Dreaming of a Vacation Home In Retirement? Here's a Reality Check

For people getting ready to retire, buying a vacation home is often at the top of their list of priorities. But it may not be a wise investment.

You may dream of purchasing a second home for a number of reasons: Perhaps you envision it as the centerpiece of family activities—a place where your children and grandchildren can come together for a week or more every year. It's the place where the family can reconnect, enjoy fun activities and spend quality time. Or maybe you like to spend time near the beach or in the mountains or in a part of the country that has long interested you. Or maybe it can be your reward for working hard and accomplishing your goals during your working years.

Unfortunately, your vision of how the vacation home will be used sometimes does not match reality. As a result, it can take a large bite out of your finances.

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Here's how that scenario often plays out: You and your spouse take the plunge, and buy a family vacation "compound." But with increasing job responsibilities and the demands of raising your grandkids, your adult children find less time to travel. Let's say you have two or more adult children—all with families. Finding time when everyone can come together at the vacation home becomes harder each year.

On top of that, you might even find you don't have the time to use your dreamy retreat either. As you get older, the physical demands of travel may restrict your ability to get away, and the place gets used less frequently than you had imagined.

Unfortunately, once the purchase is made, the home may have a number of fixed costs that can start to eat into your cash flow and possibly your retirement portfolio. Property taxes, homeowner's insurance, utilities, landscaping and other general upkeep of the property can easily amount to $2,500 a month or more.

The crowning blow is that, over time, the property may not appreciate and could possibly even lose value.

Several years ago, one of my clients purchased a vacation home in the Tennessee mountains. But after his adult child moved north as part of a job promotion, the retirees ended up traveling there to see their grandchildren often and rarely used the vacation home.

In addition, the mountain property didn't appreciate much over time, so the main reasons for buying the home were nullified. The retiree and his spouse sold the home, but the proceeds were barely enough to cover the mortgage, meaning that they had little to reinvest.

In terms of lifestyle and finances, consider this well-worn phrase when making financial decisions in retirement: "Rent the best, and invest the rest."

Rather than buy a vacation home, consider taking vacations in different places every year, perhaps places you've always dreamed of visiting. Because a couple in retirement often looks forward to vacations with their grandchildren, think about how new locations will appeal to everyone, especially as the grandchildren grow older.

For example, when the grandchildren are young, beach vacations may be fun for everyone. But when they become teenagers, the grandkids may want to try other experiences such as cruises, trips to large cities, Major League Baseball games and other, more active vacations. These teenagers may prefer to take trips in which they can get away from the rest of the family and enjoy some personal time—and a secluded mountain house simply doesn't meet those needs.

Most couples have worked a lifetime and invested wisely so that they can enjoy their retirement. Before deciding that owning a second home is the right move for you, consider your objectives carefully and speak to others that have been through this experience.

Lisa Brown is a partner and wealth advisor at Brightworth, an Atlanta wealth management firm with $1.2 billion in assets under management.