For an audio version of this post, please click on the speaker icon (top left).
Welcome to this episode of The Doctor’s Bill (Can You Afford It?).
Wonder if you should buy that big ticket item or not?
Well here’s your chance to have a wealth management expert, Johanna Fox Turner, of Fox & Company Wealth Management analyze your overall finances and make a final verdict on whether or not you can indeed swing for the fences and splurge on yourself or whether you should just walk away.
[Johanna and I have no current financial relationship]
Disclaimer: This is not meant to be a substitute for paid professional advice but only meant to serve as a suggestion/guideline.
The following are the details from our submission form:
Item/Experience Desired:
Empty Nester Home
Approximate Cost:
$760,000 (maximum)
On A Happiness Scale of 1-10 (10 Being Happiest), rate what this item/experience will do for you A) Short Term and B) Long Term:
Short Term: 8 Long Term 8
Age:
Her: 53 Him 54
How Many Years Till Planned Retirement?
8
What is your total household income?
$350,000- varies and may be more, depending on side gigs.
What is your % Annual Savings Rate? (savings/gross income)
30% (Includes 401k contribution from employer of $27,000)
Primary Home Equity (Market Value-Debt) [For Renter =$ 0]
$600-625k (conservative estimate)
Additional Real Estate Holdings Equity (Market Value-Debt):
$0
Current Liquid Asset Value (Savings, Checking, Etc.):
$870,000
Retirement/HSA Combined Value:
$1,398,475
Miscellaneous Asset Value:
$1,231,200 (taxable account)
Mortgage Balance:
$221,000
Student Loan Balance:
$0
Additional Liabilities:
$0
Future College Plan Funding Needed (Today’s Dollars):
$0 (Already paid for 4 years of state college for two kids plus two years of med/graduate school for each.
Future Parental Support Funding Needed (Today’s Dollars):
$0
Additional Future Obligation Support (Today’s Dollars):
$0
How do you plan on paying for this item/experience?
Cash
Any other pertinent information not addressed?
Current Annual Living Expenses:
$120,000
Living Expenses If Buying New Home:
$100,000 ($27,000 mortgage will disappear if paying cash for new home.
Estimated Annual Living Expenses In Retirement:
$120,000 (will budget health insurance and travel expenses 🙂 )
Current Property Taxes:
$16,000 total
Property Taxes on New Home:
$18,000 (same city so just $2,000 more than current tax bill)
Homeowners Association (New House):
$2,600
Where Extra Cash Came From:
Husband had previous job with annual bonus which we always socked away.
No inheritance or gifts–all earned on our own quite literally through blood, sweat, and tears.
What will we do with extra cash after paying for new home with cash:
Probably will put it into CDs.
We were pushing 60% equity allocation before the recent market correction and need to maintain a fixed income since we are already investing in the market each month through husband’s 401k.
We want to start gliding toward 50/50 allocation prior to retirement.
I guess the recent correction rebalanced us because we lost nearly $200,000 in the past few months. 🙁
So do these soon to be “Empty Nesters” get to fly the coop to find a new roost?
Or do you think if they shell out that kind of money, they risk cracking their nest egg ?
Click on the Doctor’s Bill Image and find out the verdict:
Click on the Bill (image) and find out if can afford it or not
After you see the verdict please come back to this page and comment whether you agree or not with the decision (and no cheating by looking at comments first!)
If you would like to submit your own Doctor’s Bill request please fill out the submission form.
Note:
If you are in search of financial help, please consider enlisting the service of any of the sponsors of this blog who I feel are part of the “good guys and gals of finance.”
Even a steadfast DIY’er can sometimes gain benefit from the occasional professional input.
NOTE: The website XRAYVSN contains affiliate links and thus receives compensation whenever a purchase through these links is made (at no further cost to you). As an Amazon Associate I earn from qualifying purchases. Although these proceeds help keep this site going they do not have any bearing on the reviews of any products I endorse which are from my own honest experiences. Thank you- XRAYVSN
I only have a problem when I see new grads with loads of debt ALSO want to buy a house over a million dollars. Happens all the time here in our HCOL area. And then they also go and have 3 kids on top of all that.
I never had any idea how they all pulled that off.
I agree this couple is A okay.
Thanks DMB. Always appreciate you stopping by. Yes the temptation to buy big early is there and lot of people fall trap to it.
The best gift for a new grad is a copy of WCI’s book – preferably a year before graduation!
I agree with the book. Should be required medical text
I pay $11,000 a year on a $575,000 home. That’s approaching 2%, maybe 1.9% more accurately. So wow on nearly double that. It sounds like Long Island or parts of New Jersey to me.
Their situation is what I hope to be in, in about 10 years or so.
You might be surprised to learn it is in the Midwest – I was! Mrs. BBM has asked me a question about our analysis. When I find a few minutes to answer, fingers crossed that she will post further explanation here.
Yes, we are in a specific pocket of the “eastern”Midwest that has high property taxes.
enjoy the new house.
Why would you pay cash? If you have $450k in equity just plow that into the new house and finance the rest and plow the other $300K into the market. At 6% return and a 2200/mo mortgage in 15 years your 300K will be worth 113K and your house will be paid off. At 4% return your 300K will still be worth 20K and your house will be paid off. At age 62 retirement in 15 years you will be 77. If you don’t believe the economy is going to do 4% then you shouldn’t buy the house.
Hopefully, BBM will reply. My understanding is that they really want a mortgage-free house, but I would love to hear from her!
Hi Johanna, just waiting to hear if you still think this is a wise decision since there was some confusion with the market value/equity of the current house. The current value is $625k with a $220k mortgage remaining. New home will be between $740-760k. Thanks for evaluating our case!!
And, yes we would like to have a mortgage free home if possible.
Like you, the property tax is what caught my eye here. On the edge of my seat for your post on how you found your property, X ?
Otherwise, I admire how hardworking and organized these folks seem — sounds like the start of an exciting new chapter!
I am definitely spoiled with my property tax. I actually have had it even lower for the longest time and then they raised it by I believe $150.
Well I hope you like my post as it comes out tomorrow. Like the rest of my life I have some interesting things happen (good and bad) that are great cocktail conversations
Mrs. BBM has asked me to post the below reply addressing your comments. I believe you will find it insighful – jft: I want to thank Johanna and XRAYVSN for publishing my case submission and we really appreciate your very insightful and detailed commentary. ? It was interesting and entertaining to read and helps us to feel more comfortable with moving forward with the plans. It’s also interesting to read the comments on the XRAYVSN blog as well as the WCI forum. After reading the write up and the comments, I do need to clarify something: *The original questionnaire wording… Read more »
Thanks for the clarification. That change in question about equity in home versus the previous rendition I didn’t catch when I did my calculations. In essence the difference off is your mortgage balance ($220k). This amounts to $8,800/yr less (or $124,800 yr SWR) in the 4% rule and $6,600/yr less (or $110,300/yr) if using a more conservative 3.5% SWR. As you mentioned you are hoping to get $120k/yr in retirement. The above #’s are if you retire today. No doubt these SWR will increase dramatically if you continue to work for the extra 8 yrs you stated. So I do… Read more »