I’m 66 With $1.9 Million in Investments. Should I Withdraw $400k to Buy a Vacation Home?

There’s a reason many people wait until retirement to purchase a vacation home.

When you’re working, you’re busy, and you may be tethered to an office location, making it harder to escape to a vacation property you own. In retirement, it can be a lot easier to get away on a whim. And also, by the time you reach retirement age, you may have accumulated a large amount of savings — enough to support a vacation home purchase.

In this Reddit post, we have a 66-year-old retiree with $1.9 million in savings who’s looking to buy a vacation home. They’re able to cover their current monthly expenses with their pension and Social Security benefits, so they’re wondering if it’s too risky to take $400,000 out of their IRA to buy a second property.

The poster may be perfectly fine to move forward with that purchase. But they should think about the risks involved.

The benefit of owning a vacation home in retirement

There’s a real benefit to owning a vacation property as a retiree other than getting to use it. A vacation home can also be a good way to diversify an investment portfolio.

Even if you’re not buying that home as a means of generating rental income, over time, that property could appreciate in value. If the stock market crashes at a time when the housing market is strong (which can happen), this gives you another option for accessing money, whether by selling the property or tapping home equity.

And if needed, at that point, you could also look at renting out your second home for income.

The risks of owning a vacation home in retirement

While there’s a benefit to owning a vacation home in retirement, there are some risks, too. First of all, although homes can be sold, they’re not particularly liquid. And when you have $1.9 million in savings, $400,000 is a pretty large chunk to tie up in an asset that can’t be unloaded quickly.

Also, owning a second home means taking on more expenses. You’ll be looking at another property tax bill, homeowners insurance, maintenance, and repairs.

The poster says they’re able to cover their current expenses on their Social Security and pension income alone. But once they buy a second home, their monthly expenses could easily increase, forcing them to tap their nest egg even more.

Of course, that’s not necessarily a deal-breaker, since that’s what the money is there for. But it’s something important to consider.

Making the right call

Any time you’re thinking of making a large purchase in retirement, whether it’s a second home, a vehicle, or something else, it’s important to consider the opportunity cost. It’s also important to assess your income needs to make sure your purchase won’t put you at risk of a shortfall.

In this situation, it would be a good idea for the poster to consult a financial advisor to see what they say. And if you’re in a similar situation, you may want to do the same. That way, you can feel more confident in your decision, no matter what it ends up being.