Dream Retirement Property - but can we afford it?

Petriix

You can easily afford it; just take out a mortgage for whatever you're short. With your combined income you will easily meet affordability criteria for a standard repayment mortgage over a relatively short term. You can pay this off when you sell your other property.

If one of your worst case scenarios happens then just downsize at that time.

Malthusian

Remind us why it's a dream home? So far you've comprehensively detailed the reasons it's a pain in the butt but not the reasons why it's the dream place to live. And not somewhere in a similar area without the maintenance and other issues.

To me "dream home" means it shouldn't be a compromise, it should be something where even the negatives are positives. Some people would actively enjoy looking after the foibles of an old property and spending lots of money to make it livable by 21st century standards.

Thrugelmir

-      Market crashes by 50%. We are around 80% equities so that would reduce our SIPPs by around £240k and require a drawdown suspension.

If you've a reduced life expectancy why expose yourselves so highly to the volatility of the wider equity markets. Particularly at a period of time when the upside may be limited. 

DairyQueen

Malthusian said:

Remind us why it's a dream home? So far you've comprehensively detailed the reasons it's a pain in the butt but not the reasons why it's the dream place to live. And not somewhere in a similar area without the maintenance and other issues.

To me "dream home" means it shouldn't be a compromise, it should be something where even the negatives are positives. Some people would actively enjoy looking after the foibles of an old property and spending lots of money to make it livable by 21st century standards.

OK...

We have spent the last 7 years living apart during the week (OH work and me caring for elderly relatives - mum severely disabled). Two tiny homes - one of which is in the centre of a noisy town and the other sandwiched between an antique shop that has morphed into a distribution centre, and a family that live in a noise bubble. You have to live here to appreciate the impact of drum-practice, novice trumpet-playing and 40ft HGVs. An equally tiny garden with zero peace and constant traffic. And this is a rural village.

Then lockdown and we are both squeezed into the same small space every day. Mr DQ attempting to work despite the neighbour noise and me tiptoeing around the house to avoid adding to the distraction. 

I know that I have another 10-15 years. I don't want to spend one minute more in tiny-house purgatory than is necessary.

The dream house is beautiful. Exposed timbers and beams, nestled organically into the landscape. Stands in almost an acre of neighbour-free land surrounded by glorious, peaceful countryside. Lovely views. Enough bedrooms, baths and receptions to lose yourself even with several guests. Blissfully free of traffic/drums/people. It also has the rare advantage of not being at risk of an adjacent 300-house estate and/or what passes for economic development by the standards of our district council (broiler shed factories raising 500,000 birds every 5 weeks, chicken processing plants, power stations generating energy for those still living in London, distribution centres requiring massive HGVs to negotiate single-track lanes ). Urban dwellers think that farmers diversify into small business office complexes or quaint farm-shops. No chance - the big money is made from cheap chicken. It's a chicken holocaust out here. I defy anyone to eat KFC after seeing how these poor creatures are raised.

Property in beautiful, sustainably blight-free locations is scarce here and we are now competing with post-lockdown Londoners. Anything comparable that is new/not listed/energy efficient/low maintenance is now considerably more expensive (£100k more). A new/nearly-new 4-bed/2 bath bungalow in this area would cost an additional £50k. Listed, ancient houses deter townies.

The house has been renovated and is equipped for modern living, but it will require maintenance and it won't be cheap to fix, for example, naturally-occurring cracks in the render, leaks, loose roof slates. I expect the insurance will be in the thousands. The only negative is the running/maintenance cost. Can we afford it? I think so but I'm not yet confident. Can OH after I'm gone? I don't want to leave him in a difficult situation but he assures me he will downsize.

DairyQueen

Petriix said:

If one of your worst case scenarios happens then just downsize at that time.

Good point. Thanks for the reality check.

DairyQueen

Thrugelmir said:

-      Market crashes by 50%. We are around 80% equities so that would reduce our SIPPs by around £240k and require a drawdown suspension.

If you've a reduced life expectancy why expose yourselves so highly to the volatility of the wider equity markets. Particularly at a period of time when the upside may be limited. 

Portfolio is positioned to provide front-loaded drawdown for a few years and then 0-2% drawdown going forward. We are lucky to have sufficient guaranteed income to cover all projected expenses after SPs kick-in, be that net of the high costs of owning a listed home. We didn't build that into the plan.

I just checked our wrapped asset allocation and it's 75/7/18 so not quite that high equities. 18% in cash to cover short-term drawdown if/when earned income dries-up or reduces. 7% in bonds to provide a few years income top-up in the medium term if we choose to take something from the fund when the market isn't looking good.

Low/zero withdrawal rate means we can afford to take more risk and my nephews will inherit the balance of my SIPP. That won't be for at least a decade I hope. My SIPP is therefore mostly invested to meet their long-term, rather than my short-term, goals - i.e. growth and not wealth preservation. Likewise the bulk of Mr DQ's SIPP will likely be inherited by his daughters. That was the plan. I may need to revise if we go ahead with this purchase.

Do you think the sums add-up?

[Deleted User]

Rule of thumb is “the rule of 90”. 

“ 90 – age = maximum % you should allocate to real estate”.

The logic is simple: as you get more wrinkles, you need liquidity and income rather than space. Most will end up in a nursing home.  The rule isn’t perfect and does not work for all scenarios; but its a nice little test. 

If you are 60, that means 30% of your net worth could be in real estate and you’d be on a financially sound footing.  If your new house is worth 650K, then you need 1.5M left in joint (liquid) assets after buying the property.   That number accounts for your state pension, but does not account for your other DB pensions, so you could actually afford the house with less liquidity left over. 

You also need to keep in mind that as you get even more wrinkles, the rule of 90 stipulates more liquidity. And that at some point you will need to sell the place as it will be hard to look after acreage and the extra bathrooms.  

[Deleted User]

“ Low/zero withdrawal rate means we can afford to take more risk and my nephews will inherit the balance of my SIPP. ”

Are they handicapped? In my book, if they are healthy and you are not “independently wealthy” (worth over 10M) then you should invest and withdraw to address your own risks and needs. 

shinytop

DairyQueen said:

Thrugelmir said:

-      Market crashes by 50%. We are around 80% equities so that would reduce our SIPPs by around £240k and require a drawdown suspension.

If you've a reduced life expectancy why expose yourselves so highly to the volatility of the wider equity markets. Particularly at a period of time when the upside may be limited. 

Portfolio is positioned to provide front-loaded drawdown for a few years and then 0-2% drawdown going forward. We are lucky to have sufficient guaranteed income to cover all projected expenses after SPs kick-in, be that net of the high costs of owning a listed home. We didn't build that into the plan.

I just checked our wrapped asset allocation and it's 75/7/18 so not quite that high equities. 18% in cash to cover short-term drawdown if/when earned income dries-up or reduces. 7% in bonds to provide a few years income top-up in the medium term if we choose to take something from the fund when the market isn't looking good.

Low/zero withdrawal rate means we can afford to take more risk and my nephews will inherit the balance of my SIPP. That won't be for at least a decade I hope. My SIPP is therefore mostly invested to meet their long-term, rather than my short-term, goals - i.e. growth and not wealth preservation. Likewise the bulk of Mr DQ's SIPP will likely be inherited by his daughters. That was the plan. I may need to revise if we go ahead with this purchase.

Do you think the sums add-up?

Won't Mr DQ inherit your SIPP if/when you pop your clogs? 
What if you changed your thinking and invested/planned with the aim of the two of you having the best possible retirement and (to be blunt) s*d anyone else?  Your nephews/his daughter will inherit whatever property the survivor leaves anyway.  Increase that 0-2% to 2-3 or even 3-4 and you're home and dry (hopefully literally with an old listed building).

How will you feel when you've passed on your dream home and are moving into your nice, sensible, energy efficient, uPVC double glazed bungalow ?  Thought so...

AnotherJoe

DairyQueen said:

The property is listed (Grade II) and it’s large.

Strike One.

Madness to buy as a retirement home but this is our dream home.

The cost of maintenance and insurance is likely to add at least £10kp.a. to our non-discretionary expenses.

Strike Two.

Our planned starting ‘number’ was around £45kp.a. from 2021 to include a generous holiday allowance and a lot of fat. This property would eat all of the fat and (I suspect) the holiday allowance if I was widowed

Three strikes.

I entirely fail to see why this is a dream home, sounds like a nightmare  to me, but then again I also fail to see why you both are continuing to work when you have limited life expectancy (genuinely sorry to hear that  )

Wake up before you sleepwalk into a nightmare house.

Retire now, into a house that isn't a whacking big boat anchor on your truncated retirement plans