A couple turns 63 this year with $850,000 in combined retirement assets and a paid-off Florida vacation home they bought a decade ago to use in retirement. The house costs them $18,000 a year in property tax, HOA dues, insurance, utilities, and basic maintenance. They use it maybe four weeks a year. The mortgage is gone, so on paper it feels free. The carrying cost says otherwise.
Run the math the way a planner would. A 4% safe withdrawal on $850,000 produces about $34,000 a year before taxes. The vacation home consumes roughly 53% of that before they have bought a single grocery, paid a Medicare premium, or covered a single utility bill at their primary home. Will they have enough money to cover a 30-year retirement? Many couples buy a vacation property in their 50s expecting heavy retirement use, then discover the actual usage does not justify the cost.
Why the Numbers Are Tighter Than They Feel
The macro backdrop is unforgiving for a $34,000-a-year budget. Headline PCE inflation is running around 4% year over year, and services inflation, the category that drives property maintenance, utilities, and insurance, came in around 3%. The $18,000 cost today is closer to $24,000 in a decade if services keep tracking at that pace.
Bond yields help on the income side. The 10-year Treasury sits near 5%, and a 5-year Treasury yields about 4%. The Fed funds rate has held near 4% since January, so cash and short bonds are paying real money.
Florida itself is not the cheap retirement state it used to be. Its cost-of-living index is 103.4, above the national average, and the property carrying costs reflect that.
What Selling Actually Frees Up
Assume a sale price of $400,000 with $20,000 in transaction costs. The net $380,000, invested in a balanced portfolio earning 6%, throws off about $22,800 a year. That income alone exceeds the $18,000 they currently spend just to own the place. The total annual swing, new income plus eliminated cost, is roughly $40,800. On a $34,000 baseline budget, that is a different retirement entirely.
One catch: Per IRS Publication 523, the $250,000/$500,000 primary-residence capital gains exclusion does not apply to a vacation home. Long-term capital gains tax will apply to the appreciation.
Three Paths To Ponder
- Sell and reinvest. The portfolio doubles in income-producing power, sequence-of-returns risk drops, and the hassle factor (storms, repairs, distance, HOA assessments) disappears. If they use the home four weeks a year, renting a comparable Florida property for those weeks costs a fraction of $18,000, and they can change locations year to year.
- Rent it out to cover the carry. Short-term rental income can offset costs, but it converts a vacation home into a small business, with cleaning logistics, occupancy taxes, insurance reclassification, and wear and tear. This works for couples who enjoy the operational side. It does not work for couples who bought the place to relax.
- Keep it because the lifestyle value is real. Some retirees genuinely use the property 12 or more weeks a year, host family there, and treat it as their primary social hub. If that is the case, the $18,000 is buying something the spreadsheet cannot price. The honest test: Would they pay $18,000 a year to rent the exact same experience? If yes, keep it.
Count the weeks of actual use over the last two years, not the planned use. If the number is under six weeks, the home is a liability wearing a vacation costume, and selling restores the retirement plan. If the number is twelve-plus weeks and rising, the emotional and lifestyle return likely justifies the drag.
Also consider estate planning. Leaving a vacation home to multiple heirs creates trust complexity and potential family friction that often outweighs the sentimental value.
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