Spending That Can Wreck Retirement

In more than a decade of working with clients, I’ve discovered that one thing tends to do more damage to financial plans than any other: Spending on a home. Spending on a home for personal use is often billed as a good investment. However in my experience, this is rarely the case. Three key mistakes in home spending often cause people to delay retirement or create unnecessary worry in retirement:

1. Not planning for home expenses in retirement
Every few years, you will have home upkeep expenses. You can expect to refresh or replace most of your home over the course of 25 years. Heading into retirement you want to plan for the spending needed to maintain your home. Without that in the plan, you may not save enough to cover all your needs, which could force you into making some tough choices in retirement.

2. Carrying a large mortgage into retirement
One of the financial keys to a successful retirement is spending flexibility. This allows you to reduce spending during tough market cycles and increase during good markets. In retirement, a significant mortgage is not an optional cost; it must be paid no matter what markets are doing. If you would like to buy a new home, come up with a plan to try and eliminate the mortgage before retirement.

3. Continual, unnecessary home projects
This is the most common and often the most damaging of the three key mistakes. As outlined above, every home will need to be maintained, but there’s a difference between maintaining and enhancing. Don’t get me wrong. Making your home more functional and enjoyable is great. The problem is when you find a new, unplanned project every couple of years that costs tens of thousands of dollars. The last decade of your working life often is when you can save the most. Replacing those savings with debt can push your spend rates well past a healthy point.

The best way to avoid these mistakes is to come up with a plan by prioritizing the things you’d really like to change about your home and research what it will cost. Try to be realistic about how much value you and your family will get from the changes you are considering. Consider home spends that increase the enjoyment of your home the most, and stick to maintenance and necessary changes in other parts of your home. For instance, many people spend a lot of time in the kitchen and family room but very limited time in bedrooms and bathrooms.

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