The Vacation Home Is Paid Off, But It's Not Free. Can You Really Afford It?

A couple with $850,000 in retirement assets and a paid-off Florida vacation home faces high annual carrying costs of about $18,000 despite using the home only four weeks per year. A 4% safe withdrawal rate yields roughly $34,000 per year before taxes, and the vacation home costs consume about half of that amount before other expenses. Inflation pressures carrying costs upward over time, with headline PCE around 4% and services inflation around 3%, implying the $18,000 cost could rise to about $24,000 in a decade. Florida’s cost of living is above the national average. Selling the home could free up net proceeds, which invested at about 6% could generate around $22,800 annually, exceeding the current ownership cost and improving the overall retirement cash flow.

"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."

"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."

"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."

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