We’re in our 60s and own a $1 million home. Can we afford a $290K vacation home near our grandchildren?
February 24, 2025
0 3 minutes read
“Since the city is growing, it seems like a relatively safe investment.” (Photo subjects are models.) – Getty Images/iStockphoto
I need some advice, encouragement or discouragement about buying a second home. We are a retired couple, ages 69 and 64, and we have an investment portfolio of $3.3 million and a paid-off home worth $1 million. We have no debt. But I’m a reluctant snowbird.
Our income is around $150,000 per year including $55,000 in Social Security and IRA distributions of $95,000 (which equates to about a 3% distribution from our investments). In two-and-a-half years, we will get another $24,000 per year from my Social Security.
We travel four to six months a year to another city where our children and grandchildren live. We always stay in Airbnbs ABNB and last year spent about $20,000 on that expense. I would like to buy a modest second home in that city (about $290,000 for a two-bed, 1,000-square-foot townhouse).
We would have to take out a mortgage to buy it and we figure the out-of-pocket expenses for mortgage, taxes, insurance, HOA and utilities would be about $35,000 per year. Obviously, there would also be expenses related to the upkeep of a second home.
I have a frugal nature and it’s causing me to feel guilty about such a frivolous expense. But after five-plus years of staying in Airbnbs, I would love to have a place with our furniture and a location we like. As the city is growing, it seems like a relatively safe investment.
While I would like to leave our kids an inheritance, I would also like to enjoy our money.
If you have this house for the next 10 or 15 years, it will likely have gained in value and turned into a good investment. – MarketWatch illustration
If I were to visit your would-be vacation home, I would like to ask the question, “What kind of people live in a house like this?” (That comes from a TV series called “Through the Keyhole.”) The answer would be a couple who have comfortably retired and have more than $3 million in investments, a home that’s paid off and, after you’ve put 20% down to avoid additional private mortgage insurance, repayments that don’t account for more than 30% of your monthly income.
By the time you have that $24,000 income from your own Social Security, this house will, hopefully, have increased somewhat in value. That’s in addition to your combined income from your IRA and your husband’s Social Security of $150,000. If you have this house for the next 10 or 15 years, it will likely have gained in value and turned into a good investment, all the more welcome given that you spend $20,000 a year on Airbnbs.
Word of caution: while you won’t be absentee landlords, being an absentee owner has its challenges too. If there’s a break-in, storm damage, a leaky pipe that floods the property, or a tree that falls upon it — all worst-case scenarios, granted — you will get that phone call at 5 a.m. That’s in addition to property taxes and ongoing maintenance. Always hire a structural surveyor before buying. It’s worth the money.
Nate Ahlberg, a senior wealth adviser at wealth-management company Prosperity in Minneapolis, agrees that your plans are sustainable, even if you need to increase the monthly withdrawals from your retirement funds. “You can reduce your portfolio distributions accordingly when your Social Security benefits begin,” he says. “That short-term increase should not have a significant long-term impact on a well-diversified investment portfolio.”
A vacation-home purchase is also an opportunity for taking stock. “Use this potential purchase as an opportunity to review your investment asset allocation to ensure it continues to align with your risk tolerance and distribution needs,” Ahlberg says. Given the high-interest-rate environment, the smaller the mortgage, the better. “You may have the opportunity to refinance at a lower mortgage rate at some point in the future,” he adds.
Make sure you have an emergency fund that you can access easily (preferably in a high-yield savings account) and financial plans if either of you requires long-term care. It’s OK to be frugal, and feeling guilty (or having a cautious nature) serves its purpose if it prevents you from making a reckless investment — but only for a time. You have worked hard for this postwork life, and you have saved multiples more than the average American.
Enjoy your vacation home and spending time with your family.
