I am 57 years old and my wife 55 years old. We have no children and no debt. We own our home and our vehicles. My wife is a business accountant and earns about $ 150,000 a year. I recently retired from the public service with a pension worth $ 104,000 per year. Our health benefits currently cost $ 160 per month and will contractually increase by about 3.5% each year until Medicare, when they become secondary with no cost of living adjustment. Our current cash consumption is less than my pension, and our current savings, mainly 401 (k) and 457 (b) plans and after-tax market accounts, are around $ 3 million. This figure includes approximately $ 450,000 in cash from the sale of a home. These funds are intended for the purchase of a house that we are building.
The new home will end up costing around $ 850,000 and we plan to take out a mortgage for the rest rather than withdrawing investments or selling our current home. The mortgage payment will roughly equal the remaining retirement income, but our current home would become a rental worth $ 30,000 per year and cancel that out. There is also $ 40,000 per year in dividends that are reinvested.
So what is the problem?
My wife. Her family has struggled, and she is no stranger to third-hand clothing and heavily used cars. She’s definitely kept me in check over the years, and we’ve both worked really hard to get to where we are. For years our original plan was for her to retire with me and travel a bit, but her employer made her a great offer to keep her on board. We talked about it and she agreed, so she now works from home, putting in 10 hours a day during her “retirement”. I started a business that has yet to bear fruit, but I have a lot of free time and I would like to do more with it. We live in Florida and have been to the beach twice in the past 14 months!
While we’ve discussed the new house at length and spent a lot of time crunching numbers, she maintains it’s an outrageous extravaganza. Our current house is worth about half of the new one. Now, I am not a hedonist. I have done a lot of my own home improvement work and am doing my own brakes. I think we can afford to build the new house, have her retire (or at least get into something part-time), live off our investments, and even travel and live more. I’m afraid she’s scared for no reason, but I also feel guilty about what I want.
See: I’m 62, live in Missouri but work in Florida and have $ 1.8 million. “Have I positioned myself well? “
First of all, it’s great that you’ve been able to amass such a great retirement nest egg and have already started enjoying your own retirement years. It sounds like your wife wants to take a slow and steady approach to retirement, and that also makes perfect sense. Sometimes it doesn’t matter how much money people have saved – there are still reasons they may be tied to their jobs or their income.
As it is, and as you may already know, you are currently already in good financial shape to retire and pursue your goals, said Michael Peterson, Chartered Financial Planner and Founder of Faithful Steward Wealth Advisors. Of course, this is based on the numbers you provided and some standard assumptions about Social Security benefits going forward. If you spend less than your net retirement income even after the new mortgage and rental income, you could both be comfortable in retirement, said Julie Hall, chartered financial planner at Vision Capital Partners.
Again, this is based on the numbers you provided and some general assumptions – a financial planner can work with you to go through all of the details and determine if there are any variables that are preventing you from having a secure retirement.
I know you’ve been asking what to do about building a house and talking to your wife, but first I wanted to highlight a few other considerations you should take into account for your retirement.
For example, you might want to take a look at your current investment strategy and make sure it matches your goals and needs, Peterson said. He suggested refocusing your portfolio to be more focused on income rather than growth. Many people make systematic withdrawals, that is, when they have scheduled distributions of their retirement assets, but this is not always the best option for investors. Instead, consider consulting a financial planner who can help you understand all of your investment options and research the best portfolio construction to generate the income you’ll need to support your goals in retirement.
In addition to asset allocation, be aware of your tax planning. You didn’t mention any Roth accounts, but either way you might want to consider a Roth conversion – where you transfer some of your taxable retirement assets into a Roth account and pay taxes on that distribution now. Whether or not a Roth account is right for you depends on many factors, but if you are currently in a relatively low tax bracket – or plan to be in a higher one later in life, it could be a problem. good choice. It will also help you diversify your tax obligations as you get older.
You mentioned your health expenses and medicare, but you might also want to look at long-term care options now, Peterson said. “The only thing that could derail their retirement plan would be if one of them needs nursing home care,” he said. “If they have to pay out of pocket for care, the resulting loss of assets can leave a spouse in good health without enough assets to sustain their lifestyle. You are “prime candidates” to research long-term care options and see if an insurance policy is right for you. Here is more on that.
And of course, have all of your estate documents in order. This includes health care powers of attorney and wills. These are never fun conversations to have, but they will make life a whole lot easier for the surviving spouse during such a stressful and emotional time.
Also see: Here’s how to help you and your family “in case you get hit by a bus”
Back to the goal of building houses.
Perhaps the best advice for this situation, and potentially something that will help your wife feel better, is to increase the budget for building your home. Buying homes and moving always comes with surprise expenses, but those bills could potentially be bigger when the house is being built. Does that $ 850,000 include emergency costs that you might have to pay if the renovations don’t go as planned?
Have a 20% contingency fund, said Danielle Harrison, a certified financial planner at Harrison Financial Planning and a former commercial lender who has worked with individuals who build custom homes. “When building it is very easy to think that you have taken everything into account, but when you go into the building process you will find that it is very easy to upgrade parts because it is cheaper to do this during the construction phase that down the line after you build the house For example: wiring for audio systems, more durable paint and flooring, extra tools for those times when you get into DIY.
Read the MarketWatch column “Retirement hacks” for practical advice for your own retirement savings journey
Due to your age, you may also want to consider ways this house can work for you as you get older. So many Americans would rather age at home, but their homes aren’t laid out to accommodate that, so consider designs like fewer stairs and wider door frames.
Pay close attention to your approach to paying for the house. Using a mortgage instead of withdrawing investments is a good strategy, Peterson said, because it will minimize or eliminate the tax consequences. We are also living in an era of historically low mortgage rates, Harrison said. She said she often encouraged individuals to go for a 30-year, 15-year mortgage because the interest rate difference is minimal and provides more flexibility for homeowners, but just check to see if there would be any early repayment penalties. Otherwise, you could always pay off the loan faster if it made you or your wife more comfortable.
I know you said you both discussed this new venture at length, but you may need to keep talking about it a bit more, Peterson said. It is not uncommon for couples to disagree on how to spend their money, even if they have large sums saved and share long-term goals, and it is understandable to be reluctant to make any decisions. very important purchases.
“For people who have built up a big nest egg like this couple, it can be very difficult to shift gears and feel comfortable spending the funds they have worked so hard to save,” Harrison said. . She suggests working with a licensed financial planner and, if you need help, maybe even a licensed financial therapist who can help clients overcome concerns and deep feelings about money.
Money is a personal and sometimes scary thing, and as you have already noted, everyone has unique experiences with how they have been taught to perceive or use it. While that hiccup might seem frustrating right now, it’s good that you have each other – you seem to be balancing yourself out, which ultimately won’t help either of you worry about running out of money or never spend it in retirement.
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