Can We Afford $850k Retirement House Construction?

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Topic Author
PGR
Posts: 293
Joined: Thu Apr 10, 2008 6:25 pm

Can We Afford $850k Retirement House Construction?

Post by PGR »

We started planning, estimating on our retirement home over a year ago and we're now at the point of go (or no go) on construction... What's changed somewhat recently? Construction costs have really shot up since we did our preliminary estimates a year or even 6 months ago (lot of materials increases, especially especially). The sharper than expected increase has caused us to do a bit of a gut chuck.

Land is already purchased paid for. Home is designed and freshly re-estimated.

Current construction budget: $850k
(this is all the way thru to window coverings and includes 5% for contingency)

Current home value: $300k (no mortgage, to be sold)

Leaving balance due of: $550k (what we'll still have to spend)

Income: Social Security $25k; (increase to ~$50k in ~8 years)

Current annual living budget in retirement: $100k (2021 dollars) (incl property tax on above home)

Debt: None*
(*may do loan for portion of project)
Tax Status: Married filing jointly
Tax Rate: 22% Federal; no State
State: TX
Age: 57 (retiring in 1 year; $140k/salary),
Age: 66 (already retired; $25k SS)

His 401k: $1.1m
Her Rollover IRA: $1.5m
Her Roth: $250k
His Roth: $250k
Her Taxable: $850k
His Taxable: $800k
Portfolio about $4.75m*
(*$4.2m after construction; ~ 65/35 alloc;)
supalong52
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Joined: Tue Feb 09, 2010 1:51 pm

Re: Can We Afford $850k Retirement House Construction?

Post by supalong52 »

You could obviously afford the home, but I question whether the enjoyment you get from it will offset the cost, time and headaches associated with building a home. Are you really building something so unusual or custom you cannot find something like it for sale on the MLS?
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orthros
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Re: Can We Afford $850k Retirement House Construction?

Post by orthros »

I second supalong52.

With $4.2 million, you can withdraw 3% annually adj. for inflation and take out $126K. Unless you have a wacky tax situation, with $25K and then $50K from SS that will be more than enough to cover $100K in annual expenses and more like $150K...........

....but why build? Is there something unique you can't find? Is this a lifelong dream or That One Thing(TM) you've always wanted?

If not, you can (probably) resolve your desires in a more modest way. It's certainly worth a hard look at the very least.
boaski
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Re: Can We Afford $850k Retirement House Construction?

Post by boaski »

You have plenty you can not take it with you I would go for it.
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goodenyou
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Re: Can We Afford $850k Retirement House Construction?

Post by goodenyou »

In a similar situation. Just sold home and cash just hit account. Sold the house we raised 3 kids in for 20 years. Want to build a completely different home that is designed for retirement (one story, different layout etc.) The cost will be at least 2x the cost of the one we just sold. I was thrilled to get out of the rising property taxes and upkeep. We are also in Texas and property taxes are a killer. We are shopping and thinking. Construction costs are rising tremendously. The framing costs alone for 2x4s has tripled!
"Ignorance more frequently begets confidence than does knowledge" | “Do you know how to make a rain dance work? Dance until it rains”
marcopolo
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Joined: Sat Dec 03, 2016 10:22 am

Re: Can We Afford $850k Retirement House Construction?

Post by marcopolo »

As other have said, you obviously have enough to afford this home and maintain desired budget.

I will not try to dissuade you from building your home.
We did it, and it was a great experience and we are loving our new home designed and built just like we want it.

Is this a true custom home, designed from the ground up to fit your needs/wants, or is it a semi-custom from builder where you pick out options?

If semi-custom, then a 5% contingency is probably fine.

If it is a true custom home, then have you already selected all things down to specific make/model and options, or do you have a lot of allowances in the budgeted price? If still allowances, then I would suggest at least doubling that contingency.

Good luck, and enjoy the process.
Once in a while you get shown the light, in the strangest of places if you look at it right.
babystep
Posts: 416
Joined: Tue Apr 09, 2019 9:44 am

Re: Can We Afford $850k Retirement House Construction?

Post by babystep »

PGR wrote: Sat May 01, 2021 4:41 pm We started planning, estimating on our retirement home over a year ago and we're now at the point of go (or no go) on construction... What's changed somewhat recently? Construction costs have really shot up since we did our preliminary estimates a year or even 6 months ago (lot of materials increases, especially especially). The sharper than expected increase has caused us to do a bit of a gut chuck.

Land is already purchased paid for. Home is designed and freshly re-estimated.

Current construction budget: $850k
(this is all the way thru to window coverings and includes 5% for contingency)

Current home value: $300k (no mortgage, to be sold)

Leaving balance due of: $550k (what we'll still have to spend)

Income: Social Security $25k; (increase to ~$50k in ~8 years)

Current annual living budget in retirement: $100k (2021 dollars) (incl property tax on above home)

Debt: None*
(*may do loan for portion of project)
Tax Status: Married filing jointly
Tax Rate: 22% Federal; no State
State: TX
Age: 57 (retiring in 1 year; $140k/salary),
Age: 66 (already retired; $25k SS)

His 401k: $1.1m
Her Rollover IRA: $1.5m
Her Roth: $250k
His Roth: $250k
Her Taxable: $850k
His Taxable: $800k
Portfolio about $4.75m*
(*$4.2m after construction; ~ 65/35 alloc;)
Yes. What is the value of those numbers with two commas on your computer screen? You can't live in them.

I hope you are planning on your Roth conversions aggressively :wink:
radiowave
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Joined: Thu Apr 30, 2015 5:01 pm

Re: Can We Afford $850k Retirement House Construction?

Post by radiowave »

I can empathize, DW and I were looking to return back to NC near Chapel Hill and was planning pre-pandemic of building new just south of town about high 500 very low 600 and now prices are about where you are with your new build. We decided to stay a few more years in CO to wait until the real estate market cools off in NC. Well at least we can see snow covered mountains from our front windows :) I really don't know if waiting will help with the purchase price of a new home so it's a bit of a gamble, we'll see.

OP, if this is the retirement dream house you want, a few extra 100k should not hold you back.
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Topic Author
PGR
Posts: 293
Joined: Thu Apr 10, 2008 6:25 pm

Re: Can We Afford $850k Retirement House Construction?

Post by PGR »

Thanks for the responses and comments!

Yes, it's a custom home designed over many months for our expected retirement lifestyle, 'aging in place', and for the unique property features itself.

I suppose part of it is psychological, we just didn't expect such a spike in construction costs in such a short period of time. Which underscores an underlying issue here and that is how to spend. We've been reasonably prudent thru our careers so learning 'how to spend' bigger is a bit of a thing to get used to. Then to encounter such an increase to an already large initial expense 'right out of the gate' as it were... well... Heck, we're potentially going to a home that will be worth triple the current place we've been in for the last couple decades!

I hear you on the allowances and was leaning towards 7.5% ourselves...

[Plan B - was to consider a different, smaller property that a variation of the same house could be built on but w/ lower construction costs, netting about $175k in savings]

thanks again,
Olemiss540
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Joined: Fri Aug 18, 2017 8:46 pm

Re: Can We Afford $850k Retirement House Construction?

Post by Olemiss540 »

Build it. You dreamed it, you saved it, now you should build it.

I could see if you were stretching but it appears you are going to go to the grave with MULTIPLE millions.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
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