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<p>We live in a very desirable and nice area. Still…if we sold our house today, we would barely net enough to buy a replacement. And our house is totally paid for.</p>
<p>^^Then I wouldn’t see either, @thumper1, you’ve got it made right there! It’s expensive to sell, and if you like where you are…if it ain’t broke, don’t fix it.</p>
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It depends on many factors. For example, during the ~14 year period for which Trulia has real estate stats, home sale prices in my southern CA town have increased by an average of just under 7% per year. The best year had a ~40% gain, and the worst year had a ~20% loss. My area averages well under 1% property tax per year, so most home owners who have kept their home for a long period and have a low/no mortgage have come out ahead after expenses, maintenance, and taxes. Real estate investors usually pay in cash and often find better than average deals and/or rent out the property, so they often realize larger gains than the overall average. During this same period, the S&P 500 has increased by an average of 1.3% per year, with a best and worst annual gain of +30% and -38%. The real estate investor during this period in my area is likely to come out well ahead of the market investor, with a smaller degree of variance. I realize one could choose a different set of years and/or different area to show a real estate loss or gains being far behind the stock market, but the point is real estate can be a good investment. My net home value - home expenses/taxes gain has averaged over $100k per year during the period I’ve owned by home. Had I purchased on more basic home in an attempt to save for retirement, I wouldn’t have fared as well.</p>
<p>Right. I like our location. We have a lake and beach rights. We are minutes from shopping and the highway, but on a nice cul de sac. We like our neighborhood, and our neighbors. </p>
<p>The house is 2000 sqft too big! And the yard is way too big. </p>
<p>I can’t see us moving within the next five years…at least. </p>
<p>I don’t think DH and I will have too much trouble deciding when to retire, although I think we can do it sooner than he does. The problem will be deciding where to retire. At this point, we have different preferences and priorities. I’m probably less willing than he is to compromise on that.</p>
<p>Data, you acknowledge in your post that your situation is not typical; very few areas fared that well: NYC, Silicon Valley and some other limited areas. However, one can invest in a diversified portfolio regardless of where he/she lives. On average a primary dwelling is not an investment and should not be treated as such. </p>
<p>When you choose a school, you are also choosing your child’s peers and those peers have a great deal of infuence over values and whether education is important. My kid’s classmates parents became my friends, and our lives revolved around the schools for about 20 years. Schools are a crucial part of community building, and quality of life. </p>
<p>Tempemom, I can just envision a few camps in the Prescott area that would fit the bill. I’d love it. A return to our more communal origins. </p>
<p>Silpat, when thinking quality of life, I think I should work well past 65, if part time. With my current job at half time, and continuing health insurance, life could be quite good. </p>
<p>Like DrGoogle, I also do not understand the idea of paying off mortgage. It is cheap and it is tax deductible. When I retired, my tax rate is still going to be quite high, and mortgage will be the only item I could deduct. I could use the mortgage money to invest in other things to get a better return.</p>
<p>"“I think it takes a lifetime of living below your means to really be able to afford to retire.”</p>
<p>Gospel. Truer words were never written. That statement also flushes out the issue of what living within or above or below your means actually means. Its the way that savings are created."</p>
<p>If there is only one lesson I pass down to my kids to teach them about financial responsibility, it would be this!!!</p>
<p>I teach my kids to live for the moment, to take time and money to enjoy life. You never know if you could live to be of any age. If you wait to do things when you have time (retired), you may miss out a lot on life.</p>
<p>Living below your means does not mean not taking the time and money to enjoy life.</p>
<p>^^^Very true. But most people do believe it is not to do anything.</p>
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Most areas did not fare as poorly as you imply, in terms of real estate gains. For example, I grew up in upstate NY, near the capital region. The area where I grew up averaged a 5.5% increase per year during the 2000-14 period for which Trulia has stats. Looking up some randomly chosen cities, there was a 6.1% average annual gain in Boston, a 4.8% gain in Miami, and a 5.1% gain at Lake Havasu. Sure some areas had larger historical real estate gains than others, but in most areas, the gain is far from negligible and enough to surpass the 1.3% S&P gain during this period. The graph at <a href=“http://2.bp.blogspot.com/-_eEkRXhtPbM/T4oB31QC5ZI/AAAAAAAABU0/7cwpBE7naJg/s1600/U.S.+Housing+vs+Stock+Market+Growth.jpg”>http://2.bp.blogspot.com/-_eEkRXhtPbM/T4oB31QC5ZI/AAAAAAAABU0/7cwpBE7naJg/s1600/U.S.+Housing+vs+Stock+Market+Growth.jpg</a> compares the Shiller home price index which looks at the price of comparable properties vs the DJIA average from 1900. The two fell quite close to each other until the 90s, when the stock market gains surpassed real estate increases and has remained above since then. If you are not buying at uncommonly low prices or renting property, the stock market is probably a better long term investment than real estate. However, this does not mean that one’s primary dwelling cannot be an investment. Real estate investment can help diversify one’s portfolio against market events, and a primary residence offers an added benefit of being able to enjoy the property, which can be worth far more than the difference between stock market and real estate gains for some. With sufficient effort, one can also realize substantially larger real estate gains than the average.</p>
<p>For example, I mentioned making a large gain on my primary home. It wasn’t just a matter of living in a location which had real estate gains above the national average. I spent a many weeks researching and looking for the right property at the right time. The property I did purchase was a short sale. I closed on the day before the short sale became a foreclosure, allowing me to get the property at a substantial discount of ~25% below market value. I used to date a woman who invested in property for a living. She had a similar strategy of buying far below market value by focusing on properties that needed work. At the time she purchased her primary home, it had severe fire damage to the point where there a good portion of a wall was missing. She gradually fixed it up while living there, then eventually sold it for several times more than her purchase price + cost of improvement. </p>
<p>“The area where I grew up averaged a 5.5% increase per year during the 2000-14 period for which Trulia has stats. Looking up some randomly chosen cities, there was a 6.1% average annual gain in Boston, a 4.8% gain in Miami, and a 5.1% gain at Lake Havasu.”</p>
<p>Right. These are just some selected markets. Factor in the average 5% interest (discounted for tax advantage) on the 80% LTV paid by many mortgage holders over that period of time, 1-2% annual RE tax, higher utilities and upkeep than renting an apartment, the 10% of the sell price that you have to part with when you dispose of the "investment’ (realtors’ fee and 2-3% excise tax), and RE is suddenly does not look like such a great investment deal for most of the country - for folks with mortgages, that is. Real estate investors paying cash via relator friends - that is a different story. A primary dwelling, as I always say, it just that - a place to call home.</p>
<p>Most people grossly underestimate their RE-related expenses such as maintenance since they are incurred over time. Sure, when I sell my current home, I will have a hefty gain, but its it really so hefty? The reason I still love my home is that it makes my quality of life so much better than renting, and I’m paying for that.</p>
<p>You also need to factor in the tax exemption on profits of up to $250k/$500k on sale of one’s primary residence, as well as comparable taxes/fees in other investments. For example a Forbes article calculated the average annual hidden costs for a taxable mutual fund was 4.17% including expense ratio, transaction costs, cash drag, and taxes. Sure one could pay far less if they put everything in a min fee index fund, but one could also pay far less in home costs than your list. My annual costs related to my home (property tax, power, water, maintenance, termites, furnishings, HOA, insurance, …) have averaged only 1.3% of home value per year, lower than the costs associated with my 401k. Yes, there is a difference between borrowing beyond your means and using that to invest in real estate vs a home with low/no mortgage, just as there is a difference between a day trader borrowing money to fund his bankroll and an investor holding onto an index fund for a decade. I do not have a mortgage, as do a growing number of Americans, particularly those who purchased their home since the subprimate mortgage crisis . A GS analysis estimated 60% of real estate transactions were all cash in 2013. </p>
<p>Anyway a house is the only fairly safe leveraged investment available to the individual, that you can also live in. Fine if it only goes up 5% a year, but if you have an 80% mortgage that’s a pretty good return on your 20%.</p>
<p>It is quite possible to live life to its fullest and live below your means. For myself not driving a Mercedes SUV and not living in a Mcmansion is hardly living life less than its fullest. If people place relationships and their actions ahead of material means they will find themselves much closer to living life to the fullest. </p>
<p>agreed, straightshooter. My H and I have, in the last ten years, severely downsized our income. We traded money for time. The things we like to do don’t cost a lot of money (hike, bike, kayak, write, read, garden, cook, spend time with family.) We do have to be very mindful of what we spend money on, but the trade-off has been well worth it. </p>
<p>as far as the original question, we’re not going to have a whole lot to retire on–modest 401K, probable small pension, plus SS. But we will be in a paid off house, and we’re used to not needing a lot, so hopefully it will work out. </p>
<p>I want to thank everyone for this thread. It’s been so helpful and has brought up so many interesting viewpoints. </p>
<p>I listened to the discussion about what the financial advisers say we need (80-85%) and now I think I agree with all of you that it might be closer to 60-70%. That makes sense, although I suspect the 80% may be more applicable to people on the very low end of the economic spectrum. </p>
<p>I looked at about 5 different retirement calculators. It was tough to find one that fit us since many of them don’t seem to recognize pensions. I guess it’s because defined benefit pensions are dying out. But my H and I both have them, so we are very lucky. </p>
<p>I agree with the idea you can’t spend your life living to retire. You have to live in the moment too. As Yoda scolded Luke “never your mind on where you are!” It’s a question of priorities, isn’t it? We take 4-5 vacations a year because we love to visit our kids and we love travel. But we drive 10 year-old cars, and we live in the same house we bought 30 yrs ago instead of trading up when we could have. We feel this gives us a lot of flexibility because we can always reduce or stop traveling, but you can’t end your need for a home or a car. Our lifestyle is very scalable, and it fits our interests. We are blessed. </p>
<p>I finally mentioned to DH that if he planned to step up to the plate and help family who will no doubt need it down the road due to their poor financial planning and other reasons, that he needs to factor that into the retirement savings plan. Its not calculated into the current budget, </p>