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EVERY TIME I HEAR the sage advice to pay off a mortgage before retirement, I wince. Not only will I have a mortgage in retirement, but also I won’t even make my first payment until after I retire—just as my salary plummets to zero.
I hate going against the conventional wisdom. But I really have no choice. As an active duty military officer who, for the past 20-plus years, has had to move every few years, it’s been difficult to build home equity. The upshot: Our family of seven will be starting from scratch—at least in the housing department—when I retire in a few years at age 51.
Back when I was in dental school and periodontics residency, my wife worked fulltime at a bioenvironmental firm in San Antonio earning $32,000 a year. That was just enough for us to buy a starter home in 2002 for $94,000. We sold it four years later for $120,000 and thought we’d struck gold. At my first military assignment in Colorado Springs, Colorado, we purchased home No. 2 in 2006 for $140,000, giving no thought to the fact that we’d likely be moving again just a few years later.
I hadn’t yet heard the recommendation to avoid buying a home unless you can see staying put for at least five-to-seven years, and preferably longer. Our departure from Colorado in 2008, during the housing market crash, meant bringing money to the closing when we sold our home. As a junior Air Force officer, the $25,000 check I had to write was devastating. Although my wife and I could have hung on to the house and rented it out, the idea of becoming long-distance landlords wasn’t an attractive one.
We assumed we couldn’t possibly be unlucky twice in a row, so we purchased our third home in 2009 for $225,000 at my next Air Force job in Texas. But four years later, I was again writing a check at closing—this time for $12,000—because we were selling for less than we’d bought. On my relatively low salary as a military periodontist, twice shelling out that kind of money was unwelcome and stressful, especially when combined with our student loans, two car payments and variable universal life insurance premiums—all rookie mistakes and stories for another day.
Those expenses, in turn, caused us unwisely to delay investing in the federal government’s Thrift Savings Plan and in our IRAs. I swore I’d never buy a home again until I was out of the Air Force. We’ve stuck with that plan, for better or worse.
When I received orders for my next assignment in Albuquerque, there weren’t many suitable homes available for rent, so I wrote letters to the owners of homes I admired on Realtor.com, stating that—although I couldn’t afford to buy their home—I’d be glad to rent it for two years. A number of folks wrote back, enthusiastic to take me up on my offer, so we rented in New Mexico for two years. That was followed by another home rental for one year in Montgomery, Alabama.
Next, we had the pleasure of moving to Italy, where we rented for one short year in Aviano, not too far from Venice, before I received orders to head to South Korea, where we lived in a home on Osan Air Base. Now, we’re finishing a four-year lease on a home in the Washington, D.C., area, and preparing to move back to San Antonio. There, we plan once again to rent for four years, before I’ll pull the plug and retire after 24 years of active duty.
If you’re doing the math, the numbers are: nine homes (three owned, six rented), three continents, two foreign countries and… home equity of exactly zero dollars. Perhaps unsurprisingly, this is not unique for those of us who move every few years, although I’ve known many military colleagues who have taken the opposite approach. Not only do they purchase a home at every new location, but also they keep each one and maintain an inventory of real estate as long-distance landlords. They’re probably smarter and more financially savvy than I am for doing it that way. There’s a part of me that’s a bit jealous and regretful that I never followed that strategy, but I just don’t have the stomach for it.
To make up for our lack of home equity, my wife and I have taken the approach of living far below our means—a difficult task in a family like ours with five children—and pouring roughly 40% to 50% of my income into our investments. We have a fairly simple three index-fund portfolio, with a total U.S. stock market fund, a total international stock fund and a total U.S. bond market fund. We also have 529 college-savings plans, which are similarly invested.
Between our investments, my military pension and our eventual Social Security benefits, we should have enough to pay for the kids’ college and our other expenses. The Post-9/11 G.I. Bill and Texas’s Hazlewood Act will cover two kids’ college, plus my oldest received a full-ride scholarship. That means our 529s will only need to cover two of our five kids.
While my projections suggest we’ll be on solid financial ground when I retire, there remains that frustrating future expense—our looming home purchase. Sure, we could be lifelong renters. But like most Americans, we dream of finally owning a home that’s truly ours for the long term. Even the three homes we’ve owned never quite felt like our own because we always knew we’d be moving soon, so we never took the time to update, remodel or make them uniquely ours.
By the time I retire, we’ll have about $100,000 set aside for a house down payment, although part of me is enamored with the idea of paying for the home in its entirety, despite the huge tax bill that a large withdrawal from our taxable brokerage account would trigger. Will we go that route? It’s something I need to look into.
When does it make sense to buy a home? Offer your thoughts in HumbleDollar’s Voices section.
Casey Campbell is an active duty military periodontist and a homeschooling father of five. He and his family currently live in Northern Virginia. The views expressed in this article are those of the author and shouldn’t be construed as official or as reflecting the views of the U.S. Air Force or Department of Defense.
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I think you’re being too tough on yourself, Casey. You’ve been the victim of bad luck and circumstance, not bad judgement. I live in an upscale neighborhood that is heavily populated with active-duty and recently retired Navy, and I know several who made it a point to buy a home at every stop and sell when ordered to leave, just as you did. They were simply more fortunate with the housing market and sold into profits, so they are now financially independent.
However, the vagaries of military life still take their toll. One such family settled into what they expected to be their final home here three years ago. He’s a submariner who spends months at a time underwater. One year from retirement, he’s just been ordered to Hawaii or Guam (obviously they’re hoping for Hawaii), so they’re packing up three reluctant teenagers and a houseful of furniture and unhappily putting the home up for sale. As you know all too well, it comes with the job.
Agreed with a previous commenter who pointed out that you will have inflation-adjusted income in retirement in addition to Social Security, which is sadly atypical these days (although as a civilian Fed, I too have that advantage). On a side note to the mortgage question–I would tend to say that parents thinking about their kids’ future college (like you a few years back) should fully fund a Roth IRA before a 529. Rules change, but it helps to play with the numbers in the FAFSA years before you have to. As someone approaching traditional retirement (near SSA FRA) in a single-income family with one kid going into college and most of our assets in equity or retirement accounts, I am very grateful that I never put money into a 529. If you do so, you are basically saying to your kids’ future college “this is a pledge to you; this money is yours”. If it is in retirement accounts or home equity, they essentially can’t touch it. The calculations would be different for a two-income top-quintile power couple (or a couple who will be their when their kids go to school), particularly if they will be empty-nesters by their mid-50s. For that couple, the 529 probably makes a lot more sense. At least that is my current perception.
Chuck, that’s great advice and I wish I’d known that way back when we began funding our kids’ 529s. I finally learned exactly what you mentioned about FAFSAs/etc. about 7 years ago, so I stopped adding to our 529s.
My situation years ago was somewhat similar, but different response and outcome different.
In 1979, I bought a little starter home in Eugene, Oregon for $48,500. Being in my early 20’s, I had managed to scrape together $2500 for down payment and took on an FHA loan of $45,750. My mortgage interest rate was 11.5%. Total monthly nut was $560 per month as property taxes & insurance were included.
I was in the logging industry at the time. Business was booming and the future looked great!
Fast forward to the early 1980’s recession. No one was building, and no one was buying our logs. Unemployment was running 18% in Eugene at that time, and our company went bankrupt.
So I moved to California to find work.
But then the question: What to do with the house?
I contacted my friendly real estate salesman who said he “might” be able to sell it for $37,500.
I was stuck. This was long before “just walk away” of the 2008 mortgage “crisis”. A walk away meant personal bankruptcy and I sure didn’t want that.
Problem was that I didn’t have the cash difference between my loan balance and net sales proceeds.
Fortunately I had a friend who offered to get the place rented and manage it for me.
The rent she set was $325 per month, which left a $235 negative cash flow in a “good” month with no other expenses. Doesn’t sound like much but it was 20% of my gross income at my new job.
Fast forward to 1998: I sold the Eugene, Oregon house for $102,500 to my renters. I had long since paid the loan off.
I IRC1031 exchanged the $99,000 proceeds (and another $10k) to two fourplexes and a single family house in Mesa, Az. Combined cost of the properties was $511,000.
In 2005 I “exchanged” the fourplexes in to three single family houses in Oregon. Cost of the replacement property was $589,000.
Today we own the three Oregon houses and the Mesa, Az. house.
All are mortgage free and supplement our retirement income.
My primary purpose in writing this is counterpoint to the oft heard quote: “I sure wouldn’t want to be an absentee landlord”.
I disagree.
We have certainly had our share of nightmare tenants and I could tell some stories.
But we have been blessed in making good decisions with quality property managers, who are fairly compensated.
Therein lies the difference in my opinion.
Funny thing that businesses set up successful operations nationwide and even internationally but nobody says “oh I wouldn’t do that”.
I never had to come up cash when selling, but moving every 3 or 4 years while on active duty with the AF, never allowed me enough dollars to keep the house I’d left and rent it. That was my intension on every PCS, but I needed the bucks for a down payment on the next place. I knew guys who managed to keep homes when moving, but they had family money to start off with. Twenty years of frequent moves were enough for me so I “hung up my wings” and retired. (But they were fun years, nevertheless.)
Casey,
Thanks for this article. As a civilian who’s had the luxury of buying a house for my family in the area where we wanted to live and staying put, your story makes clear how different things are for our service members.
HD is great in part due to the diversity of experiences it showcases, and your story is a great example.
Mr. Forsythe, thank you for the kind words. It’s my first article on HD, and I can personally state that I have enjoyed many of yours as well. I feel a bit like the little kid sitting at the Thanksgiving dinner table with the grown-ups. Please keep up the good work; your articles continually inspire me.
“Perhaps unsurprisingly, this is not unique for those of us who move every few years, although I’ve known many military colleagues who have taken the opposite approach. Not only do they purchase a home at every new location, but also they keep each one and maintain an inventory of real estate as long-distance landlords. They’re probably smarter and more financially savvy than I am for doing it that way.”
Maybe, maybe not. It depends on where they bought the houses. I’ve lived in areas where house values were basically flat. If you pick an area where prices are increasing nicely, you might come out ok.
Like so many others here, I want to say Thank You for your service. You hear it lot (hopefully) and many are genuine in their appreciation.
Misc Note: I was transferred (non-military) from Omaha to San Antonio. I bought new houses in both cities. The house in San Antonio was about 15% more expensive at the time and the quality (it was a new construction house) was lacking substantially. I learned that lesson the hard way.
My opinion: Put your retirement first. You can always buy a house but you can’t fund your retirement as you retire.
Excellent advice, well received. I’ve heard similar about homes in San Antonio. There are a number of noteworthy builders who make homes with large square footage and beautiful facades at a reasonable price, yet it’s shoddy construction underneath. Lipstick on a pig.
I agree with the others about not using retirement assets towards purchasing a home. That said, you should be aware of the “rule of 5” as it relates to withdrawing 401k assets without the 10% w/d penalty.
On a more important note (IMHO), I’d be more inclined in choosing your location with climate change in mind since there are looming issues that are not widely reported (research the Ice–albedo feedback, the Clathrate Gun Hypothesis and Siberian methane blowholes). I learned of these during a Global warming class I took when returning to college 23 years ago. Events that were anticipated to take 100 years to start back then are occurring now. Texas, AZ and even places like Redding CA may not be inhabitable in a timeframe shorter than we’d imagine.
Yikes. Thanks for the warning.
Casey,
First off, thank you for your years of service and for raising what must be an amazing family! Regarding your home dilemma, with a pension, Social Security and other income streams, coupled with the fact that interest rates are now “healthy” and could/should decline over the next few years, I recommend taking out a mortgage so your stock investments will benefit from the “power of compounding.” As an aside, and since others have spoken about purchasing a home can be an inefficient investment, I’ll topline our situation. In contrast to you, I thought there would be a high chance that I would be staying in our home for several years. We “stretched out budget” and purchased a large home in 1996 for $550,000 (so we wouldn’t have to move again when we started a family). It was a “fixer upper” and we put $75K into it the first year. The only other major work we did to the home was putting in a new backyard (cost $50K) a new roof ($15K), and new driveway ($10K). Today the home is valued at $2.5 million. In approximate terms our home has averaged a 5-6% increase in value each year. I still believe purchasing a home is very advantageous. I’m 68 and two years from now it will be completely paid off!
Mr. Wallace, I appreciate you sharing your story. Wow, $550K in 1996 was a hefty sum, although it looks like the math has worked out well for you since then. I’m not sure how much we will (or more likely won’t) stretch our budget when we eventually buy, but I am certainly thankful for multiple income streams–pension with COLA, eventual part-time employment (perhaps), withdrawals from total portfolio as needed, and someday social security. Congratulations on having an almost-paid-for home! Maybe someday I’ll be there too . . .
I happen to be a proponent of paying off mortgages early. I hate the fact that you are not reducing the mortgage debt by any meaningful amount until you are 5-8 years into the mortgage. (Plus, I am the kind of guy who likes to be at the airport two hours early and tries to beat deadlines handily.) But because of the fact that you are just paying interest in a mortgage’s early years, I fully understand Col. Campbell’s perspective and fully support it. It is better to pay yourself something than to just pay interest for nothing. Thank you for this post (and all your various military ones in service to this country.)
Casey, there should be no problem with your assuming a mortgage, as you are not the typical “retiree”. You have a substantial, inflation adjusted military pension and (if you so choose) an opportunity to work in a very highly paid profession. Additionally, you appear to have most of your eventual true “retirement” income covered with your qualified investments (which I assume are in the Thrift Savings Plan). I carried a mortage far into retirement, as it made financial sense in my situation. Good luck with your strategy, regardless of the path you choose.
Thank you Mr. Frey, it is comforting to hear of people like you who have also successfully carried a mortgage into retirement.
My uncle Jim was in the US Air Force and flew during WWII and then after the war was part of SAC until he aged out of being able to fly. Like you, he and his large family moved often to all parts of the globe when his duty station allowed them to safely accompany him. My aunt was a nurse and her profession was always in demand wherever they lived.
When my uncle did exit the Air Force they settled in New Mexico. They bought their forever home and my uncle planted a giant sequoia seeding in the front yard which he tended to and the sequoia, with lots of water, survived and grew. My uncle, aunt and the tree had finally put down deep roots.
The frequent changes in location while my uncle served seemed to have been passed through to their children. When their children became adults and finished their schooling the kids scattered and located where their hearts and jobs took them. A small camping trailer allowed my uncle and aunt to visit their kids and extended family often in retirement and they owned their New Mexico home until they both passed away.
I fall in the camp that your home, rented or owned, is primarily about family. If you end up wanting or needing to move hopefully you have chosen the home option that keeps the cost reasonable and if you are lucky maybe puts a few dollars in your pocket when you do leave. I do know that if you plant a giant sequoia it is likely the tree will still be there long after you leave.
Mr. Perry, what a refreshing and poetic perspective. Thank you! Family is indeed the key, no matter what the house situation is. And thank you for your aunt’s and uncle’s service to their nation during a particularly difficult time.
I think a while back Jonathan C. said it would take someone with a PHD in accounting to convince him that home ownership is a good investment. I agree with Jonathan, after personally owning 5 homes over a span of 44 years and watching my father’s financial success with various properties during his lifetime.
The relatively marginal investment results occur because the total costs of ownership are much higher than just your payments, you need to add in maintenance costs, improvements, property taxes, inflation (!), and then factor in whether the market is hot or cold when you want or need to sell.
I am retired and I now see home ownership as having been an expense that brought us a lot of pleasure but I will not delude myself into thinking that our homes were great investments. There are plenty of “cocktail party” stories about people who have seen their home value double in three to five years but people are not inclined to talk about their home values staying flat or declining.
I know I am conservative on this but unless you plan to stay in a house at least five years you should be cautious about buying. We all know the old history of house values always going up is not really true, the rate of change in house values varies quite a bit from year to year.
San Antonio is a great place to live, a little hot in the summer but still a great place. Good luck with your next phase!
Hi Bill, I appreciate your kind note. After so many years of renting, it will be difficult to make the mental leap to buying a home again one day when we plan to stay for the duration–or at least for a long time.
I think your plan to rent in San Antonio for 4 years before you buy is excellent.
Bill
Casey, you have lots of good options. The only bad one would be to fund the house with your retirement money.
My partner was very similiar to you. He retired from Air Force as coloneland bought out my partner in private practice. We practiced together for 15 years where we sold our practice when we were both 60. His years in private practice set him up very nicely for a very comfortable retirement. Private practice can be a hard transition for many coming out of military but our office and his personality were a perfect fit and he loved private practice.
I’ve been very leery of the transition to private practice after becoming so institutionalized in my military practice mindset. I fear I’d be the old dog trying to learn new tricks. It’s always refreshing to hear of others who have successfully made the leap.
Sometimes the best financial decisions are the ones that let you sleep better at night not the ones financial advisors tell you are the best.
Thank you for the sacrifices you and your family have made for our country.
As someone who sold a property about an hour north of San Antonio last June I have a suggestion. If you are considering staying in the San Antonio area after retiring start looking at property now. That area and the area between there and Austin has been and still is growing like crazy.
Best of luck to you and thank you for your service.
Jill, thank you for your advice! We lived in San Antonio from 1999-2006 and again from 2009-2013, and I am amazed at how the housing prices and growth have exploded in the past decade.
A classmate of mine became an oral surgeon in the service and retired with a military pension. He explained it was based on his rank and not the extra monies he got as a specialist in his regular pay. That’s why he went on to start a private practice. So considering your options, you could certainly work for a group practice if you didn’t want to start your own. The other option is to teach at a dental school and participate in another retirement plan.
Casey, I understand your situation. Mine was very similar. 26+ years on active duty, 4 kids, 7 moves, 2 houses I was lucky to break even on, and no desire to be a long distance landlord (one house sat empty for 8 months waiting for a buyer but I could still afford two mortgage payments because I had no car payments, etc.). I, too, had to move at the wrong times for home buying. One great thing you have going for you is a ready career to slide into in the form of private practice. I didn’t have that, so I put over 50% down on a house in 2008 (again, bad timing), which I still live in (it’s paid for now), no car payments, low fixed expenses so I could survive on my retirement until work came along. Actually, I think you are great shape for the future. By spending less than you make you can set yourself, and family up for a great future. Good luck.
Patrick, yes your story is indeed eerily similar to my own! You have been wise to avoid car payments and have low fixed expenses, and I am glad things are doing well for you despite the less-than-ideal timing of your home purchase. We, too, are careful to avoid all car payments and debt, and we live far below our means. I’m hopeful it will all pay dividends for us in the future. Thank you for your and your family’s service.
Thank you for serving our country. Despite the “rookie mistakes”, you’ve done an outstanding job of preparing for a secure retirement – especially with five kids! Thanks for sharing your story.
Thomas, I feel very fortunate that Mr. Clements allowed me to submit and post my first article, and thank you kindly for your note of encouragement. Best wishes to you and your family.
Mr Campbell,
Your article just demonstrates another of the sacrifices that members of our military make to defend our country that us civilians don’t realize.
A couple of ideas to consider: 1) If your children are fairly close in age consider waiting to purchase the house until they have all headed to college then buy a small empty nester house to continue living below your means. 2) Purchase said house with a the large down payment, and take out a thirty year VA loan to keep your mortgage payments low. It sounds like with your military pension, and I suspect continuing to work in your specialty should keep the payments affordable.
Although you would not pay off the home until after you are retired from your civilian profession you will have some equity right after the purchase. If you face a large expense in your retirement years that you must raise cash for you could take out a home equity line of credit.
Although most people would like to not have a mortgage payment at retirement, taking money out of your taxable funds not only would result in a large tax bill, but would decrease your liquidity. As I have preached to my children always maintain flexibility in your finances.
Finally if the government doesn’t get inflation under control the value of future dollars you use to pay off the later years of the mortgage will be of even less value.
Mr. Lancaster, thank you kindly for your insights and wisdom. I’m taking notes!
Casey, thanks for this interesting inside look at your finances and your thinking. Given your strong saving habits, I suspect you won’t have a mortgage for very long after you make you future home purchase. Thank you for the sacrifices you and your family have made to keep our troops healthy.
Thank you for your kind words, Edmund. Best wishes to you and your family.
As Nate said, first question, will you actually retire at age 51 or retire from the military and go into a practice for your dentistry?
If it’s the former, not much empathy from me. People who need to retire without a mortgage are in their sixties or later and have no pension.
If you can amass $100,000 for a down payment and pick the right area I don’t see the problem in buying a house.
It appears you have done very well overall and if you will truly retire at 51, far better than most of us, house or not.
Mr. Quinn, please see my answer to Nate’s question below, but the bottom line is that my goal is to be financially independent by the time I retire from the military, although I anticipate I’ll eventually do some sort of paid work. Although many military physicians and dentists go into private practice when they retire or separate from active duty, it can be difficult to do so for many reasons. Being a periodontist is back- and neck-breaking work, so my plan is to retire, take a break for a while, and then potentially teach part-time or maybe do volunteer work. As to your comment about empathy, I wouldn’t empathize with me either! I’m thankful to have a wonderful job including a pension with COLA. Although it won’t necessarily cover all our expenses for perpetuity (after all, we have a lot of college to pay for), the predictable income takes away a large degree of stress. I am very grateful.
I know how much it hurts to bring a check to close on a sale. Focusing on fully funding retirement first is wise.
I always love reading the interesting perspectives on HD. Thank you for the article, Casey!
One question: when you say “retire in a few years at age 51” will that mean no more work at all or will you still work? I’m always interested in hearing people’s retirement plans; Especially those that retire so early, like you.
Hi Nate, I’m not planning to work as a periodontist after I retire from the Air Force, although I do anticipate having some sort of job that earns some degree of income. We’ll still have three kids at home, so I’ll probably assist with some of our homeschool teaching, and I might also like to teach AP Chemistry, AP Biology, or Anatomy/Physiology at a high school or homeschool co-op, or perhaps teach a similar course at a community college. My goal is to be financially independent and I believe we’ll be there by that time, so hopefully having a job for income will be optional. I have an article coming up in a few weeks that goes a bit more into how I’ve financially planned for this. Thanks for the note, and I too enjoy reading about how other people are planning for their relatively early retirements when able.
Thanks for the response! I’ll look forward to your next article!