Help me balance RE and spending goals
Our family has two goals: (1) early retirement and (2) upgrading our home. There is obvious tension between the two. My own thoughts on how to balance/prioritize are below–but I also wonder whether this community can help me think through things from a different angle.
Family is: 45M, 44F, two kids 12 and 3. 4.9M in investments (roughly 2.5M of this is taxable). Outside of the 4.9M, we have 500k in home equity and 400k in 529s for the two kids.
Higher earner (44F) wants out ASAP (earning roughly 450/year). 45M makes around 170k and plans to go for another 4 years to earn pension credits. When 44F retires, she will continue contributing to family expenses at the same level as before from retirement savings. 45M will provide family with medical benefits until he retires and continue funding his qualified accounts until RE. Spend is roughly 14k/month (not including preschool tuition, which we have set aside).
We’ve gotten this far, like many of you, by keeping expenses low/moderate. We’ve been in our modest townhome for 11 years. We would love to upgrade to have one more bedroom and a large yard, but we don’t want to give up RE for it.
Here are our thoughts/constraints:
- We’d prefer not to sell our townhome. As a rental, it’s a decent investment for our long term future cash flow. The core expenses (mortgage (3%), taxes, insurance and HOAs) are $3500. It would rent for appx 4400-4500/month–we would set aside all of the cash flow for at least two years for a maintenance fund. Since this house has been our primary home, it’s in great shape (new roof, new windows, new hot water heater, etc). From an investment perspective, I understand it’s not a great return, but for future cash flow, here is our thinking:
- Cash flow in retirement would be more or less solved if we kept the rental:
- At age 60, a 2.6k/month pension kicks in
- 67/70, our social security kicks in, for about 52k (conservative estimate for both partners)
- Late 60s, mortgage on townhouse will be paid off and it will cash flow at least 3k/month.
- Total cash flow late in life: about 10k/month. With kids fully launched, this likely covers all of our essential expenses.
- Cash flow in retirement would be more or less solved if we kept the rental:
- This means our investments have to carry a very heavy load for about 15 years (between second partner’s retirement and cash flow kick in). Roughly 200k (expenses will go up once we lose medical benefits and during kids’ peak expense years (late teenage/early 20s). The burden on the portfolio will be lighter before and after that 15 years.
- When I model this out using projectionlab or AI, I believe we have a good 1.2M ish that we can spend now on a house while still allowing the plan to work. We would pay cash for the upgraded home. But, 1.2M is not really enough. We need at least 1.5M in our area. I can’t go that high without wrecking the plan. Do we:
- Sell the townhouse, even though we’d love to keep it
- Have 44F work longer to afford the higher price tag
- Stay in the townhouse and practice gratitude for the flexibility and security that the low expense provides us
- Wait a couple of years to see if market performance gives us the extra 300k+
- I know this is very much a “what do YOU really want” type question. But, I welcome thoughts/opinions or different ways of approaching this problem.
[EDIT: as I'm answering comments, I realize that I'm more defensive of the RE plan than the house plan, so maybe that answers it? TL;DR is that most commenters say keep working to fund home purchase and liquidate the townhome because who needs the hassle? Good feedback, but I think we're leaning towards RE first priority, if we end up finding a SFH that we can afford, great. If not, we're fine in the townhome].