We have $1.1 million to spend on a new retirement home, but we also want to travel – is buying a home worth it right now?

Dear MarketWatch,

My wife and I are 64 and 65, respectively. I plan to retire in two years, when I will be fully vested with my current employer, avoid early stock withdrawal penalties, and be closer to drawing Social Security benefits. We currently have $1.5 million in 401(k) investments, moderate to aggressive funds, and a few small IRAs. We also have about $600,000 in various dividend-earning stocks, including listed company stock, as well as annuities. We have no debt of any kind and currently live in a two family property that we own, mortgage free. Our net income from the rental unit is approximately $1,500/month.

Our “perfect world” retirement goals are to be closer to family and have a modest home in California, with an ADU (Affordable Dwelling Unit) or home with some small additional rental income and spend months at a time traveling abroad. We are not “luxury” travelers, we enjoy moderate travel and prefer B&B stays.

We were very fortunate to be able to take advantage of the crazy real estate market last year and sell our primary residence and have $1.1 million to invest in our next home. We are now on the other side of this market and will likely be forced to purchase a property at an inflated price. Our concern is not to get a lot for our money, but additionally putting all our cash into an expensive house may not make sense given the amount of traveling we want to do.

We plan to keep and rent out both units of our current family of two. Should we invest this large amount of cash and rent a small apartment near our family or bite the bullet and go ahead with buying an expensive house?


Many thanks!

I see: We have $1.5 million that we never plan to use in retirement – ​​how are we going to invest it if we plan to give it to our kids one day?

dear reader,

Homes are certainly expensive these days, but the tide in the real estate market is turning on the buyer, so you may be in better shape than you think. Of course, there are still many variables to consider, as you know.

It’s now a “buyer’s market” in real estate, said William Parrott, a certified financial planner and CEO of Parrott Wealth Management.

Home prices are starting to fall in various markets across the country due to rising mortgage rates, at least for now. But as we have seen in recent years, things can change quickly. “If inflation has peaked and interest rates start to fall, the housing market could heat up again,” Parrott said.

You are at a great advantage right now. You’re still working, so you’re bringing in income in this wild economic environment with rising inflation and interest rates and market volatility over the past year. Plus you have rental income. There’s a healthy nest egg tucked away for retirement that doesn’t include the money from the recent sale of your primary home. And you seem very focused on getting the numbers right.

Want more helpful tips for your retirement savings journey? Read MarketWatch “Pension violations” column

If you really aren’t sure whether renting or buying is the best decision for you and your spouse right now, don’t get involved. Buying a home only to turn around and sell it shortly after can be an expensive blunder, and it’s not like a rental lease expires in the next month or two. If you haven’t already, start looking at real estate for sale and rent where you plan to move to California and try to track the progress. How much did houses sell for in the last two years? What is the rate of inflation in the rental market there and who is the analyst in the next two years?

If you were to buy a home with a higher interest rate and if you were to take out any mortgage, you could always refinance later if it makes financial sense. “They can always be adjusted for a few years and refinanced later,” said Linda Farinola, certified financial planner and president of Princeton Financial Group. “If it’s the right property for them, they’ll be there for a while and the price will work itself out over time.” Just stick with adjustable rates — they can be risky since there’s a lot of uncertainty, like whether the rate will jump before you’re ready (or even able) to refinance.

Refinancing can save homeowners thousands of dollars, but it doesn’t make sense for everyone, as there are fees and other factors to consider (mortgage length, whether you’ll sell the home before it’s paid off, etc.). If you can lower your interest rate by three-quarters of a percentage point or shorten your loan term, refinancing may be worth it, Nerdwallet’s Holden Lewis told MarketWatch Picks.

See also: I am 67 years old and retired with $57,000 left on my mortgage and $600,000 in retirement savings – should I pay off my house now?

If you decide that renting is the best option, it’s not like you’re locked in forever. You may even want to rent temporarily, just to make sure the location is the right place to be (considering cost of living, temperature, proximity to entertainment and major medical facilities, etc.) and then end up buying something when it appears on the market. In your current situation, “flexibility (renting) trumps owning,” said Thomas Scanlon, a certified financial planner at Raymond James Financial Services.

If you can, add the extra challenge of choosing a smaller place to rent and getting rid of things you don’t actually need or use, Scanlon added. He also mentioned getting a good renter’s insurance policy if you were going to go that route.

Above all, think about what each choice would mean for you and your family. You can look over the numbers a million times, but if the choice ends up not being right for your family, you might not be happy – even if you’re saving a ton of money.

Readers: Do you have suggestions for this reader? Add them in the comments below.

Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com

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