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Purchasing a vacation home with pension money
Posted on 7/20/20 at 11:19 am
Posted on 7/20/20 at 11:19 am
At dinner with a friend the other night and he mentioned that he was looking into transferring a pension fund to an IRA and then cashing it out to purchase a vacation home. His rationale is that the vacation home will begin producing income now, outperform the monthly pension he would get at retirement in ten years, and he would have an asset to pass along to his children.
I also have a pension sitting in a fund, and this sounds like a great option, if it is do-able.
Does anyone have experience with this or knowledge of this?
I also have a pension sitting in a fund, and this sounds like a great option, if it is do-able.
Does anyone have experience with this or knowledge of this?
10
Posted on 7/20/20 at 11:40 am to tom1987
A LOT of things to consider there.
Posted on 7/20/20 at 12:03 pm to tom1987
This seems like a terrible fricking idea but let us know how it goes.
Posted on 7/20/20 at 12:13 pm to tom1987
quote:Would it?
will begin producing income now, outperform the monthly pension
Posted on 7/20/20 at 12:21 pm to tom1987
quote:
His rationale is that the vacation home will begin producing income now, outperform the monthly pension he would get at retirement in ten years, and he would have an asset to pass along to his children.
That sounds like an awful, awful idea.
Posted on 7/20/20 at 12:47 pm to tom1987
Sounds like a terrible idea. I was looking at buying a condo on the AL/FL coast. After researching the idea, seemed most people were profiting 7-10k per year. HOA and building upkeep were huge expenses.
Posted on 7/20/20 at 12:50 pm to tom1987
Is it a defined benefit pension or defined value?
If it is a defined benefit pension, I don't think it will work out to his expectation.
Defined value, there are some simple math rules to figure out if it is a good investment.
If it is a defined benefit pension, I don't think it will work out to his expectation.
Defined value, there are some simple math rules to figure out if it is a good investment.
Posted on 7/20/20 at 12:53 pm to tom1987
quote:
At dinner with a friend the other night and he mentioned that he was looking into transferring a pension fund to an IRA and then cashing it out to purchase a vacation home. His rationale is that the vacation home will begin producing income now, outperform the monthly pension he would get at retirement in ten years, and he would have an asset to pass along to his children.
That's a terrible idea.
Posted on 7/20/20 at 12:57 pm to meansonny
quote:
Is it a defined benefit pension or defined value?
If it is a defined benefit pension, I don't think it will work out to his expectation.
Defined value, there are some simple math rules to figure out if it is a good investment.
I'm not sure about my friend's fund, but mine is a defined benefits pension plan
Posted on 7/20/20 at 12:59 pm to tom1987
Cashing out a defined benefit plan is taking your business to JG Wentworth.
Just let that sink in.
Just let that sink in.
Posted on 7/20/20 at 1:02 pm to tom1987
Why a vacation home??
Why not just multi-family real estate or SFR real estate?
Why not just multi-family real estate or SFR real estate?
Posted on 7/20/20 at 1:02 pm to Teddy Ruxpin
There are a lot of responses saying this is not a good idea. I'm not a financial guy, so I was hoping for some explanation rather than "That seems like a terrible ******* idea". Tell me why.
Current pension value: $420,000 lump sum, or $1,700 month
Pension value in 2030: $600,000 lump sum, or $3,000 month
Current pension value: $420,000 lump sum, or $1,700 month
Pension value in 2030: $600,000 lump sum, or $3,000 month
Posted on 7/20/20 at 1:05 pm to tom1987
quote:
Pension value in 2030: $600,000 lump sum, or $3,000 month
36k/year is more than you'd make net off a vacation home
the costs associated with the home are very expensive. insurance, HOA fees, upkeep, etc. and if a bubble pops you could lose 10-25% of the value of the asset itself.
Posted on 7/20/20 at 1:05 pm to Brobocop
quote:
Why a vacation home??
Why not just multi-family real estate or SFR real estate?
We spend about $3,500 a year renting at the beach (for 1 week), and we've always wanted a place there. If you have a place, theoretically you would be able to use it a couple of times during the year.
Posted on 7/20/20 at 1:11 pm to tom1987
quote:
Current pension value: $420,000 lump sum, or $1,700 month
Pension value in 2030: $600,000 lump sum, or $3,000 month
Where are you getting the "value" from on your defined benefit?
By definition, a defined benefit only has a value what someone else is willing to pay for it.
Posted on 7/20/20 at 1:23 pm to meansonny
quote:
quote:
Current pension value: $420,000 lump sum, or $1,700 month
Pension value in 2030: $600,000 lump sum, or $3,000 month
Where are you getting the "value" from on your defined benefit?
By definition, a defined benefit only has a value what someone else is willing to pay for it.
These numbers come from my pension web portal
Posted on 7/20/20 at 1:24 pm to tom1987
(no message)
This post was edited on 7/20/20 at 1:25 pm
Posted on 7/20/20 at 1:33 pm to tom1987
I'm not the most abreast to owning a vacation rental, but fees have to eat you alive right?!
I would have to know FAR more about the financials before makings an informed decision.
I would have to know FAR more about the financials before makings an informed decision.
This post was edited on 7/20/20 at 1:34 pm
Posted on 7/20/20 at 1:41 pm to tom1987
He is taking about a self directed IRA - and there are so many pitfalls with this plan. There is no self dealing allowed - so he can’t enjoy the property.
You need to be an expert in the self directed investment. I see guys that do timber, o&g, CRE, lihtc, htc, etc do reallly well....but they were industry insiders that made the deals very, very efficient.
You have no control of the hoa board, management fees, maintenance and rehab. Also, insurance costs will eat up revenue real quick.
Pay $6,000 a year - that will get you a decent place for a week in the summer and a month in the winter...
You need to be an expert in the self directed investment. I see guys that do timber, o&g, CRE, lihtc, htc, etc do reallly well....but they were industry insiders that made the deals very, very efficient.
You have no control of the hoa board, management fees, maintenance and rehab. Also, insurance costs will eat up revenue real quick.
Pay $6,000 a year - that will get you a decent place for a week in the summer and a month in the winter...
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