Saving Enough for Retirement vs Vacation Home

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adaml30
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Saving Enough for Retirement vs Vacation Home

Post by adaml30 » Wed Aug 08, 2018 8:40 am

My wife and I are talking about buying a vacation home that we would also rent out occasionally(Not counting on more that 5K per year). We don't have much cash saved up, so my wife and I scaled back out retirement to build up cash for downpayment/larger EF, and I am curious if we are saving enough. We are both 35.
Me-60k. I dropped my 403b down from 10 to 0. I mandatorily put in 9.4% for my pension which will pay around 60% of my last 3 years average pay. (Probably around 50-60k with 3% COL raise. Teacher in IL, and we all know how poor financially IL is so that isn't a guarantee) I also backdoor a roth max so that puts me around 15% for retirement savings.
403b value-32K

Wife-157K base and 44K bonus. She dropped hers down from max to 9% of her base pay. She also receives a 4.5 match. She also does 10% company stock where she gets a 15% discount. She sells that semiannually when she can and puts that in our cash funds.
401k-65k
Stock-7k

We have no debt except our main home which has 200k left and valued around 350K. (2k month payment for Mortgage/taxes/insurance)
Our take-home is about 4k per month for me, and 6.5k for her, so around 10.5k monthly. The vacation home would be around 1.5k month for M/T/I.
Cash EF- 25K
Our online brokerage account is valued at 300k with that mixed between Roth, Rollover IRAs and college savings for our 2 kids. Most of it is retirement savings.

We are wanting to lower our retirement savings for the time being and build up cash so we can purchase a vacation home in March-May. We will probably keep our levels this low for the next year while we save up cash for down payment as well as increase our emergency fund since we will have two houses. Are we doing a smart thing, or should we continue saving pretax to avoid such a large tax bill? TIA
Last edited by adaml30 on Wed Aug 08, 2018 11:23 am, edited 1 time in total.

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vineviz
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Re: Saving Enough for Retirement?

Post by vineviz » Wed Aug 08, 2018 8:51 am

adaml30 wrote:
Wed Aug 08, 2018 8:40 am
Are we doing a smart thing, or should we continue saving pretax to avoid such a large tax bill? TIA
I'm guessing you already have a feeling that your plan is not a "smart" one? If so, trust that feeling.

Having a sufficient emergency fund is a good thing, so the part about building that up is wise though not at the expense of compromising your retirement savings.

However, any "plan" that involves taking on a mortgage on a second home that also requires zeroing out your retirement savings is inherently problematic especially for a family that also doesn't seem to be saving much for college.

I'd stop talking about the vacation home and start talking about setting a savings rate that will pay for your retirement and whatever reserve you'll realistically need for tuition.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

BuckyBadger
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Re: Saving Enough for Retirement?

Post by BuckyBadger » Wed Aug 08, 2018 8:58 am

This does not seem wise.

For many many reasons.

I wouldn't slash retirement contributions like that in order to take on another mortgage and maintenance costs for a second home. No way.

And it looks like you have barely over 100k in your combined 401k/403b and then that your brokerage account is "mostly" retirement? And have 200k in primary mortgage debt and want to add another how much in debt?

This does not deem like a wise financial step. Increase your vacation budget and take some more long weekends. Don't - literally - mortgage your future for a vacation house right now.

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climber2020
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Re: Saving Enough for Retirement?

Post by climber2020 » Wed Aug 08, 2018 9:03 am

The recurring yearly cost for the vacation house is $18,000 a year (1500x12). You can stay many nights at a really nice hotel for a lot less than that and not have the burden of owning a piece of property that you will feel obligated to visit due to sunk costs.

Silk McCue
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Re: Saving Enough for Retirement?

Post by Silk McCue » Wed Aug 08, 2018 9:04 am

Future you will be very happy that current you didn't buy a vacation home that severely impacted your life long savings and financial security. Many here know the heady feeling of income beyond your needs and wish that they had been more prudent with spending when they were your age.

I would rent for your vacations at different locations for a number of years to get a feel for your options while your investments grow. With wise investing and continued employment you will have plenty of time to buy something years down the line and certainly after your primary mortgage is paid off.

Cheers

BuckyBadger
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Re: Saving Enough for Retirement?

Post by BuckyBadger » Wed Aug 08, 2018 10:04 am

Also might want to edit your thread title to mention the vacation property part. You might get more responses.

Silver Bullet
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Re: Saving Enough for Retirement?

Post by Silver Bullet » Wed Aug 08, 2018 10:07 am

climber2020 wrote:
Wed Aug 08, 2018 9:03 am
The recurring yearly cost for the vacation house is $18,000 a year (1500x12). You can stay many nights at a really nice hotel for a lot less than that and not have the burden of owning a piece of property that you will feel obligated to visit due to sunk costs.
I'll echo this comment. The 2nd home will cost you more than you're anticipating. We have a second home that we built 3 years ago. Love it, but don't get to use it nearly as much as we anticipated, plus the expenses are much higher than we budgeted. You'll need to "make time" to be there and as stated above, feel mentally obligated to use it. Kind of reminds me of belonging to a country club and trying to calculate how much each round of golf really costs. I belong to two and play about 15 rounds per year total at both. I could play the same golf at the best courses around the world for the same amount of money and feel no obligation.

Save more, build up your portfolio and splurge on a nice vacation a couple of times per year. Don't lock yourself in at this point.

adaml30
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Re: Saving Enough for Retirement vs Vacation Home

Post by adaml30 » Wed Aug 08, 2018 11:38 am

Thanks for all the responses. I changed the topic title and also added we have 25k in EF. A couple of things also to add, I am a teacher so I have the summers off, and my wife works from home 3 or 4 days a week, so we would use the place a lot in the summer. I look at it as also saving for retirement also but as you have all stated having around 400K in mortgage debt probably isn't the smartest thing! Should my wife open a back door roth also, and/or should I re-up my 403b to 10%? We had been throwing most of my paycheck at the mortgage the last year (with the rest of my check going to fund the kids college account and my back door and also our vacation fund). We do go on vacations about 5-7 times a year(3 or 4 night trips and also a couple week long trips) so we are used to spending money on vacations. I guess for the time being, we will just save a bunch of cash and then figure out where we are in 6-18 months on what we want to do with the money. My wife is the one who has really pushed for the second home, and I like the idea however was/am a little concerned.

BuckyBadger
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Re: Saving Enough for Retirement vs Vacation Home

Post by BuckyBadger » Wed Aug 08, 2018 11:59 am

adaml30 wrote:
Wed Aug 08, 2018 11:38 am
Thanks for all the responses. I changed the topic title and also added we have 25k in EF. A couple of things also to add, I am a teacher so I have the summers off, and my wife works from home 3 or 4 days a week, so we would use the place a lot in the summer. I look at it as also saving for retirement also but as you have all stated having around 400K in mortgage debt probably isn't the smartest thing! Should my wife open a back door roth also, and/or should I re-up my 403b to 10%? We had been throwing most of my paycheck at the mortgage the last year (with the rest of my check going to fund the kids college account and my back door and also our vacation fund). We do go on vacations about 5-7 times a year(3 or 4 night trips and also a couple week long trips) so we are used to spending money on vacations. I guess for the time being, we will just save a bunch of cash and then figure out where we are in 6-18 months on what we want to do with the money. My wife is the one who has really pushed for the second home, and I like the idea however was/am a little concerned.
And this is what I don't get about the people who pay ahead on the mortgage when there are other more pressing goals. You've not changed your monthly required spending. You've lost out on tax advantaged space FOREVER (unless you were also maxing your accounts, but the totals make me think you weren't). You now believe that you don't have enough cash.

What has paying some ahead on our mortgage actually gained you? I understand paying it off early in one chunk if you can, but sacrificing other stuff while just paying *some* of it early doesn't gain you anything substantial, especially in today's low interest rate environment.

I would:

1) Stop paying ahead on the mortgage
2) Stop contributing to the college fund
3) Start maxing out all your tax advantaged accounts, or coming as close as you can
4) See how much money you have and if you can live the life you want
5) Consider adjusting
6) Leave the issue of the vacation home for a while

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climber2020
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Re: Saving Enough for Retirement vs Vacation Home

Post by climber2020 » Wed Aug 08, 2018 12:14 pm

adaml30 wrote:
Wed Aug 08, 2018 11:38 am
I am a teacher so I have the summers off, and my wife works from home 3 or 4 days a week, so we would use the place a lot in the summer.
Another thing to consider is that your tastes may change over time.

I've taken the exact same vacation to the Rockies every February going on 13 years now. For the last 3-4 years, it's gotten monotonous and I'll probably stop going within the next year or two. It's not as fun as it used to be, and as I get older, I don't want to spend my limited vacation time doing things that I'm not super excited about.

soccerrules
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Re: Saving Enough for Retirement vs Vacation Home

Post by soccerrules » Wed Aug 08, 2018 1:49 pm

I agree that this is not a wise financial decision.

Additional thoughts
1) What if one of you loses your job ? (especially higher earner)
2) Not sure your kids ages but assume they are 6-10ish, maybe younger. Kids get busy and the a lot of vacations slow down and become 1-2 longer trips around their school calendar. Also they are more focused on different life experiences - going to different places. They get involved in comp sports, band, cheer etc. Your time and money is directed there -- not the empty vacation home you are paying for.
3) Pension option looks good, but otherwise you are probably behind on retirement savings and scaling back on saving and taking on more debt is not a wise decision.
Don't let your outflow exceed your income or your upkeep will be your downfall.

Charon
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Re: Saving Enough for Retirement vs Vacation Home

Post by Charon » Wed Aug 08, 2018 2:16 pm

I don't agree with the "max retirement savings at all times under all circumstances" mentality that seems common on BH. I believe you should spend and save money wisely in ways that will make your whole life better, and there are fun things you can do at 35 that you simply can't at 75 no matter how much money you have in later life.

That said, saving <15% of your salaries towards retirement when your existing retirement savings are <0.4x your annual income doesn't seem wise. Even with your pension, you seem well behind on retirement savings, particularly since your wife is by far the higher earner. I understand how this happens - I spent my 20s getting a PhD instead of earning money, and big raises can make previously good savings look puny - but you need to do some number crunching to see if you can get on track to retire at 67 (or whatever your target is).

I'm not sure what part of IL you live in, but it seems hard to imagine anywhere within reasonable distance that would justify a vacation home. (No offense - I lived in Chicago for a few years, and it took a five-hour drive to get to outdoors stuff that was still more mediocre than I could get to with a 15-minute bike ride from my apartment in Boulder, CO.) Do you live in an area where you could buy a primary residence still close enough to get to work easily but with a little land for horses/trees/fields/whatever it is you want from your vacations? I looked into buying a cheap condo and a small mountain cabin, but ended up much happier with my nice forest acreage home that's still within biking distance of work, and my vacations at national parks and around the world.

The fact that you don't have a maintenance expense associated with the vacation home also worries me...

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FIREchief
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Re: Saving Enough for Retirement vs Vacation Home

Post by FIREchief » Wed Aug 08, 2018 2:20 pm

It's an awful plan. Just spend that $1500 for modest vacations one or two months of the year and get back to aggressive retirement saving. A vacation home can go from a joy and a pleasure (perhaps mostly in one's mind) to a liability and just more work overnight.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Freefun
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Re: Saving Enough for Retirement vs Vacation Home

Post by Freefun » Wed Aug 08, 2018 2:20 pm

For me, retirement IS a vacation home.
Remember when you wanted what you currently have?

adaml30
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Re: Saving Enough for Retirement vs Vacation Home

Post by adaml30 » Wed Aug 08, 2018 2:55 pm

Thanks for the insight. It seems like it isn't a great idea! However, some of you seem to forget the fact that I said we would temporarily drop our retirement contributions for 6 months-1year while we save up cash, then re up or contributions. Also, I see most think we are behind on retirement savings anyway. Over the last couple years is when we have had our (spouses) income go up so high. She was usually around 100k, but has taken a couple different positions the last 3 or so years, and that is when her income has really taken off! As I said before, we would also rent out our place a little to make some more income, but that can be a whole different problem as well!
[
What has paying some ahead on our mortgage actually gained you? I understand paying it off early in one chunk if you can, but sacrificing other stuff while just paying *some* of it early doesn't gain you anything substantial, especially in today's low interest rate environment.

I would:

1) Stop paying ahead on the mortgage
2) Stop contributing to the college fund
3) Start maxing out all your tax advantaged accounts, or coming as close as you can
4) See how much money you have and if you can live the life you want
5) Consider adjusting
6) Leave the issue of the vacation home for a whilequote][/quote]


The part about what has paying ahead on the mortgage gained us, I think it has gained us a lot. We had planned to pay it off in the next 4 years, then we would have all that money freed up for kids college, savings, and a vacation home. We just saw something shiny and were thinking different!

I guess we will continue saving for retirement and try to save a bunch of cash so we can then decided if we want to throw it at the house or what. Thanks for all the insight, I think we needed a little smack in the face!!

MathWizard
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Re: Saving Enough for Retirement vs Vacation Home

Post by MathWizard » Wed Aug 08, 2018 2:57 pm

I'm your age, and we are already discussing when we will be downsizing in retirement, and you want
to add a second house? Not for me.

indexonlyplease
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Re: Saving Enough for Retirement vs Vacation Home

Post by indexonlyplease » Wed Aug 08, 2018 4:48 pm

adaml30 wrote:
Wed Aug 08, 2018 8:40 am
My wife and I are talking about buying a vacation home that we would also rent out occasionally(Not counting on more that 5K per year). We don't have much cash saved up, so my wife and I scaled back out retirement to build up cash for downpayment/larger EF, and I am curious if we are saving enough. We are both 35.
Me-60k. I dropped my 403b down from 10 to 0. I mandatorily put in 9.4% for my pension which will pay around 60% of my last 3 years average pay. (Probably around 50-60k with 3% COL raise. Teacher in IL, and we all know how poor financially IL is so that isn't a guarantee) I also backdoor a roth max so that puts me around 15% for retirement savings.
403b value-32K [*][*]If I worked as a teacher in IL, I would be investing like one day I would have very small pension or none. You already know the pension plan is so underfunded it is scary. Even the state of Florida where my penison is from dropped the Cola and perecent in 2011 and it is funded well.

Wife-157K base and 44K bonus. She dropped hers down from max to 9% of her base pay. She also receives a 4.5 match. She also does 10% company stock where she gets a 15% discount. She sells that semiannually when she can and puts that in our cash funds.
401k-65k
Stock-7k 2 nice salaries to be able to retire one day with a very large investment accounts if you max them out now.

We have no debt except our main home which has 200k left and valued around 350K. (2k month payment for Mortgage/taxes/insurance)
Our take-home is about 4k per month for me, and 6.5k for her, so around 10.5k monthly. The vacation home would be around 1.5k month for M/T/I.
Cash EF- 25K
Our online brokerage account is valued at 300k with that mixed between Roth, Rollover IRAs and college savings for our 2 kids. Most of it is retirement savings. I would be more interested in maxing out retirement accounts and paying off mortgage. It will be nice to have the option to maybe retire early with no debt.

We are wanting to lower our retirement savings for the time being and build up cash so we can purchase a vacation home in March-May. We will probably keep our levels this low for the next year while we save up cash for down payment as well as increase our emergency fund since we will have two houses. Are we doing a smart thing, or should we continue saving pretax to avoid such a large tax bill? TIA Every place my wife and I visit we want to live there. So now that we are retired we just go rent a house in that place for 2 or more weeks then plan on doing the same at the next place we visit. No need to have the hassle of owning a second home. Forget the second home. Go rent a house in the area you want to buy for your next vacation.

jminv
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Re: Saving Enough for Retirement vs Vacation Home

Post by jminv » Wed Aug 08, 2018 5:04 pm

You want to buy a vacation home that will cost you, optimistically, 13k/year. (18k payments - 5k rent). In all likelihood, it will be more.

Meanwhile, you're not maxing out your tax advantaged accounts.

I would guess you know the answer to your question but your spouse wants the place?

I don't understand the draw of a vacation home under these circumstances. Rent a place, use airbnb, stay at a hotel, and go to different places. It'll all cost less than a vacation home will. You can use the difference to save.

Jags4186
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Re: Saving Enough for Retirement vs Vacation Home

Post by Jags4186 » Wed Aug 08, 2018 5:20 pm

OP,

No.

KlangFool
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Re: Saving Enough for Retirement vs Vacation Home

Post by KlangFool » Wed Aug 08, 2018 5:26 pm

adaml30 wrote:
Wed Aug 08, 2018 2:55 pm

The part about what has paying ahead on the mortgage gained us, I think it has gained us a lot. We had planned to pay it off in the next 4 years, then we would have all that money freed up for kids college, savings, and a vacation home.
adaml30,

You are paying 20% to 30% tax in order to save 4% to 5% interest. How does this make any sense?

KlangFool

Dottie57
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Re: Saving Enough for Retirement vs Vacation Home

Post by Dottie57 » Wed Aug 08, 2018 5:34 pm

OP ,

You would be borrowing from your future with no plan on how to be maxing retirement accounts. The idea of a vacation home in your circumstances is foolish. Nice trips during Summer vacation time is a good idea.

sailaway
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Re: Saving Enough for Retirement vs Vacation Home

Post by sailaway » Wed Aug 08, 2018 5:41 pm

Why not wait until you have a down payment without cutting back on the other savings goals?

Now might be a good time to review the order of investments. How do you feel about your emergency fund? That is, how many months of current spending does your 25k cover?

Do you have friends with kids slightly older than your own? How have their vacations changed as the kids grow?

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HomerJ
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Re: Saving Enough for Retirement vs Vacation Home

Post by HomerJ » Wed Aug 08, 2018 5:58 pm

KlangFool wrote:
Wed Aug 08, 2018 5:26 pm
adaml30 wrote:
Wed Aug 08, 2018 2:55 pm

The part about what has paying ahead on the mortgage gained us, I think it has gained us a lot. We had planned to pay it off in the next 4 years, then we would have all that money freed up for kids college, savings, and a vacation home.
adaml30,

You are paying 20% to 30% tax in order to save 4% to 5% interest. How does this make any sense?

KlangFool
It's not that simple Klang. Tax-deferred is not tax-free.
The J stands for Jay

KlangFool
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Re: Saving Enough for Retirement vs Vacation Home

Post by KlangFool » Wed Aug 08, 2018 6:01 pm

HomerJ wrote:
Wed Aug 08, 2018 5:58 pm
KlangFool wrote:
Wed Aug 08, 2018 5:26 pm
adaml30 wrote:
Wed Aug 08, 2018 2:55 pm

The part about what has paying ahead on the mortgage gained us, I think it has gained us a lot. We had planned to pay it off in the next 4 years, then we would have all that money freed up for kids college, savings, and a vacation home.
adaml30,

You are paying 20% to 30% tax in order to save 4% to 5% interest. How does this make any sense?

KlangFool
It's not that simple Klang. Tax-deferred is not tax-free.
HomerJ,

Only if the person is lucky enough, then, it is not tax-free.

KlangFool

satoriboat
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Re: Saving Enough for Retirement vs Vacation Home

Post by satoriboat » Wed Aug 08, 2018 6:05 pm

The question isn't just about can you afford it? It is a question of what if you can and then what happens? You can twist the numbers to qualify and rationalize it but what will really happen? Almost certainly you will use the vacation home WAY LESS than you think you will. Life gets in the way. You cost per day will be obscene. You will feel guilty because you don't use it very much,,,, you will put pressure on yourself to go more. You and your wife will fight about it. You won't do other cool things cause you gotta use it. When it needs repairs you will have to waste days off to drive there to meet contractors,,,if you can find them. When you figure all this out you will find out that it is easier to buy than to sell. I know a dude who had to delay his retirement for several years because he couldn't sell his beautiful vacation home. Dumb idea even if you can afford it and fund your retirement. Only thing dumber would be a time share. Sorry.

Charon
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Re: Saving Enough for Retirement vs Vacation Home

Post by Charon » Wed Aug 08, 2018 6:19 pm

adaml30 wrote:
Wed Aug 08, 2018 2:55 pm
I see most think we are behind on retirement savings anyway....

As I said before, we would also rent out our place a little to make some more income, but that can be a whole different problem as well!
I missed your $300k brokerage account the first time around. (I would recommend clarifying your original post to clearly list retirement assets, college savings, cash, and debts separately. It's very confusing as is.) If that is, say, $250k in retirement accounts, then you're not nearly as badly off as I thought. Considering the pension, you're probably on an okay track for your age and income for retiring at 67, as long as you continue to contribute 15-20%. You say you'll only be diverting income for 0.5-1 years, but you haven't addressed at all the issue of maintaining the second home. That will cost money, especially if you're renting it out. (How are you planning to rent it? Airbnb?)

You also haven't given any information about the location of the vacation home, what the property is like, how often you already go to this area, etc. I wouldn't like most/all of my vacations to be tied to any one location, even choosing from the most beautiful places in the world. But that's a personal decision.

Ron Ronnerson
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Re: Saving Enough for Retirement vs Vacation Home

Post by Ron Ronnerson » Wed Aug 08, 2018 6:46 pm

adaml30 wrote:
Wed Aug 08, 2018 11:38 am
Thanks for all the responses. I changed the topic title and also added we have 25k in EF. A couple of things also to add, I am a teacher so I have the summers off, and my wife works from home 3 or 4 days a week, so we would use the place a lot in the summer. I look at it as also saving for retirement also but as you have all stated having around 400K in mortgage debt probably isn't the smartest thing! Should my wife open a back door roth also, and/or should I re-up my 403b to 10%? We had been throwing most of my paycheck at the mortgage the last year (with the rest of my check going to fund the kids college account and my back door and also our vacation fund). We do go on vacations about 5-7 times a year(3 or 4 night trips and also a couple week long trips) so we are used to spending money on vacations. I guess for the time being, we will just save a bunch of cash and then figure out where we are in 6-18 months on what we want to do with the money. My wife is the one who has really pushed for the second home, and I like the idea however was/am a little concerned.
With such a high income, you should focus on maxing out your retirement accounts. Also, build up emergency savings. To speed up this process, I’d consider taking fewer vacations and look at other places to save in your budget.

Paying extra on the mortgage and college savings should come after your retirement accounts are being properly funded and you have adequate cash savings to handle emergencies such as a job loss.

By the way, I’m a teacher too and my wife and I both have lots of time off. So, I can relate to that part. However, you can have wonderful experiences with your family without having to buy a vacation home. That’s a good thing considering you’re not at a place where buying another house makes sense. To be blunt, forget the vacation home…at least for now.

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Sasquatch
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Re: Saving Enough for Retirement vs Vacation Home

Post by Sasquatch » Wed Aug 08, 2018 8:03 pm

I would not do it. Looking back on my 30 years of investing the most valuable dollars I averaged into the market were the ones I did in my 20s. I was just starting out and my wage was not really high. The 15% 401k investment was relatively small. However, the power of compounding on those dollars invested back then is nothing short of miraculous.

Make no assumptions on real estate appreciation. I am in a white hot RE market where prices are ABOVE 2005/2006 levels. I have no clue what market you are in but please be mindful of that. You can lose money in real estate.

I don’t know if you will be renting to friends & family only or on the open market. A fair amount of costs if not “word of mouth” marketing,management,repairs,cleaning service,etc. a lot more than just PITI (along with the headaches of renting)

Perhaps somebody else could comment if this becomes a “investment property” or second home? I don’t know the answer on this but if it becomes a investment property there are tax rules to follow and rules & taxes to be followed if sold (1031 exchange rules, capital gain / loss tax issues). That question might be better answered over on bigger pockets.com

SQRT
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Re: Saving Enough for Retirement vs Vacation Home

Post by SQRT » Thu Aug 09, 2018 8:37 am

I have a lot of experience with vacation homes (currently own 4 homes, so 3 could be viewed as vacation homes). Vacation homes are luxury items. As such you should buy one only if easily affordable. In my view they should best be bought with cash (to demonstrate it is easily affordable and to test whether you really want it enough). Furthermore they are usually lifestyle decisions and not good “financial investments” .

Having said that,they aren’t universally bad purchases. We love all our homes, use all of them regularly, and enjoy the control that ownership bestows. Obviously this approach is not for everyone and can be surprisingly expensive.

Based on your OP doesn’t look like you can easily afford this purchase. I would advise to pass on it.
Last edited by SQRT on Sun Aug 12, 2018 7:50 am, edited 2 times in total.

Miguelito
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Re: Saving Enough for Retirement vs Vacation Home

Post by Miguelito » Thu Aug 09, 2018 12:15 pm

We've debated buying a vacation home in the past and two main things stop me.

1) The personal experience of older close friends, who were quite wealthy and owned a beautiful waterfront property. It was only 1.5 hours away, but they spent so much in taxes and maintenance (and worrying/visiting - see point below) that they sold it and told me that for what they spent yearly they could easily pay for amazing vacations and never have to worry.

2) I feel I worry enough about my main home (water/winds/branches/icing/animals/insects/etc) that I know a 2nd, more remote home would drive me absolutely insane with worry. Couple that with the fact that I don't trust anyone, and the idea of paying someone to watch it or renting to other would also not work for me.

But as others have mentioned, even if you don't share my feelings, I think buying a vacation home before you max out tax-advantaged accounts is a mistake.

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celia
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Re: Saving Enough for Retirement vs Vacation Home

Post by celia » Thu Aug 09, 2018 12:38 pm

adaml30 wrote:
Wed Aug 08, 2018 11:38 am
We do go on vacations about 5-7 times a year(3 or 4 night trips and also a couple week long trips) so we are used to spending money on vacations.
To increase your savings, how about cutting back on out-of-town vacations and get a summer job for a couple of summers. You have a good start on savings right now, but the balances are low, so you need to work on that.

The biggest factor to influence your eventual wealth is how much you save when you are young, since you have lots of compounding time on your side to make that money grow. Just don't spend that savings along the way else that defeats the purpose. Open a separate account for the second house down payment and wait until you can pay for 1/3 the cost as a down payment. That will make you work harder if you want that goal but don't sacrifice other goals along the way, like retirement.

Jack FFR1846
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Re: Saving Enough for Retirement vs Vacation Home

Post by Jack FFR1846 » Thu Aug 09, 2018 12:48 pm

Bad idea.

Rent a place.

Rent a boat if you're at a lake.

When you get to the point where you have kids in college and are paying $100k a year to do it, you'll thank me.
Bogle: Smart Beta is stupid

Barefoot
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Re: Saving Enough for Retirement vs Vacation Home

Post by Barefoot » Thu Aug 09, 2018 4:33 pm

We paid cash for our vacation place. We waited until the kids were out of college and out on their own.

Could we have bought a place years earlier? Probably, but I wouldn't be retired and making as much take home as I was when I was working.

edit to say that we vacationed in a rental cottage in the same area for many years before we bought our own place.
Last edited by Barefoot on Sun Aug 12, 2018 12:03 pm, edited 1 time in total.

Grt2bOutdoors
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Re: Saving Enough for Retirement vs Vacation Home

Post by Grt2bOutdoors » Thu Aug 09, 2018 4:59 pm

When I look at these posts, I cringe.
These are the questions you need to ask yourselves:

1) we currently take home 10.5k. If wife loses job for whatever reason - can we live on $4k when we have two mortgages totaling $3.5k?
Is $500 a month sufficient to keep us afloat?

2) owning a home means in addition to PITI, you have maintenance and utilities expense. How much is that going to cost per month/year?

3) we’re thinking of renting it, a portion of time. Okay, how much damage are the strangers going to do to this house? Or, are we going to get a phone call at ANY time of the day about something not working or flushing or pipes being backed up?

4) will we want to go on vacation elsewhere in 2-3 or more years, thus leaving us with two vacation mortgages: one for the house and one for the exotic adventure to Disney World?

5) what if we can’t find anyone to rent it too?

Renting my vacation is starting to look better and better. If times get tight, you only have one mortgage to worry about.

Ask me how I know! Had this happen to a family member. Just say no. If you don’t have the cash to buy it outright, then you can not afford it. Going on vacation with you making an annual outlay is perfectly acceptable- if you pay it off before or during or shortly after you arrive back home from Disney or Aruba.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

DarthSage
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Re: Saving Enough for Retirement vs Vacation Home

Post by DarthSage » Thu Aug 09, 2018 5:53 pm

I have to agree with the previous posters. Do NOT buy a vacation home--you can't afford it. You are doing well, but not fabulous. Your retirement accounts aren't where they should be--the good news is, there's time and resources to get these in great shape.

College is going to hit you sooner and harder than you imagine. At your current income level, expect no financial aid. Consider any merit scholarships that your children obtain to be bonus money. Do yourself a favor and price out college costs--not just tuition, all costs. Do it for several different scenarios--top-tier schools, out of state schools, in-state, going the community college route. You have no idea what your children might eventually pursue--some programs are very specialized, and the CC option won't work out. I have a niece in a 6-ear physician's assistant program, and my DD23 is pursuing graduate school at the top school in the country for her field, just to use two examples of how planning on the least-expensive option can bite you in the butt.

I also don't think you've adequately planned for the associated costs of owning a vacation home. Even friends who have inherited such a home are always complaining about taxes and maintenance--and their vacation home was free! I also doubt your estimate on rental income--it's not as easy as you might think, renting only on the specific weeks/weekends you want to. And of course, there are all the costs associated with having a rental, like breakage, additional maintenance, theft, etc.

If this is something you really, really want to do--make a plan. Consider all the pros and cons, with clear eyes. Establish a budget/financial plan that puts it within reach in a set number of years. While you're saving and working the plan, talk to anyone you meet who has the type of vacation home you aspire to. Ask them for all the gory details--what do they like, hate, what works, what doesn't, what did they wish they knew "before", and so on.

bearwithbear
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Re: Saving Enough for Retirement vs Vacation Home

Post by bearwithbear » Sat Aug 11, 2018 7:37 am

OP,
Wow, everyone is focused on when you can retire.
I’m hearing that you are thinking about the summers and your kids.
Can you rent a vacation place for your family? How expensive if you did it for a month?
Also, the current tax savings for adding more to your retirement accounts is worth more than college savings for the kids. You can probably pay for college out of cash flow when the kids get that old.

Bear

SGM
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Re: Saving Enough for Retirement vs Vacation Home

Post by SGM » Sat Aug 11, 2018 4:52 pm

Priorities : Retirement is not optional.
Education and vacation home are optional.

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