Much of the variance in cost of living has to do with housing cost, but the previously mentioned $5 million (which is what one poster mentioned, with others referencing it not necessarily agreeing with it) is excluding one’s (presumably paid for) house.
Beyond the cost of housing, the biggest factor for how much you need is likely what you consider to be a “comfortable but not extravagant lifestyle” and how much that costs.
Understood. But probably many of us consider “comfortable but not extravagant” the opportunity to have a comfortable vehicle (not a Bugatti), be able to travel (not own a private island or have fractional ownership in a private jet), etc.
For the last year or so Ive been tracking my spending, to help prepare for retirement.
I was rather shocked at the amount I spent the first half of this year, given we certainly weren’t doing much.
Now for the last couple of weeks and continuing we have had some boring and unplanned house related costs - new sump pump, an issue with our septic system, and needing to have the columns on the front of our house rebuilt because of rot, in addition to needing a roof soon. I guess it’s good we are taking care of some of these things before retirement, but it seems “when it rains, it pours” and this is going to be the “year of the house.”
You’ve got to remember to budget for this kind of stuff in retirement.
Last year we went on 5 vacations, a much more fun way to spend money.
I’ve mentioned before the Uber driver in his 50s who took me to the airport and mentioned he lived in a house in Palo Alto he inherited from his parents. They bought it in the late 60s/early 70s for perhaps $100K. Now I expect it’s worth $5M. Even in our generation of people who bought in the early 2000s, most have made $1M to $2M on their homes (prices have much more than doubled in 20 years).
A guy I worked with in the early 2000s had bought a small house in Los Altos when he moved to Silicon Valley after college. He paid $15K in 1962 and sold for $1.5M in 2006. Now that house is probably worth nearly $5M too.
Since he inherited it, does he get to continue with the low tax rate? Lucky guy.
Under Prop 13, property taxes would be the value in 1977 or so, inflated at 2% per year. So I guess 1% of about $300K ($3000) per year plus a couple of thousand in parcel taxes.
Looking around on Zillow suggests that prices there are 2 to 2.5 times what they were in 2006, so probably that house would sell for around $3 million to $3.75 million.
The house we sold in Oakland in 1992 for $299,000 Zillow says is now worth $1.5mm. Oh well, but we did as well or better than that on the house we sold in NJ in 2008.
Older S’s house was built in 2004. His purchase price (this month) is 2.6 times the original selling price. He’s in San Jose.
For contrast (or lack thereof), we bought our house in MD (DC burbs, at the end of a Metro line) in 1998 and recent sales in our neighborhood are 2.5-2.6x what we paid.
It’s the original selling price that’s quite different. ?
Yes, the Prop 13 tax base carries over to children heirs.
We were fortunate to buy our Bay Area (peninsula, for those who are familiar with the area) house in 1991. Our house is now worth 5-6 times what we paid for it. We have, however, remodeled it 3 times over the years and, thus, have put in a fair amount but, no question, it was an incredible investment. And, of course, we still live here but have no plans to sell, particularly because, after 3 updates, it’s exactly what we want. Added bonus is prop 13 which keeps our property taxes low.
I looked up S&P500. In 1992, it was about $400. Now about $3,000. House is nice to live in but may not be the best for a purely investment point.
There is such a thing as under spending in retirement. If you enjoy eating rice and beans and staying at home and keeping your cell phones for 6 years and your cars for 20, and are happy to live that way, good for you. Really, you and my DS would get along great, he does all of that stuff and lives lightly on the earth. Saved up a bunch of money while living on a grad school stipend.
But if you spend little because you somehow think frugality is virtuous and spending is sinful, you are likely to cause trouble for your family. Old family members letting the house fall apart around them (because repairs are expensive, better to save) and relying on neighbors for rides (because Uber and taxis are expensive and neighbors don’t charge) and not moving to safer housing or hiring household help because you’ve been taking care of yourself for 67 years and don’t need to start paying for help now, you have a problem.
So sure, you may have saved more than you need for retirement. Maybe you could retire now but prefer to work, several posters on this thread are in that position. Maybe you start giving some of it away now, to charities or to your family. It’s more fun to do that than I would have imagined. Or maybe you just enjoy stacking it higher and higher. As long as you are in charge of your money and your money isn’t in charge of you many spending profiles are just okey dokey.
^^ But, you have to live somewhere, so that is an expenditure that you cannot avoid as far as your primary home is concerned. So making an expenditure an appreciating asset is a good thing.
In terms of real estate as an investment, and without getting into investment property where you have to consider annual net cashflows, capex and default risks as well as the exit price, remember that your investment is leveraged. So for every $100k in purchase price, you only invested ±$20k. Again doing simple math (taking the interest costs along with property tax, utilities and maintenance as offsetting the cost of having somewhere to live ) the $100k house that is now a $600k house actually is returning $520k on a $20k investment or 26x.
You can of course leverage your stock investment, but that injects a whole new world of risk that is of a different nature than a mortgage on a primary home.
For those of us who need to do things on the home, the money is going there instead of exciting travel. I imagine once the Covid stuff is behind us all, the pent up travel will pick back up. Interesting that people have been buying bicycles and motor homes.
As others on this thread, H and I live in a low tax state. Our home property tax is about what our home owner’s insurance cost is. The outside maintenance done now will keep our house ‘fresh’ for another 6/7 years - and re-staining/painting will probably go up about the same rate as it did from 6 years ago to now. Our home exterior is mostly brick, and we have vinyl soffets and trim - but still some painting and staining. I should have listened to my dad and minimized the outside maintenance on the building choices we made in the early 1990’s…
As time goes on we can think about changes/moving. If we do end up living close the where DD/SIL/GKs may end up, that is a different story and will need planning in many areas. Want to keep up with the growing grandchildren - we are lucky to live less than 2 hours drive away right now and DD has me come when SIL is on Army Reserve time.
We don’t count our house value in the assets available for retirement.
If we ever move from this house, I do not want anything this large…at all. @jym626 perhaps look at the costs for much smaller places than where you live now.
Our challenge is we live in a low cost state and are thinking of moving back to a high cost state when I retire, which is where we think at least 1 of our kids will end up. Our prior house was in the Bay Area, and when we moved here, it was great to get almost twice the house for a quarter of the cost although we did lose a Bay view (but we did get to live off a golf course). If we move back to Cali, the economics look to be reversed, 4x the cost for half the house.
@kelsmom, my MIL has become increasingly anxious and risk-averse about money. I switched her from the FA I use (who was a little too holistic for my mother) to someone at TIAA-CREF who just does short-term fixed income investments for her. Every notice or bill she got made her anxious and she would call me or the FA. I now have them send all statements, notices or bills to my office and we handle them from there, most with autopayments.
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@1214mom, happy to do adopt you. We have rented a houseboat in Sausalito for several winters but haven’t done so for the last two or three years. Was wonderful. The view of Richardson Bay and Mount Tam just made me happy. ShawWife is from Western Canada and we go back every summer to hike because I love it (and she is pretty happy there as well). Plus, I now have clients in Calgary so in a non-COVID world, I probably would have been there today. I go back more often. I was on a board there for a number of years and we would go every summer with the kids to hike and every winter to ski for a couple of weeks. I was thinking about Florida to eliminate state income tax, but it ShawWife wouldn’t be willing to spend enough time there to make it work. On Boston, as I’m sure I have mentioned up-thread, we bought a house that is grandfathered on the banks of the river. The river bends at the house and so I have a long view up the river. That view makes me almost as happy as Richardson Bay and we are surrounded by conservation and agricultural land so it feels like we are in a nature preserve. Two weeks ago, while I was drinking my coffee in the morning, I saw a fawn swimming down the river until the Muscovy ducks who believe they live on our property swam over to investigate. The fawn was frightened, climbed on the bank, walked around them and then climbed back in to continue its swim. You might want to be adopted here as well.
Vis-a-vis the amount, whether $1 MM or $5 MM or $10 MM is enough is a function of where you live and the life you want to lead. Although @CalCUStanford said in his/her post ($5MM in cash), one probably should think about how much is post-tax money and how much is in non-Roth retirement plans (distributions from these plans will be taxable as ordinary income). We live in a place with expensive COL and expensive RE and the other places we go tend to be expensive too. And, we have the good fortune of having a fair bit of money in retirement plans. So, our target is higher. We are almost there. We are, however, sinking a bunch into renovating a garage into an art studio and renovating part of the new house. Net worth will remain unchanged, but to @jym626’s question earlier, less will be available to support our lives.
Due to a combination of work & family, we have a home in the Midwest & apartment in the PNW. We originally wanted to reverse that scenario on retirement (home in the PNW & apartment or condo in the midwest), but now an equivalent home in the PNW would be about 4x the cost of our midwest home (which is an average value for our city, nothing extravagant). The cost difference was only 2 or 3x when we first started looking, so even then it was hard to justify.
Then we convinced ourselves that it makes more sense to keep the midwest home and far cheaper to simply fly back and forth a lot. Covid killed that idea, at least for a couple years.
I have a dear elderly friend in the PNW, who sold her home (for a small fortune), and moved to a senior cottage style community. I thought she had the perfect reason to consider a home equity loan or reverse mortgage, and use the money to hire help and enjoy her remaining time. But selling her house was something she thought she “should” do, and not something she necessarily wanted to do. She regrets it every day.
I’m trying to learn from her experience.
We keep telling ourselves we’re happy to sell the midwest home, and invest a little extra, if we’re moving TOWARD something, and excited about it. But the cost difference is so different now, I doubt we will ever find something we are excited about in our price range. So we stay. Maybe we’ll regret that every day too?