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We are 35/39 years old with 2 children under 3. We are looking to buy a newer house on a 30 yr fixed mortgage in a better school district. Our gross income is 145k/yr. We have no college funds set up yet and are way behind on retirement savings (combined only around 70k). We have 60k equity in our current house, and 70k in savings. We plan to put 20% down and keep the rest as an emergency fund. The homes we are looking at cost 375k-400k and are about 3300 - 3600 sq feet (i.e. 2 A/C units running in the South - $$$)
1) Do you think we can afford those prices?
2) If you answered No - does it change things if you knew that I will inherit 1.1m when my parents pass away?
3) Is planning on that inheritance to fund our retirement and kids' colleges a bad idea? (Parents also have LTC insurance).
You need to do a budget. Your mortgage payment should probably be about 25% of your income. What are real estate taxes, cost of furnishing home etc etc. Do you have life insurance, disability insurance? If I assume what I think your expense are I would guess 300,000 max. But then I do not even know if you have a state income tax.
Inherit money. Do not count on it. You do not know what might happen over the years that could use the money up.
We have a budget. I tracked every dime spent for 8 months. While "paying yourself first" is ideal, I wanted to project how much we could safely increase our mortgage by, so we only transferred the "extra" to savings on the last day of the month. The "extra" each month varied from $700 (low) to $2,000 (high) with an average of $1,300/month. RE taxes are 2.2% and we have no state income tax. I have 250k life insurance, husband has 320k. (We are looking to increase that after this purchase). Our current monthly payment is 19% of net.
Last edited by JJ09990; 03-24-2016 at 02:27 PM..
Reason: typo
Your parents may live into their 90's, or at least one might. Given that - you STILL have to plan for retirement and college funding. Don't rely on the inheritance and understand that if your parents have poor health a lot of that money may disappear.
Why are you so far behind in your saving and...is your family complete? The square footage you're considering is quite large - any reason you couldn't go down to 3,000 or even 2,750 sq. ft? That would save on property tax, upkeep, and utilities and would certainly mount up over the years.
Do consider paying yourself first - it is just too easy to come up with excuses, especially when your kids are clamoring for stuff!
Your parents may live into their 90's, or at least one might. Given that - you STILL have to plan for retirement and college funding. Don't rely on the inheritance and understand that if your parents have poor health a lot of that money may disappear.
Why are you so far behind in your saving and...is your family complete? That home is quite large - any reason you couldn't go down to 3,000 or even 2,750 sq. ft? That would save on property tax, upkeep, and utilities.
It's possible parents could live that long - but knowing their specific health issues, I really doubt it. I am to understand that Long-term care insurance will cover a large portion of their future health needs (home health services, dialysis, etc) so I don't anticipate much of that disappearing.
My husband got a late start to retirement savings. He's now saving 6% with another 6% company match. I was only saving 4% for years while I paid down student loans. Now I'm saving 10% with a 5% company match.
Yes we are done having children. I would be fine in 2700 - 3000 sq ft, and if we can find the right floorplan in that size, then great. But husband is pushing for a certain type of house with a 2nd floor landing and a media room, etc. I realize it's a bit much, and I'm trying to convince him we don't need it. But he has a point. This is the last house we're going to buy until it's time to downsize.
We are 35/39 years old with 2 children under 3. We are looking to buy a newer house on a 30 yr fixed mortgage in a better school district. Our gross income is 145k/yr. We have no college funds set up yet and are way behind on retirement savings (combined only around 70k). We have 60k equity in our current house, and 70k in savings. We plan to put 20% down and keep the rest as an emergency fund. The homes we are looking at cost 375k-400k and are about 3300 - 3600 sq feet (i.e. 2 A/C units running in the South - $$$)
1) Do you think we can afford those prices?
2) If you answered No - does it change things if you knew that I will inherit 1.1m when my parents pass away?
3) Is planning on that inheritance to fund our retirement and kids' colleges a bad idea? (Parents also have LTC insurance).
1) Technically you should be able to afford the home just based on your income and down payment, however I have no clue what your spending habits are like. Would you feel "cash poor" in your newer, bigger home?
2) I don't know how your parents have organized their estate, but regardless it's a terrible idea to bet on inheritance for both college and certainly not retirement! 1.1m is not enough! If you are 35 or 39, your parents could still be in their late 50s or early 60s.. they might be around for another 30-40 years... you just never know what's going to happen. Also the most expensive years in one's life are often their last. My grandmother spent $200k during her final year... she needed around the clock care in an assisted living facility. She was kinda shocked how quickly her reserves were being eaten away as she got older (her last 4-5 years) and had always intended for everyone to receive a substantial inheritance, but it didn't quite work out that way in the end.
I'm also expecting inheritance too, but it's NOT part of our retirement plan. Truth be told we're not much further along in our 401k than you (we also got a late start)... probably around $110k and we've only got about 50k in cash... but we also have $55k in 529s and after finishing our mortgage next month we have about $565k in home equity.
Most importantly: We are sustaining a savings rate at about $70k a year (50%), which will likely go up to 60% next month.
We're not so much interested in retirement, but are hoping to have $2m+ in assets for old age. We are not factoring in social security or inheritance.
You can do what you want.. it seems like you're going to be okay, but I wouldn't be comfortable with your current situation or your choices or your retirement and college plan.
It seems like you are spending a lot of money and don't have all that much to show for it.
Not sure on your job security but you will need an emergency fund 3-9 months?
Then whatever you had left u put into a house you can afford with payment with insurance and taxes being 20-30% of take home pay a month. Take into the fact that you will be contributing 10-15% of gross pay into retirement savings
Once you have the house purchased start up retirement savings.
1) Technically you should be able to afford the home just based on your income and down payment, however I have no clue what your spending habits are like. Would you feel "cash poor" in your newer, bigger home?
2) I don't know how your parents have organized their estate, but regardless it's a terrible idea to bet on inheritance for both college and certainly not retirement! 1.1m is not enough! If you are 35 or 39, your parents could still be in their late 50s or early 60s.. they might be around for another 30-40 years... you just never know what's going to happen. Also the most expensive years in one's life are often their last. My grandmother spent $200k during her final year... she needed around the clock care in an assisted living facility. She was kinda shocked how quickly her reserves were being eaten away as she got older (her last 4-5 years) and had always intended for everyone to receive a substantial inheritance, but it didn't quite work out that way in the end.
I'm also expecting inheritance too, but it's NOT part of our retirement plan. Truth be told we're not much further along in our 401k than you (we also got a late start)... probably around $110k and we've only got about 50k in cash... but we also have $55k in 529s and after finishing our mortgage next month we have about $565k in home equity.
Most importantly: We are sustaining a savings rate at about $70k a year (50%), which will likely go up to 60% next month.
We're not so much interested in retirement, but are hoping to have $2m+ in assets for old age. We are not factoring in social security or inheritance.
You can do what you want.. it seems like you're going to be okay, but I wouldn't be comfortable with your current situation or your choices or your retirement and college plan.
It seems like you are spending a lot of money and don't have all that much to show for it.
1) I don't buy anything for myself. Ever. I'm still wearing clothes from 15 years ago. My husband is the spender. He buys the latest tech stuff. He will feel cash poor. A fact I've warned him about on multiple occasions.
2) They are 63/70 years old. They are living on SS and pension and not touching that money. My father retired in 2005. My mother retired in 2013. They have more money in investments now then they did. Basically, they are frugal spenders and smart investors. I can't imagine any scenario where they would run out of money.
I would disagree that only have 2k in debt and 70k in savings is "not much to show for it" - but I'll concede we should have more in long-term savings.
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