Author Topic: "Dream House" nightmare  (Read 3750 times)

Bobberth

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"Dream House" nightmare
« on: March 14, 2017, 01:15:46 PM »
I'm a financial planner and I'm updating a couple's retirement projection. I entered their current account balances into their old projections and they run out of money at his age 88 (we run projections to age 100). Confused, I looked at the original results-they made it to age 100 and had a present value of $750k left at that point. That's a big difference. What gives?

Looking at the original projection run, their current lifestyle's annual need is nearly 20% higher than the inflation adjusted 2017 need based on their lifestyle from the original projections (2011). This new, higher retirement need was also a "I think we could live on just $12k/month" amount that was lower than they spend now: $290k gross with only savings of $31k in SIMPLEs. Then, not only has their taxable savings not grown like they expected to previously, the account balance is actually lower than it was in 2011.Their plan in 2011 was to sell both their main home and their vacation home and build and live full time in their "Dream House" on a lot they already owned. By doing that, the equity in their two properties should pay for the build AND they could put $100k into savings, along with monthly contributions. Obviously you can't skimp on a dream so actual costs kept piling up. No extra equity to put into savings. Then they start pulling money out of their accounts. Now they are living in the house and expenses for the one house is higher than when they had two houses.

Wanting to have an answer for them, I keep re-running scenarios until I find one that gets them to the same spot there were based on their 2011 expectations. The answer is instead of retiring at 65, they retire at 72. That house, their "Dream", cost them 7 years of retirement. Actually, it's not even the house that did them in. The original plan worked. It was the cost overruns and lifestyle inflation that went along with the fancy new house. It's not going to be a pleasant meeting to tell them that, while you thought you only had 3 years until retirement, just kidding, you actually still have a decade left.

Fortunately they do have equity in the house so they have options. But damn. That's an expensive dream.

Sibley

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Re: "Dream House" nightmare
« Reply #1 on: March 14, 2017, 01:26:18 PM »
Best part is - that "Dream House" is most likely unlivable for them once they develop mobility issues. Very few people's dream house is going to include only one level, layouts that work for walkers/wheelchairs, grab bars, and so on.

AMandM

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Re: "Dream House" nightmare
« Reply #2 on: March 14, 2017, 08:30:44 PM »
Ouch.

Is there any prospect of scaling their lifestyle back so they an recoup some of those extra 7 years?

slugline

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Re: "Dream House" nightmare
« Reply #3 on: March 15, 2017, 11:05:40 AM »
Wow. Are the savings accounts lower because of disappointing investments, or were they simply raided early?

Bobberth

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Re: "Dream House" nightmare
« Reply #4 on: March 15, 2017, 12:16:23 PM »
Ouch.

Is there any prospect of scaling their lifestyle back so they an recoup some of those extra 7 years?

Possible to change? Yes. Probable? No. Most of the times people who get this type of news discount the odds of living that long and continue on course. "Live to 100? That's crazy!" I keep nagging my bosses to finally fire a client. He did the same thing while "downsizing" the house. Put the money difference back into upgrading the smaller house instead of investing it and kept monthly expenses the same. He turns 80 this year and assuming no major change of account value, he will run out of money just after turning 81. We've had many talks with him over the years and done 4 full-fledged projections, all with bad results, and he just wouldn't make any changes. Luckily, with the good market returns over the last decade, he got an extra 3 years from his money.

Bobberth

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Re: "Dream House" nightmare
« Reply #5 on: March 15, 2017, 12:20:19 PM »
Wow. Are the savings accounts lower because of disappointing investments, or were they simply raided early?

Taxable account is lower now than in 2011 from taking money out to pay for the house.

Goldielocks

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Re: "Dream House" nightmare
« Reply #6 on: March 18, 2017, 12:45:31 PM »
Damn,  That was what I was getting at on another thread this week, where the young couple were doing a great job saving so that they could build their dream home on a lot that they owned.

I did not have a problem with the plan, except my recommendation to not build a"dream home" but something smaller to start was not well received by the MMM responders.    I, too, know the urge to keep spending, because you call it in your mind your "dream" home, or your "forever" home... etc.


Cassie

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Re: "Dream House" nightmare
« Reply #7 on: March 18, 2017, 01:26:32 PM »
Sounds like these people will need to sell their dream home or keep working. VEry sad. We downsized to a 1400 sq ft ranch when we retired and it saved us a lot of $. Yes we fixed it up but my DH did all the work.  Also while we made things nice we did not over upgrade for the neighborhood.

MrsPete

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Re: "Dream House" nightmare
« Reply #8 on: April 01, 2017, 04:57:50 PM »
Fortunately they do have equity in the house so they have options. But damn. That's an expensive dream.
Eh, you pointed out options ... they knew the cost, and they made their choice.  It's not the choice I'd have made, but I hope they're happy with their decision.  At the very least, they always have the option to sell the house ... they're better off than people who've overspent on vacations, clothes, or meals out, costs which cannot be recouped.

I frequently read another board that has to do with building custom houses, and I am amazed at what people choose:  Yes, my children all need a large bedroom with walk-in closet and a private bathroom.  Yes, we need a living room + sunroom + office + rec room + a man cave + a craft room + a 200 sf walk-in closet + a laundry room with granite countertops.  No, 4500 sf isn't all that big.  No, we could never "downsize" to a three-car garage; it'd hurt us on resale. 

I frequently feel like the poor country mouse when I'm reading that board -- not that I actually care that strangers think I'm "under-building" -- but the irony is that I can pay cash for what I plan to build, whereas a frequent topic on that board is, "My plans came back from the architect, and we must cut the size by 1000 sf and the budget by 20%.  How can we do this, given that we aren't willing to give up anything?" 
Best part is - that "Dream House" is most likely unlivable for them once they develop mobility issues. Very few people's dream house is going to include only one level, layouts that work for walkers/wheelchairs, grab bars, and so on.
Building a "dream home" is one of my retirement goals ... but I don't interpret "dream home" to mean "big, expensive, luxury home".  I'm planning for something in the 1900 sf range ... and one of the big reasons we're planning to build is so we'll have a place designed for "aging in place"; that is, we're planning on space for walkers, grab bars in a no-barrier walk-in shower, a garage entry with no steps, washer/dryer adjacent to the master bedroom, etc.  Everything we'll need will be on the first floor, and the upstairs will contain a second master bedroom for one of our adult children /grandchildren or a paid caretaker.  Most of our finishes will be nice-but-not-luxury-priced; for example, we plan to go with a metal roof that'll probably never need replacing; we want all-tile bathrooms instead of cheap stuff, but we're fine with basic tile from Lowes; we'll go with a standard-sized tub without whirpool bells-and-whistles. 

We anticipate this will cost us about $50,000 out of savings + the sale of our current house.  So, a "dream house" doesn't have to be an unattainable goal. 

patchyfacialhair

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Re: "Dream House" nightmare
« Reply #9 on: April 03, 2017, 07:32:27 AM »
What forum is that? I'm not interested in building, as we just bought our "dream" home a month ago, but it sounds like fun reading material.