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

Written by Alessandra Malito

Do you have a question about your retirement savings? Email us at [email protected]

Dear MarketWatch,

My wife and I are 64 and 65 years old, respectively. I plan to retire in two years when I am fully entitled to my current employer, avoid early stock withdrawal penalties, and be closer to taking advantage of Social Security benefits. We currently have $1.5 million in 401(k) investments, in medium to strong funds, and a few small IRAs. We also have about $600,000 in various dividend-earning stocks, including shares of said company, plus annuities. We have no debts of any kind and currently live in a two-family property that we own, without a mortgage. Our net income from the rental unit is approximately $1,500 per month.

Our “ideal world” goals for retirement are to be closer to family and own a modest home in California, with an ADU (Affordable Housing Unit) or a home with a small additional rental income, and spend months traveling abroad. We are not “luxury” travelers, we enjoy modest travel and prefer bed and breakfast accommodation. We were very fortunate that we were able to take advantage of the frenetic real estate market last year and sell our headquarters and have $1.1 million to invest in our next home. We are now on the other side of this market and will likely have to buy a property at an inflated price. Our focus is not on getting much for our money, but on top of that, putting all our money into an expensive house might not make sense, given the travel we want to do. Should we invest that much cash and rent a small apartment near our family, or should we bite the bullet and go ahead and buy an expensive home?

Thank you so much!

Look: We have $1.5 million that we don’t intend to use in retirement – how do we invest it if we plan to give it to our kids someday?

Dear Reader,

Homes are certainly very expensive these days, but the tide in the real estate market is up to the buyer, so you may be in a better position than you think. Of course, there are still a lot of variables to consider, you know.

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

Home prices are starting to fall in various markets across the country due to higher mortgage interest rates, at least for the time being. But as we’ve only seen in the past few years, things can change quickly. “If inflation peaks and interest rates start to fall, the real estate market could heat up again,” Barrott said.

You are in advantage now. You’re still working, so you’re bringing in income during this unruly economic environment with soaring inflation, interest rates and market volatility in the past year. In addition, you have rental income. There is a healthy nest egg hidden for retirement, which does not include money earned from the recent sale of your main residence. You seem to be very focused on getting the numbers right.

Want more actionable advice on your retirement savings journey? Read the “Retirement Hacks” column on MarketWatch

If you’re not really sure whether renting or buying is the best decision for you and your spouse at the moment, don’t jump into anything. Buying a home only to get around it and sell it soon after can be an expensive blunder, and it’s not like a lease is expiring in the next month or two. If you haven’t done so already, start looking for properties to buy and rent in where you plan to move in California, and try to track progress. How many homes have been sold in the last two years? What is the rate of inflation in the rental market out there, and what do analysts expect it to be in the next year or two?

If you are going to buy a home with a higher interest rate, and if you are going to take out any mortgage, you can always refinance later if it makes financial sense. It can always be adjusted for two years and refinanced later,” said Linda Farinola, certified financial planner and president of Princeton Financial Group. “If this is the right property for them, they will stay there for a while and the price will work itself out over time.” Just watch for adjustable rates – it can be risky because there are a lot of uncertainties, such as whether the rate will rise before you are 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 (term of the mortgage, if you’re going to sell the house before you pay it off, etc.). If you can cut the interest rate by three-quarters of a percentage point, or shorten the term of the loan, refinancing might be worth it, Nerdwallet’s Holden Lewis told MarketWatch Picks.

SEE ALSO: I’m 67 Retired With $57,000 Left On My Mortgage And $600,000 Saved For Retirement – Should I Pay My Home 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 for you (taking into account cost of living, temperature, proximity to important entertainment and medical facilities, etc.) and then end up buying something when it pops up in the market. “Flexibility (leasing) trumps owning,” said Thomas Scanlon, certified financial planner at Raymond James Financial Services, in your current situation.

If you can, add the added challenge of choosing a smaller place to rent and getting rid of things you don’t already need or use, Scanlon added. Also, mention getting a good renter’s insurance policy if you’re going this route.

Above all else, think about what either option might mean for you and your family. You can read the numbers a million times, but if the option doesn’t work for your family in the end, you may not be happy – even if you save a lot of money.

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

Do you have a question about your retirement savings? Email us at [email protected]

Alessandra Malito

 

(end) Dow Jones Newswires

08-06-22 1025ET

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