How much of retirement nest egg spent on house?

[kbr345]

When entering retirement and relocating, what percentage of your cash nest egg can you spend on a house? Is there a rule of thumb when calculating? Thank you!

 

[georgina]

When entering retirement and relocating, what percentage of your cash nest egg can you spend on a house? Is there a rule of thumb when calculating? Thank you!

That will be a very individual question and dependent on a lot of personal factors. I don’t think there is a rule of thumb. Location, your income, do you have a current home you will be selling, etc. you need to look at your whole financial picture.

 

[starry_solo]

When entering retirement and relocating, what percentage of your cash nest egg can you spend on a house? Is there a rule of thumb when calculating? Thank you!

Wouldn't it be zero? You sell the house you live and use the proceeds to buy your new one?

 

[Twilghtsprkle]

The thought is that going into retirement your house is paid off and if you relocate you sell that paid off house and get a cheaper one and add to your cash.

 

[thanxfornoticin]

The thought is that going into retirement your house is paid off and if you relocate you sell that paid off house and get a cheaper one and add to your cash.

Agreed. I couldn't even contemplate retirement, personally, unless the current house was paid off first.

 

[piccolopat]

Before you spend your retirement funds on a house, travel, car or any other big ticket items. I recommend you put together a very detailed list of your mandatory and optional expenses first. There are some good tools online. A rule of thumb is to only draw 4% (some say 3%) a year from your retirement account. This will help you understand what you need to cover your expenses. You'll be in a better position to know how much you can then put aside for a house.

 

[kbr345]

Our house is paid for and we have no debt at all. Let's say we have $2 million (includes assets from the house), how much can we look for to spend on a house?

 

[FreeTime]

Our house is paid for and we have no debt at all. Let's say we have $2 million (includes assets from the house), how much can we look for to spend on a house?

That depends on your lifestyle, when you plan on retiring, anticipated life expectancy.

Personally, we are not yet 50 have a paid off house, and plenty of assets and work years left to upgrade our home. If we sell we will buy a cheaper house. No need to take on debt for retirement. We are shopping today for our last car we expect to buy before retiring. We will buy one more when we are 60. The goal is to have 0 debt from here on out.

If you are hypothetically asking to gain support to upgrade, I’m not going to offer it. You really need to look at your longterm goals.

 

[piccolopat]

Read my last post. If you have $2,000,000 invested, your retirement draw might be between $60,000 and $80,000. If that amount is $1,500,000 without your current house, your draw might then be $45,000 and $60,000. If that covers your expenses, you can spend $500,000 on a new house. If not, it will be less. Hope this helps.

 

[gmi3804]

Our house is paid for and we have no debt at all. Let's say we have $2 million (includes assets from the house), how much can we look for to spend on a house?

As little as possible. $2MM doesn't go far, depending on your age, if you're used to a lifestyle that allows for savings of $2MM over a lifetime of saving, including home equity. You really have to look first at what you're going to need to live on; not having credit card, auto, or home debt isn't the only consideration. How about long-term care? If you're considering retirement now, you've likely aged out of low premiums for that.

 

[QueenIsabella]

Agreed. I couldn't even contemplate retirement, personally, unless the current house was paid off first.

I used to feel this way, too. But now we have a house with a very low interest rate, so it's not worth paying extra to pay off the mortgage or anything--we can make more investing that money elsewhere. Which is why it's important to look at your specific situation and make the right decision for you (pontifical you--we all have slightly different circumstances).

It also depends on if an individual or couple has pensions, social security, or other retirement income sources.

Long-term health care costs are another big factor--we all hope to die quickly and easily, but not all of us will be that fortunate.

 

[tvguy]

Our house is paid for and we have no debt at all. Let's say we have $2 million (includes assets from the house), how much can we look for to spend on a house?

I think what I am unclear on is are you asking how much you should spend on upkeep, or buying a second house?

Ideally, as other's said, your principle residence should have been paid off years ago. In my case, we also made sure all major upkeep items, roof, HVAC, Water heater were new or near new when we retired, so those items shouldn't need attention for another 25 to 30 years or longer and we'll be 90+ then so while we will have savings to cover that if we are lucky enough to be still alive.
As for the cost of insurance and property taxes, we'll it goes with out saying they should be as small as possible. I'm too lazy to figure out what percentage they are compared to my total assets. But when we go on Social Security within the next year one month's Social Security will be enough to cover those expenses. We are living exclusively on savings right now, but our Social Security will be 20% more each month than we are currently pulling out of savings to cover our expenses. Hopefully we will suspend all savings withdrawals then except for maybe an occasional withdrawal for a very expensive trip.
By the way, I never include the value of my house in my assets. I don't plan on ever selling and if I did I'd probably have to spend as much to on replacement housing. It isn't a liquid asset in my mind. When my wife and I are gone, then our kids may benefit from it's value.

 

[tvguy]

When entering retirement and relocating, what percentage of your cash nest egg can you spend on a house? Is there a rule of thumb when calculating? Thank you!

Ah, re-read your post and now it makes sense. I would say zero percent. Your replacement house should cost the same or less than the equity you have in your current house.

 

[georgina]

Ah, re-read your post and now it makes sense. I would say zero percent. Your replacement house should cost the same or less than the equity you have in your current house.

None of us can really say for the OP based on the info presented. We sold our paid-off home in retirement and bought one that cost 3 times as much. It currently makes up about 20% of our net worth and I consider it a good investment as well as a residence. Doesn't work for everyone, but for our situation we are very comfortable with it.

 

[tvguy]

None of us can really say for the OP based on the info presented. We sold our paid-off home in retirement and bought one that cost 3 times as much. It currently makes up about 20% of our net worth and I consider it a good investment as well as a residence. Doesn't work for everyone, but for our situation we are very comfortable with it.

Like I said I don't even factor in my house in figuring net worth. I guess it should be a factor in the value of our estate when we are dead and gone. And what number do you assign as your home value, what you paid for it and the value of the improvements you have made or the current market value? I mean, I certainly would get market value IF I sold it, but I sure don't have that much money tied up in it.

 

[kbr345]

We are mid 50s retiring in 4 years. No debt (baby step 7) Will sell current paid off home (updated, in desired area) to buy new home close to the beach. Will need to spend more on the new house. Will be getting long term health care at age 60. Assets should be 2 million total after sale of the current house.

 

[lanejudy]

Sounds like a great question for a financial advisor. I don't believe there's any "rule of thumb" recommendation if that's what you'd like.

 

[cvjw]

We are mid 50s retiring in 4 years. No debt (baby step 7) Will sell current paid off home (updated, in desired area) to buy new home close to the beach. Will need to spend more on the new house. Will be getting long term health care at age 60. Assets should be 2 million total after sale of the current house.

We are in a somewhat similar situation. Our house is paid off and our next house will cost at least double what we will get selling our current home. We could pay cash for the larger home, but we are hesitant to pull the trigger and actually move.

I would look at insurance, fees and taxes associated with buying and owning a more expensive house. Make sure you can afford those with your retirement income. Also, look at how much you will be losing by pulling money out of investments and spending it and the taxes associated with selling the investments. It is somewhat overwhelming when we look at all those things and makes us choose to stay put for a while longer.

Also second the financial advisor idea. We have one and he can tell us if we have enough money for things like buying a house.

But, I would not feel comfortable spending a million dollars for a house at the beach if it only left me a million.

 

[piccolopat]

I'll point you back to my previous posts. You haven't said what your expenses (mandatory like health care, taxes, food, etc. and optional like entertainment, travel and gifts). You haven't said if you'll have other income like pensions or social security. If your current house sells for $500,000 that leaves you with $1,500,000 assets. If your retirement account is your only source of income and you spend $250,000 on top of your home sale priceeds, your expenses would need to be between $37,500 and $50,000. Keep in mind that taxes and insurance on a beach property may be quite high and maintenance can be more than inland since the salt in the air causes corrosion. Bottom line, there's no formula for taking out money to buy a house that will work unless your remaining assets and any other income you may have are enough to produce an income stream sufficient to cover all of your expenses.

 

[barkley]

Keep in mind that taxes and insurance on a beach property may be quite high and maintenance can be more than inland since the salt in the air causes corrosion

that was a thought of mine as well-upkeep on the house itself as well as potentially shorter lifespan that salt air can cause to appliances, electronics and autos can contribute to higher expenses.

i don't live near a beach but we have environmental factors that impact wear and tear on homes and their contents as well as necessitate certain regular upkeep that more traditional housing doesn't. we're in an area popular with retirees/soon to be retirees and they frequently are surprised to find that their home ownership expenses will be considerably more expensive than they anticipated.