Can We Upgrade Our House?

Summary

Podcast Summary: Jill on Money with Jill Schlesinger Episode Title: Can We Upgrade Our House?
Release Date: December 11, 2024

In this episode of "Jill on Money with Jill Schlesinger," host Jill Schlesinger, CFP®, alongside co-host Mark, delves into listener-submitted questions centered around home upgrades, financial planning for retirement, and strategic investment decisions. The episode offers insightful guidance for individuals contemplating significant financial moves, ensuring they make informed and thoughtful decisions.

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Listener Questions and Discussions

1. Bernard's Financial Health Check: To Return to Work or Not

Timestamp: [02:25]

Bernard reached out seeking advice on whether he needs to resume working following an early retirement due to health and stress issues. At 61, Bernard has already retired, with his wife planning to retire around 58, working until 61 or 62. Their financial standing includes:

• Assets:
  • $1 million in pre-tax accounts
  • $300,000 in a Roth IRA
  • $210,000 in a stock portfolio
  • $485,000 in cash and CDs
• Liabilities: No debt; their house is paid off.
• Income: Small pension and retiree medical benefits covering both until they qualify for Medicare.
• Expenses: Approximately $5,000 monthly.
• Additional Considerations: Two older sons are financially stable, and their youngest child is partially funded through a 529 plan for university.

Key Insights: Mark suggests that Bernard should consider stopping Roth conversions and instead draw from pre-tax accounts, living off those funds until claiming Social Security. He emphasizes the importance of assessing whether Bernard's health issues significantly impact his decision to claim Social Security.

Notable Quote:

"Is your health issue an issue that would really change the way you think about claiming Social Security?"
— Jill Schlesinger [02:50]

2. Daniel's Retirement Savings in His 70s

Timestamp: [03:40]

Daniel, in his 70s and still employed, inquires about optimizing his savings strategy. He has been purchasing Certificates of Deposit (CDs) due to good cash flow, but with declining interest rates, he's considering converting to a Roth IRA by year-end to gain tax benefits.

Key Insights: Mark explains that contributions to a Roth IRA after age 70 are permissible if Daniel has earned income, allowing for up to $8,000 annually. However, this move won't provide immediate tax benefits; it shifts the tax liability to the present while building tax-free income for the future. Alternatively, Daniel might consider investing in a brokerage account if he prefers not to proceed with a Roth IRA.

Notable Quote:

"It's a good problem to have. I'm saving so much money. I'm still in my 70s."
— Mark [06:49]

3. Sean's Plan to Finance a Second Home Cabin

Timestamp: [06:53]

Sean, a 35-year-old engineer earning $180,000 annually, seeks guidance on financing the construction of a second home cabin in the woods. He already owns $50,000 worth of land and estimates the cabin's construction cost at $400,000. Sean is planning to marry next fall, and his partner is debt-free with a six-figure income. Their combined finances currently include:

• Assets:
  • $750,000 in retirement accounts
  • $140,000 in a taxable brokerage account
  • $30,000 in cash
• Liabilities: $375,000 mortgage at 2.75% on a primary home valued at $650,000.

Key Insights: Jill advises Sean to explore all financing options, including construction loans and home equity lines of credit (HELOC). She underscores the importance of involving his future spouse in financial decisions, suggesting that combining resources could eliminate the need for additional mortgages. This collaborative approach may allow them to utilize existing assets more effectively.

Notable Quote:

"Maybe she's got a pile of money that's like, 'Hey, you know what? I want to do this with you.'"
— Jill Schlesinger [08:50]

4. Aaron's Decision to Finance a New Home Construction

Timestamp: [08:48]

Aaron and his wife, both in their late 30s, are contemplating building a new home valued at $450,000, requiring a mortgage of the same amount. They currently own a home worth $340,000 with $150,000 equity and have a mortgage rate of 3.62%, paying approximately $1,700 monthly. Their combined net income is about $10,500 per month, with annual savings of $31,000 each toward retirement. They plan to utilize a VA loan for favorable interest rates.

Key Insights: Mark discusses the feasibility of doubling their mortgage payments, affirming that financially, they can manage this step. However, he advises them to consider the impact on their cash flow and future financial flexibility. The decision should align with their personal goals and lifestyle preferences, recognizing that increased mortgage obligations may limit their ability to save for other priorities.

Notable Quote:

"How do you feel about having less optionality on your cash flow?"
— Mark [12:17]

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Conclusion and Final Thoughts

Throughout the episode, Jill and Mark provide tailored advice, emphasizing the importance of personalized financial planning. They encourage listeners to consider both the immediate and long-term implications of their financial decisions, advocating for a balanced approach that aligns with individual life goals and circumstances.

Closing Advice:

"Life is short, my friends. Life is short."
— Mark [13:12]

Listeners are invited to engage further by submitting their questions via the show's website, jillonmoney.com, where they can also explore additional resources, blogs, and videos to support their financial journey.

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Key Takeaways:

• Assess Personal Circumstances: Financial decisions should reflect individual health, income, and life plans.
• Collaborative Planning: Involving partners in financial decisions can optimize resource utilization.
• Flexibility in Saving Strategies: Adapting savings methods based on age and financial goals is crucial.
• Evaluate Cash Flow Impact: Significant financial commitments require careful consideration of future financial flexibility.

By addressing diverse financial scenarios, this episode equips listeners with the knowledge to make informed decisions about upgrading their homes and managing their financial health effectively.

Transcript

[Jill Schlesinger]

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[Mark]

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[Mark]

It's Wednesday, December 11th and we are here trying to help you make better, less bad, more considered financial decisions. Doesn't have to be perfect. It has to be just kind of like you're thinking it through a little bit more. You want a little coaching, you want some mentoring? I know what you don't want. You don't want judgment. That is not what we do here. Mark and I are both certified financial.

[Jill Schlesinger]

Planners, but we're not in the business.

[Mark]

Of providing financial advice as a living. This is our living. Talking to you guys, guiding you, helping you. And you know we are always trying to keep you in focus. So if you have a question and you would like to know how you can get some assistance, all you need to do is go to our website, jillonmoney.com and in the upper right hand corner there is a beautiful button. It says contact Us. When you click that button, a form will pop up. That is my friends, the key to getting in touch with us. And if you're going to come on the air live, you don't have to put so much of your heart and soul into that email. You just check the box and you can say haha, I got them. They're going to come get me. This is good. If you are that kind of person, check that box. Mark will do everything else. Otherwise again, give us a lot of information if you are actually going to eschew the live broadcast. Okay, let's do some emails. Bernard had such a hard time getting in touch with us, just connecting technology wise. So let's get into his question. He said, I'd like to have a financial health check with you to see if I need to go back to work.

[Jill Schlesinger]

Ooh.

[Mark]

Okay. He's retired from work at 61 due to health and stress issues. My wife is three years younger than I am, so she's 58. She will be working until she's 61 or 62. The house is paid off, they've got no debt. They've got $1 million in pre tax accounts, $300,000 in a Roth and they have a stock portfolio. He says small, it's $210,000 in a stock portfolio, $485,000 in cash and CDs. Wow. All right. Bernard has a small pension and retiree medical that covers both him and his wife until they get to Medicare. My gosh. They live in a no income tax state and their average monthly expense is around $5,000. I've been doing Roth conversions annually. I plan on doing more during our low tax years. Two older boys are doing well. Youngest still has 1/4 to go before graduating from university. Covered by 529 plan. Are we doing okay? Do I need to go back to work or does my wife have to work longer? Please advise. All right. He didn't say how much the wife makes, right? All right. Let's just pretend wife stops working in three years. Three or four years, right? Okay. I think that if your wife just stops working, then I would not do conversions. I would probably just pull the money out of the pre tax accounts and live on that until you claim Social Security. Here's a question I would ask Bernard. Is your health issue an issue that would really change the way you think about claiming Social Security? You didn't mention how much your Social Security will be, but you got a lot of money. So it seems to me if maybe you can work she can work a little bit longer and you keep pulling some money out of those pre tax retirement accounts and you can live off of that until you guys claim Social Security. It sounds like you're going to be okay, but I can't tell 100%. But I think you're going to be okay. I do. Okay, next. This is from Daniel, whose subject is saving in your 70s. Hmm. Okay. Daniel says I'm in my 70s. I'm still working. I've got good cash flow. I've been buying CDs with my extra cash, but those rates are dropping. I maxed out with the company. Should I get a Roth by the end of the year and will that give me any tax benefit for the year that I buy? Okay, so if you have earned income, you can contribute to a Roth ira, so that's fine. And you can put that money in because you're over the age of 70. Again, you've got to have earned income. You can put eight grand a year away this year. It will not give you any tax benefit today. You're foregoing that tax benefit today, but you're paying the tax that's due. And you're building up in the future, for the future. Otherwise, if you don't want to do a Roth, you can just put money into a brokerage account. What a bad problem to have, saving too much money.

[Unnamed Contributor]

By the way, he can do the Roth if he's under the income threshold. I don't know how much he makes.

[Mark]

Oh, right. That's right. I'm sorry.

[Jill Schlesinger]

I should have said that.

[Mark]

So the Roth IRA phase out. I don't know if he's working or not, but I mean working. I don't know if he's married or not. If you are single and you make between $146,000 and $161,000 this year, you will get phased out above 161 is where you will not be able to contribute to a Roth. So Daniel, give us a holler. What a. What a good problem to have. I'm saving so much money. I'm still in my 70s. Spend a little bit. All right, this is from Sean who says I'm looking for some guidance on how to finance construction of a second home cabin in the woods. I already own the land. That's good. It's worth about $50,000. The construction of the cabin itself will cost about $400,000. Ideally, I would be breaking ground in the spring of next year when the ground thaws. Makes sense. Okay, details. 35 year old engineer earning $180,000 a year. Oh, my gosh. Not much of a bonus in this industry. Okay, assets. $750,000 in a retirement account. 140,000 in a taxable brokerage account. 30,000 in cash debt. The only debt is a $375,000 mortgage on his primary home, which is worth 650. Mark the debt on that. 375. 2.75%. Oh, gosh. Okay. Sean's getting married next fall. How exciting. Partner is debt free, earn six figures. We don't plan on having kids beyond our four legged ones. Double income, no kids. I taught my mother that dinks. Until then, beyond sharing of bill payments, our finances are largely separated. I was planning on pursuing the cabin financing myself. Then she'd marry into it when we combine our finances after the wedding.

[Unnamed Contributor]

Hope she knows about it.

[Jill Schlesinger]

Yeah.

[Mark]

Really. What are your thoughts on this plan? Do you have any suggestions about getting the funds needed? Construction loan, home equity, line of credit? Something else. Looking forward to hearing back. Well, I would pursue all options. To be honest with you. I also think I might be. I might think about talking to her about this before you do this on your own, because you have 140 in a brokerage account. Maybe she's got that same amount of money. Maybe she makes a lot of money, right? So maybe she also has a brokerage account. Maybe it would be a smarter thing for you guys to do this together and use some of the money you have and not get a mortgage at all. But I would absolutely look at a construction loan or a home equity line of credit on your current home. But I would talk to her because there's no reason to do this on your own if you don't have to. I think that that would make a lot more sense. My two cents is you're going to get married. You know, you don't have to make it all. Even Steven. Maybe she's got a pile of money that she's like, hey, you know what? I want to do this with you. It's a possibility. All right. Aaron writes, my wife and I are in our late 30s, 37 and 39. It's another housing question. Our current home is valued at $340,000 with about $150,000 of equity. The current mortgage is 3.62%. The payment is about $1,700. Oh, boy, here we go again. They want to buy. They want to build a new house. Not sure if it's a wise move financially. The new house would have a mortgage of 450,000. So they would basically put down 150 grand and finance 450. The payment would be 3500. So basically they would double their payment from where they are now to the new house. 3,500. Okay. We're hoping to use a VA loan for a lower interest rate. Even though we would put 150 grand down, we're also considering buying the rate down even further. We have no debt outside of our home. We net about $10,500 each month. They're young after their retirement, and they're saving 31 grand a year. Their combined retirement is about $325,000. It's a mix of pre Tax and Roth. They've got a buffer of, you know, let's say 75 grand. They've got a young child that they're putting money into a 529 balance of $8,000. They save $3,500 a month. Oh, my God. All right, so take a deep breath. They can afford this. This is absolutely possible. But it's going to be a big step up. It's doubling your payment. Right. But you know, you've got that extra 3,500. My question to you is, how do you feel about soaking up that extra money? It's not all of it, but I'm going to guess that, you know, you're going to soak up a good chunk of that with the new mortgage and you have less money to save. You say 1,700. I'm going to just say maybe it's 1,500. How do you feel about that? And maybe curtailing some of your future options. That's really what's happening. Okay. I wouldn't be so worried about having a mortgage payment that's more than 30% of your net income. Don't be concerned about that. Those old rules of thumb, they don't work in this current housing market. But what I really want you to think about is how do you feel about having less optionality on your cash flow?

[Unnamed Contributor]

They could definitely, if this is what they really want to do, if this is about, you know, making them happy in their lives, they can do this. They're saving not $31,000 total for retirement. They're saving $31,000 each for retirement.

[Mark]

I mean, so it seems to me like they can do this. But you know, that to me, just so we are clear, this is something that is a very personal matter and you have to make a decision. Do we want to have less cash to fund different things? Like, I don't know, maybe they hate their jobs and they're like, we want to have a chance to have a next endeavor when we're 50, you know? So these are the kinds of questions you have to ask yourselves. Okay. I think that works though, Mark. I think, I mean, you're right. They can upgrade, they can afford it. But having less money to fund something in the future is something we should always pay attention to. Would it stop you, Mark? No, it did not stop you. You did it, didn't you? You did the exact same thing, essentially, right?

[Unnamed Contributor]

Life is short, my friends. Life is short.

[Mark]

So he says. And you never know. So listen, if you've got a question about upgrade, upgrading, building, doing something different, get in touch with us. Go to jillonmoney.com click the contact us button. Let us know if you want to come on the air. We'd love to have you. And while you're on the website, which you should be bookmarking, obviously you can check out all of our content, our blogs, you can see videos there, my TV appearances, resources, everything right there for you. You can subscribe to us on the Odyssey app or wherever you find your favorite podcast. Please, please leave us a rating and review wherever you listen. And of course, do something nice for someone else today. Change your work, change your wealth, change your life. Thank you for listening and we'll talk to you tomorrow.

[Jill Schlesinger]

Hi, this is Jill Schlesinger. If you're a business owner, you know that trusting your gut is important, but so is relying on the right partners. That's where American Express comes in. The American Express Business Platinum Card works just as hard as business owners to help them pursue their passions with world class business and travel benefits. You can earn one and a half times membership rewards points on select business purchases and have complimentary access to more than 1400 airport lounges globally so you can continue running your business wherever it takes you. Terms and points Cap Apply learn [e-mail] AmExBusiness hey friends, I'm Sharon McMahon, host.

[Sharon McMahon]

Of here's Where It Gets Interesting. Each week I speak with authors, experts and thought leaders 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 docu series 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.