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Buy now, retire later

Chris Farrell May 25, 2011

Question: My wife and I are in our early fifties and are planning/hoping to retire in 8-10 years. After using a few of the retirement calculators out there, I feel our savings are in pretty good shape to do this. We are heavily leaning toward moving to Central Oregon from NH for retirement. The housing market there (like many places) is seriously down. I have been thinking about purchasing a home in that area now, while prices are much lower, even though we won’t be moving there until retirement. My theory is to get invested in a property there now, at lower cost, rather than a higher cost when we retire and presumably when real estate prices significantly recover. Our current mortgage will be paid off in a few months. I would expect to take out a mortgage to buy the retirement house, then pay it off when we move and sell our current house.

1) Does it make any sense to do this, and what would be the risks and hazards?

2) If we were to do this, would it be better to look for a house that we would want to actually live in during retirement, or would there be any merit in looking for more of an investment property that we would sell once we move to the area and then buy our actual retirement home? Lowell, Manchester, NH

Answer: It isn’t a bad idea at all. I understand the lure of your idea. Your savings are in good shape. You have a sound balance sheet. You’re probably right about the real estate market. I do think that 4 years and 9 months into the housing bear market we’re coming close to bottom. You’re carefully thinking through the option.

Here’s what troubles me: It seems to me that your finances will be more precarious with this strategy.

What if the local real estate market in central Oregon goes nowhere to lower–or you can’t sell your in New Hampshire. Then again, how much would you regret it if you waited and real estate prices in Oregon took off, significantly raising the price of a move?

More important, what if you change your mind? You’ve sunk a good chunk of savings into a home in another state that you no longer want and can’t sell? Would it be better to rent first and live in central Oregon for long periods of time over the next several years to make sure it’s where you want to be before committing to owning there? Eight to 10 years is a long enough period of time for you to hit on a different vision of a good retirement.

These are the kinds of questions I would be asking. In other words, the key question is this: “What’s the downside? What could go wrong?” If things go sour over the next several years with this investment in Oregon can you still weather the storm with a decent lifestyle? Is the lifestyle outcome worth the risk? After weighing the pros and the cons I would make a decision.

If you buy in Oregon I would purchase a place you’d want to live in since that might end up being your best option or only choice, depending on circumstances.

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