The average retirement account balance for Americans in their early 50s is about $313,000. If you’re 52 with $2.1 million saved by that point, you may be looking to scale back on retirement plan contributions and put some of your money toward a second home.
Some people wait until retirement to buy a second home. The upside of doing so at 52, however, is getting to enjoy that home during the tail end of your career and adjusting to the cost of owning it while you still have a regular paycheck coming in.
Still, buying a second home is a big investment, and an equally big decision. And while it’s not necessarily a bad idea with a nest egg that large, it’s important to look at the big picture before diving in.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
To afford a second home, understand the costs
During the remainder of your working years, a second home could serve as a place to escape to when you need a break from the grind. It could also serve as your yearly vacation destination, sparing you the hassle of having to book lodging well in advance.
In retirement, you may get even more use out of your second home, since you won’t be tethered to a job. You can spend months at a time in another part of the country, perhaps to escape winter weather or engage in your favorite sport.
However, it is essential to recognize that the cost of a second home extends well beyond the down payment, mortgage, insurance, and property taxes. Dr. Stephan Shipe, Ph.D., CFA, CFP, and founder of Scholar Financial Advising, says many people who buy a second home end up in over their heads.
“Beyond the upfront cost, the real financial risk comes from lifestyle creep,” he explains. “Once people buy a lake house or mountain home, they often find themselves spending more on things they didn’t originally factor in — a boat, jet skis, a truck to haul them, upgraded furnishings, entertaining guests, and ongoing upgrades.”
James Comblo, CEO of FSC Wealth Advisor, agrees.
“Vacation homes are rarely passive investments,” he says. “Property taxes, insurance, maintenance, and HOA fees can add up fast. And to make matters worse, those costs often rise faster than expected. I’ve seen people underestimate the cash flow demands, which forces them to slow down retirement savings or dip into their portfolio too early. Essentially, they end up stealing from their future self.”
Be honest about your intentions
Some people buy a second home thinking they’ll rent it out when they don’t need it. But renting out a second home can be a hassle, and you may not love the idea of having other people in your space.
As Comblo says, “A second home can offer meaningful upside … with potential appreciation, rental income, and even tax advantages if structured strategically.”
But Shipe cautions that even if you do, in fact, use the second home as an investment to some degree, it may not pay off.
“One of the biggest mistakes I see is treating the property as a financial investment when it’s really a lifestyle choice,” he explains. “Vacation homes rarely generate meaningful income, especially if you plan to use them during peak seasons. In most cases, the purchase ends up being neutral to your net worth.”
To be clear, Shipe says, if you’re buying your second home for personal enjoyment, that’s fine.
‘It doesn’t need to justify itself as an investment,” he says. “Just make sure the ongoing costs won’t derail your retirement trajectory.”
Comblo agrees.
“I’ve seen clients buy in resort-style communities where everything they need is right there — friends, amenities, and a lifestyle that feels like home even when they’re away,” he says. There’s a value in that, even if there’s no specific financial upside.
Research, research, research
A second home is a big financial commitment, even if it’s not an investment. That’s why Shipe says it’s important to do your research before buying one, even if you’ve spent time in the area before.
“Before committing, take time to vacation in the area during different seasons, visit midweek, and experience the day-to-day,” he says. “A place that’s fun for a weekend might not feel the same when you own it.”
You may also find that getting to your home is a challenge in certain seasons. A lake home off the beaten path may be easily accessible during the summer. In the winter, unpaved roads could be treacherous.
Consider the big picture
The purpose of saving money is to give yourself options. And buying a second home ahead of retirement could easily be one of them. But before moving forward, Comblo says it’s smart to ask yourself a few key questions.
First, consider whether a second home purchase will delay your retirement, and whether that’s something you want. You may be just fine with working a few extra years to replace the portion of your savings you use for a down payment, but make sure that’s the case.
Secondly, ask yourself how a second home purchase aligns with your long-term estate or legacy goals. You may like the idea of having a property your children can enjoy and one day inherit, but make sure to think this aspect through carefully. If another goal of yours is to help pay for your grandchildren’s college education, a second home might derail that objective.
Finally, Comblo says, ask yourself if renting a similar property a few times a year might give you the same experience without tying up a large portion of your net worth. You may want to at least try that out for a year before taking the leap into buying a second home.
“Ultimately, if the math checks out and the lifestyle value is there, a vacation home can be an incredible addition to your retirement,” Comblo says. “Just make sure it supports your future, not competes with it.”
Read More
-
4 Money Habits Boomers Swore By That Millennials Are Walking Away FromMillennials are trading tradition for flexibility when it comes to building wealth.
-
Abu Dhabi Adventures: New Thrills, Iconic Sights and Disney’s Latest ParkDiscover the mix of culture, wildlife and modern marvels that make this Middle Eastern city a destination to watch.
-
Retire in This Island Country for That 'Permanent Vacation' FeelingThis English-speaking island nation offers a luxury retirement at a bargain price.
-
How Much Do I Need to Retire? A Financial Professional Breaks Down Your OptionsWhat it all boils down to is will you be comfortable in retirement? Some people may rely on formulas, while others just aim for $1 million nest egg.
-
Test Out Your Retirement Before You Call It QuitsIt's not easy to take a retirement back. Before you make the plunge, test the waters with these tips.
-
The 28% Rule for Housing: Does It Still Work in Today’s Market?Rising home prices and stubborn mortgage rates put this long-standing rule to the test.
-
When You Need Capital Quickly, Think 'Ready, Set, Fund': A Financial Adviser's StrategyInvestors must be able to free up cash to meet short-term needs from time to time. This strategy will help you access capital without derailing your long-term goals.
-
I'm an Estate Planner: Moving Family Assets to a Safe Haven Abroad Could Be a Huge Headache for Your HeirsIn troubled times like these, wealthy clients may seek financial refuge outside of the U.S. But that could cause more tax and estate problems than it solves.
-
The Emotional Side of Retiring: Six Steps to Help You Move OnGetting mentally ready for retirement can be tough. The loss of your work identity, daily connections, and sense of purpose can make the transition difficult. Here are six steps to help you adjust.
-
Protect Your Retirement From Extreme Weather EventsA rising tide of storms, fires, and heat is impacting retirees. Here's what you can do about it.
