Can We Afford Two Homes?

Summary

Summary of "Can We Afford Two Homes?" Episode of Jill on Money with Jill Schlesinger

Release Date: December 9, 2024

---

I. Introduction

In the December 9, 2024 episode of Jill on Money with Jill Schlesinger, host Jill Schlesinger delves into the financial complexities of maintaining two homes during retirement. Addressing a pressing question from a listener, Jill and her co-host Mark Talarico explore whether retirees can feasibly afford both a primary residence and a second retirement home without jeopardizing their financial stability.

II. Listener's Profile

At [03:54], Mark Talarico introduces the listener, Mark from the Midwest, who is seeking advice on his and his wife’s retirement plans.

• Ages and Employment:

  • Mark: 67 years old, currently working full-time.
  • Wife: 62 years old, also employed full-time.

• Joint Annual Income: Approximately $290,000.

III. Financial Overview

Jill and Mark assess the listener’s current financial standing, including savings, retirement accounts, and existing mortgages.

• Retirement Savings:

  • Traditional IRAs: $200,000
  • Traditional 401(k)s: $170,000
  • Roth Accounts: $260,000
  • 403(b) (Wife’s): $110,000
  • Health Savings Accounts (HSAs): $100,000
  • Brokerage Accounts: $50,000
  • Cash/CDs: $130,000

• Real Estate Holdings:

  • Primary Home: Valued at $325,000 with a remaining mortgage of $70,000 at an interest rate of 2.58% ([06:31]).
  • Second Home (Retirement Home): Valued at $550,000 with a mortgage of just under $300,000 at an interest rate of 7.99% ([06:58]).

IV. Discussion of Two Homes

The core of the episode revolves around the financial implications of maintaining both properties post-retirement.

• Original Plan: Sell the primary home upon retirement to pay off the mortgage on the second home ([07:21]).

• Proposed Change: Mark’s wife considers keeping both homes to stay close to their children, leading to increased monthly expenses.

  • Current Monthly Expenses: $14,000 when maintaining both homes and supporting associated costs like travel ([10:00]).
  • Expenses if Selling Primary Home: Reduced to $8,000 monthly ([10:44]).

V. Retirement Planning

Jill and Mark dissect the retirement income streams and spending needs to evaluate sustainability.

• Pension and Social Security:

  • Wife’s Pension: $1,700/month
  • Wife’s Social Security: $2,900/month if claiming at age 70 ([09:02]).
  • Mark’s Social Security: Over $4,000/month ([08:56]).

• Total Projected Income: Approximately $8,600/month from pensions and Social Security.

• Spending Gap: With expenses at $14,000/month, there is a significant shortfall that would need to be addressed through savings or mortgage adjustments.

VI. Financial Recommendations

Jill offers a candid analysis and actionable advice to bridge the financial gap.

• Primary Advice: Maintaining two homes is financially untenable given the current savings and income projections.

  • Quote: “[...] this is a terrible idea. [...] you cannot, like this. You don't have that much money.” ([12:38])

• Options Presented:

  1. Sell the Primary Home: Use proceeds to pay off the second home’s mortgage, thereby significantly reducing monthly expenses.

     • Benefits: Eliminates high-interest payments on the second mortgage, reducing overall financial strain.

     • Quote: “Sell your primary, get the money out, pay down the mortgage. Boom, you're done.” ([13:16])

  2. Rethink Retirement Plans: If keeping both homes is non-negotiable, the only viable option would be to continue working beyond the planned retirement age to support the additional financial burden.

     • Roth Conversions: Jill advises against Roth conversions in this scenario, stating, “The answer to that is no” ([11:07]).

• Additional Recommendations:

  • Maximize Retirement Contributions: Continue contributing up to employer matches in retirement accounts.

  • Utilize Brokerage and Cash Reserves: Allocate a portion of the $700,000 in savings to bridge the income gap, ensuring funds remain accessible for emergencies or opportunities.

• Final Considerations: Jill emphasizes the importance of aligning retirement plans with financial realities, highlighting the necessity of making tough choices to ensure long-term stability.

VII. Conclusion

The episode concludes with Jill reaffirming the critical need for retirees to evaluate their financial capabilities realistically. By prioritizing financial security over the desire to maintain multiple properties, retirees can safeguard their retirement years against unforeseen economic strains.

• Closing Quote: “Change your work, change your wealth, change your life.” ([18:13])

Listeners are encouraged to reach out with their financial questions and consider subscribing to Jill on Money Live for additional resources and support.

---

This comprehensive discussion underscores the significance of meticulous financial planning in retirement, especially when contemplating substantial lifestyle changes such as maintaining multiple residences. Jill Schlesinger provides clear, objective guidance to help listeners navigate these complex decisions effectively.

Transcript

[Jill Schlesinger]

Here at Jill on Money, we're all about helping you get more for less. So here's a life hack that can automatically put some extra cash in your pocket. Discover will automatically double all the cash back you've earned on your credit card at the end of your first year with Cash Back Match. So you could get some money for this holiday season and get more next holiday season. It pays to Discover see [e-mail] credit card well, here it is. It is the holiday season. I know it snuck up on you and I know that there are a lot of competing forces for your dollars during the holidays. Which is why you may want to check out Klarna. Klarna is your smarter everyday spending partner for the holiday season. You can use Klarna's Pay in for product to split your purchase into four interest free payments. They've also got a new cash back feature that makes it easier for you to spend smarter and other products like the Klarna card, the Klarna app and new Klarna Balance. Choose Klarna at your favorite retailers or shop [e-mail] CA resident loans made or arranged pursuant to a California Finance Law License NMLS number 1353190 Klarna balance account required. Klarna may get a commission. Limitations, terms and conditions apply. Welcome to the Jill on Money show. It's Monday, December 9th and we are here answering your financial questions. Actually, sometimes we're asking. You're asking us to answer your life questions. And all we do, Mark and I, who we're both certified financial planners, is we listen to what you say you want to do and then we try to help guide you to the potential outcomes that could solve the things that you want to do. Okay, now it's not always possible. Sometimes you're asking for something we can't do. That's when Mark says to me, you're a dream crusher. But sometimes it works and I'm a dream maker. Whatever the situation that you find yourself in, if you are trying to make a decision and it feels a bit like a struggle or you're anxious, give us a holler. Just go to jillonmoney.com click the contact us button. Let us know if you'd like to come on the air by checking the box while you're on the website. Don't forget to sign up for the free weekly newsletter Mark does a great job with that comes out every single Friday. He is the best. Oh and by the way, December 9, it is the anniversary of a Charlie Brown Christmas. And I encourage everybody to watch that because it's on Apple and you can watch it anytime. It is still just sticks. It's so great. Mark, remember when we used to play holiday music during this time? And you would always play that for me? I loved it so much. What happened? Why did we get in trouble for that? They said, oh, because I think for the radio show we could. Because radio shows had the licenses for the music. Is that right?

[Mark Talarico]

Yeah. Something changed with the license, and I think we were prevented from doing it. That's why we went down the Joel Goodman Road.

[Jill Schlesinger]

Yes. Now we have our own music. It's fabulous. However, I do love that soundtrack and I do love that show. When Linus gives the true definition and meaning of Christmas, I cry every single time. I love it. So go watch it. You'll remind yourself why this time of year can bring tears to your eyes. And hopefully we don't bring tears to your eyes. We just kind of just chat with you and make things go. Okay. Right now let us talk to Mark, who is on the line from the Midwest. Mark, what is your favorite holiday movie? TV show. What do you. What's going on for you, boy?

[Mark]

I don't know. Favorite holiday show?

[Jill Schlesinger]

Yeah.

[Mark]

Boy, I probably one of the Grinches.

[Jill Schlesinger]

Yeah. There's only one Grinch, my friend, and that heart grew three times. Let's make sure that I'm not a Grinch this holiday season. What can I do for you, Mark?

[Mark]

Well, we've got. My wife and I have a couple of questions. We kind of had a plan for retirement, and my wife's having second thoughts or maybe wants to change one part of it that's going to kind of impact. Have a pretty significant impact on financial planning. So just wanted to get an independent and objective perspective on things.

[Jill Schlesinger]

That is me. I'm both independent and objective. Although I'm always in the tank for the wife. Mark, how old are you?

[Mark]

I'm 67.

[Jill Schlesinger]

Okay. How old is your wife?

[Mark]

62.

[Jill Schlesinger]

All right. Already. I think she's wiser than you are. What's going on? What are you. So you're both working full time?

[Mark]

Yep, we're both working full time.

[Jill Schlesinger]

How much do you guys earn together?

[Mark]

Together we're at about 290.

[Jill Schlesinger]

Have you had access to retirement plans for most of your careers?

[Mark]

Not for most of them. Probably in the last 15 or 20 years that we've been able to, you know, really start saving and doing some planning.

[Jill Schlesinger]

Okay, so tell us about the money you've squirreled away so far.

[Mark]

So in IRAs we've got about 200,000.

[Jill Schlesinger]

Pre tax IRAs.

[Mark]

Yeah, pre tax.

[Jill Schlesinger]

Okay, got it.

[Mark]

Traditional 401ks. We've got about 170.

[Jill Schlesinger]

Okay.

[Mark]

Roth, different flavors. Whether it's a Roth Rollover or Roth 401k or whatever, we're at a little over 260. A 403B, which is my wife's. She's a little over 110.

[Jill Schlesinger]

Okay, great.

[Mark]

We've got HSAs that have a little over 100.

[Jill Schlesinger]

Great. Good, good, good. And that 403B is a traditional, right?

[Mark]

Yes.

[Jill Schlesinger]

For your wife? Okay.

[Mark]

Yeah, she didn't. Doesn't have the option there.

[Jill Schlesinger]

Okay, so HSAs, what else we got?

[Mark]

We've got brokerage with about 50, and then cash or CDs or whatever. We've got about 130.

[Jill Schlesinger]

Okay. Got a nice good chunk of cash. Great. You guys own a home?

[Mark]

Yeah, we own two. And that's where my wife is thinking about changing the plan.

[Jill Schlesinger]

Oh, I like this already. Okay, Your primary. What is the primary? What's it worth?

[Mark]

It's worth about three and a quarter.

[Jill Schlesinger]

Is there a mortgage that remains on it?

[Mark]

Yep, there is. It's a little over 70.

[Jill Schlesinger]

And what's the interest rate on that, Mark?

[Mark]

Two and five eighths.

[Jill Schlesinger]

Oh, my God. Mark's old, like I am. We like fractions. Okay, thank you. Second home. Is this a vacation home or a rental property?

[Mark]

The second home is our retirement home.

[Jill Schlesinger]

How much is it worth?

[Mark]

It's worth about 550.

[Jill Schlesinger]

Oh, okay. And mortgage?

[Mark]

Yeah, about a little under 3.

[Jill Schlesinger]

And what's the interest rate on the that mortgage?

[Mark]

7.99.

[Jill Schlesinger]

Oh, hello. That's a recent one. Okay. Okay. So these are the two homes. What's the game plan? Here is the game plan to sell, like in general, before we started with your wife's change of game plan, what was the existing game plan?

[Mark]

Well, the existing game plan was that when we retire to sell the primary home, and then we could use the proceeds from that to pay off for the mortgage on the second home.

[Jill Schlesinger]

Yep.

[Mark]

And so now she's having a little bit of second thoughts about that, thinking that maybe it'd be nice to keep both homes.

[Jill Schlesinger]

Sounds like there's some adult children in this. In the picture.

[Mark Talarico]

Yeah.

[Mark]

Although they're pretty much launched.

[Jill Schlesinger]

Okay.

[Mark]

Youngest one is 26.

[Jill Schlesinger]

Okay.

[Mark]

Or will be 26 next year, I guess.

[Jill Schlesinger]

And what's the other one? How old?

[Mark]

We've got two others. Geez. 35 and 32.

[Jill Schlesinger]

Okay. So they're mostly launched. That's Good.

[Mark]

Yeah, they're mostly launched, and there's only one where our old home is located.

[Jill Schlesinger]

Okay. All right, so how are we going to do this? Let's think. First of all, it sounds. It said. You said 403B. Is your wife a teacher or nurses? There a pension coming?

[Mark]

Yep, she's got a pension coming. If she were to retire, I mean, the game plan was that I, that I would work. That I'd retire late in 2027, and if she worked until 20, 20, 28, her pension would be about 1700.

[Jill Schlesinger]

Okay. Are you entitled to a pension?

[Mark]

No.

[Jill Schlesinger]

Okay, so what about Social Security for you? So you, you would be, you know, 70 years old. What would your Social Security be right now?

[Mark]

It'd be a little over four.

[Jill Schlesinger]

Okay. And what about her Social Security again.

[Mark]

If she, if she waited until she was 70, it'd be 2900.

[Jill Schlesinger]

Was that the game plan for you guys, though? Generally, when you said 20, 28. Let's see, where are we? We're in 24, so four years. So she was really only going to wait till age 67? No, for her Social Security?

[Mark]

Yeah, we weren't too sure about that. That was kind of open.

[Jill Schlesinger]

Okay, you have the 67 number. Just out of curiosity, it's probably closer to be 20.

[Mark]

Let's see, 21.

[Jill Schlesinger]

Okay, great. I just want to have both of those numbers at hand. Okay. So the idea here is that worst case scenario, the old plan, you have her $1,700 a month pension, her 2100 in Social Security, your $4,000 in Social Security. What is your spending need? Oh, boy, this is going to be hard because you're going to. What's your spending need right now With.

[Mark]

Yeah, so that, I mean, that's, that's part of the equation. It's not just, it's. It is that the spending need is significantly more if we maintain both. So right now, all in including, you know, charitable contributions, maintaining both homes and traveling between them and everything, we're at about 14amonth.

[Jill Schlesinger]

14 grand a month?

[Mark]

Yeah.

[Jill Schlesinger]

Look at you guys living large. Geez.

[Mark]

Okay, well, that, that, the, that 7.9%.

[Jill Schlesinger]

Yeah. It's a real number.

[Mark]

Yeah, it's a real number.

[Jill Schlesinger]

Okay, so if we get rid of the primary and you go full time to the second home, what are the expenses with only that house?

[Mark]

Yes. They're going to be like eight tonight.

[Jill Schlesinger]

Oh, my God.

[Mark]

Okay, and so, and so the two questions were. And I kind of think I know the answer to one. The other one's a little bit more Iffy. Yes, but the question about. Well, the first question that I think I know the answer to was whether we should be thinking about doing any Roth conversions. And I think the answer to that is no.

[Jill Schlesinger]

Well, what's the second question?

[Mark]

Second question is whether we should pay down, make a significant payment on that mortgage.

[Jill Schlesinger]

The only way you should do that is if you sell your house or you could stay in your primary home. You can't carry these two houses. You don't have enough money to do this.

[Mark]

Well, but if we paid down, I mean, I was looking at, you know, amortization schedules, and if we paid a chunk now.

[Jill Schlesinger]

Yeah.

[Mark]

You know, let's say we paid 100 on that.

[Jill Schlesinger]

Yeah.

[Mark]

Second house, the interest goes to a third over the life of the mortgage whatsoever.

[Jill Schlesinger]

Yeah, but it's just like your cash flow still sucks.

[Mark]

Yeah, except our cash flow is. I mean, we've gotten over the hump of, you know, doing some purchasing for, you know, associated with the purchase of that house now. So we're back to where we're building up cash now. And so that's kind of the question is whether we should do that, given that we are building up cash now.

[Mark Talarico]

Why does your wife want to keep it? For what purpose?

[Jill Schlesinger]

Oh, Mark's going to get. Mark doesn't usually come on this early in the conversation, but here he comes. Look out, look out, Mark from the Midwest.

[Mark Talarico]

So you guys can still use it or to rent it out. For what purpose?

[Mark]

Yeah, so that we can use it. It's close to one of the kids. And so, you know, and that's where we have to talk about a little bit more because I don't know that it's really a question of do we need to keep that house or when we come back, do we just travel to where the kids are and spend time with them, you know, renting or, you know, you know, doing something like that.

[Jill Schlesinger]

This is such a hard no for me. I'm sorry. I'm going to be a dream crusher, even though I love your wife. But this is a terrible idea. I mean, if you have the game plan and you're going to live in the house, that's fine. Sell your primary, get the money out, pay down the mortgage. Boom, you're done. Okay. And then there's nothing to worry about, Right? Okay. Absolutely zero. If she wants to keep both of these homes, I would really ask you. The why is the why. Well, we need to have a pine base, a home base near where one of our kids is. Go stay with the kid or go Get a hotel room and it's going to be a lot cheaper. But you cannot, like this. You don't have that much money.

[Mark]

Right.

[Jill Schlesinger]

And I mean, I'm not sure I shouldn't say that. You don't have that much extra money saved. Right. So we know that you have, let's see, 170. We have 280 here. So we have two 84 if we have like. But we have a half a million that hasn't been taxed yet. So it's not really fat. It's not three quarters of a million. Right. It's. It's is the, is the second home in a state with no income tax.

[Mark]

No, it's got income tax, but it's lower than where we're at.

[Jill Schlesinger]

Okay, so fine. So, all right, so your 400, the 500 that hasn't been taxed yet is going to be taxed. So let's just like lop off. That's 400 there, at least. And then you've got the 260 of your Roths. Okay. And then you got your brokerage account. So, you know, now you have six. Six. You have 700 grand.

[Mark]

Yep.

[Jill Schlesinger]

And that's great, and it's wonderful. But, you know, your, her pension, two Social Security checks are not going to exactly get you to 8,000. We need you to have a little bit more. You need another couple hundred, couple thousand dollars a month, and that's going to come from that $700,000, which is perfect. That works. But you know, if. Tell her this. She wants to keep both those houses. She got to keep working. That's what she gets. She gets it. Those are her choices. And no to the Roth conversions. Definitely no. But if you had a windfall, if all of a sudden you were like, hey, you know what, Jill? I work for a company and it just got taken public and I got a big chunk of money, or my great Aunt Sarah died and left me money. Yeah, sure. But it's you. You have a great asset base. You've done an excellent job. The pension is helpful. You're working deep into your careers. You have a game plan. The idea of the purchase of this second home, I mean, you really had two choices. One was to say, we're going to buy this second home. We're not. We're going to pass on the second home. We're going to keep our primary, which is so cheap. And then whenever we want to go to the place that we love, we're going to just pay and be in a hotel. That's. That's one choice. You made a different choice. You said no, we really want to make that second home, our retirement home. Is it a home that you can really retire? And does it, is it, you know, does it have, is it all on one level? Are you in like some 55+community or something like that?

[Mark]

We're not in the community, but it is all on one level and it's got, it's got room for the kids to visit and you know, like that. So.

[Jill Schlesinger]

Fabulous. So I'm, I'm good with you socking away money. Are you both putting money into your retirement accounts right now, pre tax?

[Mark]

We are. We had when we, when we bought. So it was a couple years ago that we bought the second home. When we did that, we cut down what we were contributing. We had been maxing out, but we cut down to what we needed to do to get matches.

[Jill Schlesinger]

Yeah.

[Mark]

And with the after purchase and you know, added purchases for things like some, some furnishings and some stuff like that. We haven't been doing that. So we are contributing. Not, not maxing it out though.

[Jill Schlesinger]

But up to the Mac, the match, right?

[Mark]

Yep. Yeah.

[Jill Schlesinger]

Okay, that's fine. Just keep doing that. Whatever it is the match. Every extra dollar you can be putting into the brokerage account, building that up or you can just actually, if you really wanted to, you could pay down your 7.99% mortgage if you like. That's fine too. That has to go away. The. It's, it's going to be hard to carry these again. If you want to keep working and just pay that off. If you're like, okay, you know, we're going to do. Jill, we got 130 grand in cash. We don't need all 130. We're going to take 50 of that plus 50 of the brokerage. We're going to take that 100 grand, we're going to pay down the mortgage and we're going to keep working until we pay that mortgage down. So it's in our sightlines, right?

[Mark]

Yep.

[Jill Schlesinger]

And. But you got to keep working. Yep, definitely. And so if that's. Those are the choices as I see them. Mark, do you have a different idea around this?

[Mark Talarico]

No, I agree 100%. I mean you guys have done a great job. You're in on track for a solid retirement. But that involves one house. Unless like Jill just said, unless you guys want to keep working. That's the only way I see it working.

[Jill Schlesinger]

You know me, if I had to work another day with Mark just to support a mortgage, I'd Kill myself. I love him. I'm going to keep working forever. That's it. I think that that's the story. Is your wife going to be mad at us?

[Mark Talarico]

I think, yeah.

[Jill Schlesinger]

Mark.

[Mark Talarico]

I think Mark knew. He's with us.

[Jill Schlesinger]

Yeah. Know, I told him I was going to. I was going to be on his wife's side. And I lied, didn't I?

[Mark]

Well, and actually, that was. That was what I was thinking of, was using the brokerage and 50 from our current cash to knock 100 off because it has such a dramatic impact now. Yeah.

[Mark Talarico]

But if you're going to ultimately sell the primary home right now, then don't. Don't bother. Get paid off anyway.

[Mark]

Don't bother. Okay.

[Jill Schlesinger]

I mean, I don't think so. I mean, it's up to you.

[Mark]

Even at that 8%.

[Jill Schlesinger]

I mean, look, I would. I could pay down that mortgage. I'm fine with that. And 8% after tax return, I'm fine with that for right now, for the next couple years. But if you want access to the money, then keep the money accessible. And then when you're ready to pay it down, you can do it on a lump sum. But if it makes you feel better to see a lower number, that's fine, too.

[Mark]

Okay.

[Jill Schlesinger]

All right. It's okay. You're going to be okay. I'm such a. I mean, I don't want to come down too hard on you, except I just did. But Mark's wife hates us. She's never going to listen again. Mark Telaric. You hear that? You're not telling her what she wants to hear. It's very bad. You'll let us know how it goes. Meanwhile, in the little time we have left, do you guys have your estate documents done?

[Mark]

Yes.

[Jill Schlesinger]

All right, good. Go easy. Ma'am, this is going to be tough. You can just say nothing and be like, hey, let's put on Jill on Money. And after, you can watch Charlie Brown Christmas and see if she feels any better. Thank you for getting in touch with us. If you like, Mark and his wife are changing your game plan. Do not do anything until you get in touch with us. Go to our website, jillonmoney.com, click the contact us button, write us a note, and of course, let us know if you'd like to join us live on the air. We'd love to have you. And while you're on the website, don't forget, you gotta subscribe to Jill on Money Live. It's $35 for the next 12 months, and then Mark is jamming you on the feet. It's going up next year. So anyone who joins Jill on Money Live right now gets grandfathered or Grandmothered in at $35 for the next 12 months. There you will have access to our four quarterly live webinars, our back catalog, other bonus content. It's all really good, good stuff, so check it out. You can subscribe to us on the Odyssey app or wherever you find your favorite podcasts. Please leave us a rating or review and or a review wherever you listen, put your hands metaphorically on someone's back or give someone a good hug, why don't you? It'll be great. Change your work, change your wealth, change your life. Thanks for listening. We'll talk to you tomorrow. Gearing up for Holiday Shopping Introducing Klarna A Smarter Way to Spend Klarna has a new cashback program where you actually get rewarded for shopping. Plus you can split your purchases into four payments with zero interest. It's like having a smart, flexible shopping buddy, making your holiday gift buying easier. Choose Klarna at your favorite retailers or shop [e-mail] resident loans made or arranged pursuant to a California Finance Law License NMLS Number 1353190 Clara Balance Account required Karna make it a commission. Limitations, terms and conditions apply. Hey friends, I'm Sharon McMahon, host of here's Where It Gets Interesting. Each week I speak with authors, experts and thought leaders on everything from American history and democracy to how to be a better person on the Internet. And don't miss my extremely popular docuseries, which educate you on things you never learned in history class. Follow and listen to. Here's where it gets interesting on the free Odyssey app or wherever you get your podcasts.