think in a year or two you won't be looking at something bigger and better?

DA
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Re: Can We Afford to Splurge on Retirement Dream Home?

Post by VeganBH »

Artful Dodger wrote: Tue Sep 21, 2021 2:51 pm ......

OP, I think you should move ahead with your dream home. You can afford it. While not as large an expense as you are considering, we've put in about $50K in home improvements over the last 18 months, and I'm enjoying our upgraded kitchen and bath areas.
Thanks for your comment, Artful Dodger - glad you're enjoying your upgraded home improvements! :D
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Re: Can We Afford to Splurge on Retirement Dream Home?

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Devil's Advocate wrote: Tue Sep 21, 2021 3:08 pm It is a little concerning to me that after less than a year in your new home you are ready to upgrade. While your finances are clearly rock solid it seems your decision making process buying this last home was a bit off. Why didn't you just buy the dream home a year ago? Real estate transaction costs are quite high. What makes you think in a year or two you won't be looking at something bigger and better?

DA
[my bolding]
That's a great question. And trust me when I say, it feels like the world conspired against us on this (Spoiler: it has to do with the Pandemic).
Basically, in anticipation of retirement and moving to a new retirement community, the past few years DH and I had been travelling about to find the perfect place to retire (adding towns to list/taking others off). Right before the Pandemic started, we had two places on our list to go - one we'd visited several times but were unsure of still (Local #1) - and the other, was entirely new/unvisited (Local #2), that we wanted to visit & rule it out.

We were hyper cautious of travel during the pandemic (and following California guidelines on this which frowned on travel). We finally and reluctantly made but one trip in 2020, to Local #1 - and we ruled out that community. It wasn't until early 2022 that we felt comfortable (safe after vaccinations, etc.) to head cross country to Local #2. We immediately fell in love with the community - far exceeding our expectations, and far outshining the runner up (Local #1). We stayed over a week, and couldn't believe how much we liked the place/community. Unfortunately, as all the headlines from the past year+ have indicated - PRICES were going bananas (home costs were 30-40% greater at Local #2, year over year - and climbing) - and there was very little supply, with much demand.

There was but one home for sale in our price-range (<$1M) during our visit. We placed a full cash offer, no contingencies, quick close - We didn't get the house. Back home we went - where we worried we were going to get priced out of this community. It was 1 month later when another home came up for sale - we bought it. Once under contract (but still able to back out without penalty) we traveled cross-country to check it out.
The house is beautiful - the community is ideal. The surrounding natural areas ready to explore are world class. This new house would cost us $300K over what our existing house would sell for. That was a very tough pill to swallow - especially coming from a fairly desirable community in CA (but unfortunately, we've always been frugal - and owned one of the smallest homes in a nice community). So, taking a $300K hit to our nest egg to make the move - already seemed like a stretch (and a bit reckless).

NOW, in hindsight, we should have allowed ourselves a larger budget - maybe been a bit more patient (still a gamble - as prices are still going up) - and maybe got the ideal house. But, we're not risk takers. We knew we would be very happy in the house we did purchase, in our great new community. And we are! But, if we can safely (or with a bit more time working) upgrade, then why wouldn't we? (YOLO) Trust me, we are struggling with the value-added/risk-benefit here. So, we wanted to pose the question to the BH community - and hopefully, once and for all, put our decision (upgrade/no upgrade) to rest or into action. Plus - we've been in many of the homes in the community now (all new friends) - and we've seen many that are just "wow" I could sit here and drink coffee/tea all day long..... :D Honestly, this could be the worst example of lifestyle creep ever...

Yes, real estate transactions/moving are hugely expensive - and painful to think about. Which is why, I think if we do move forward, we'll commit to working a bit longer, to offset that a bit. Because, yeah, that stings.
Trust me when I say - any move to upgrade will be the last upgrade. That we're considering this after only 5 months is way out of character. If we're lucky, we could even find a smaller home with a better view (quite possible, and would be ideal - as ours is more house than we need) - for only slightly more money (fingers crossed).

TLDR: Just see the bold and underlined. :wink:
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