I earn $210,000 and I’m 59. My wife and I want to move to Hawaii. Is it too late to get a mortgage?

Here’s my question: How easy will it be for me to get a home mortgage in my anticipated semi-retired state? I am asset rich, but my $210,000 income will not be as steady as lenders may want.  

My current net worth is around $6 million with the following breakdown: $2.3 million in retirement accounts, $500,000 in taxable accounts, and the rest in real estate. I own my home outright and I have rental properties that generate an average of about $11,000 per month cash return after all expenses. 

I anticipate my net worth will increase to closer to $7 million when I retire. I will be receiving a pension of about $5,000 per month once I retire from my current job and I will likely earn at least, gross, $120,000 per year when I consult. This amount is based on what a former coworker is earning as a consultant. 

I plan on making a relatively large down payment of at least 50%. This would likely make my mortgage around $750,000. Like I said, I really can’t find a clear answer. Are there strategies I should plan on using? Are there things I can do now to make things easier to get a mortgage when we move to Hawaii?

Thanks in advance for your advice.

Staying Ahead of the Game

Read: ‘I’m in my peak earning years’: I work full time and will soon turn 67. Should I wait until I retire at 70 to collect my Social Security? 

Dear Staying,

“Hawaii, here I come!” That’s as good a mantra as any for someone embarking on a retirement or semi-retirement (with apologies to the playwright Brian Friel).

My preference is for you to use one of your rental properties to buy a house outright — taking capital-gains tax into account. In your case, you will avoid such tax only if you buy another investment property. Section 1031 of the Internal Revenue Code should allow you to sell your rental property, and buy another investment property that is of the same value or greater value, thereby avoiding capital-gains tax.

With that in mind, you may want to rent in Hawaii first. Hawaii also has the highest cost of living in the U.S. ahead of the District of Columbia, Massachusetts, California and New York. In fact, the cost of living in Hawaii is nearly twice the national average. “The state is also the most expensive in the U.S. across all metrics except healthcare,” according to the nonprofit World Population Review. “Hawaii’s housing costs are three times the national average.”

Big picture: enjoy your retirement without a 1o5- or 30-year mortgage over your head, and/or take out the mortgage now with your W-2 and pay it off when you feel like you are nearing full-time retirement, and want to reduce your expenses. It will, of course, be more difficult to get a mortgage when you are working part-time, even with a hefty downpayment.

If you took out a mortgage, even with 50% down, on a property in Hawaii where the average house price is $840,928 — per estimates from Zillow
Z,
-1.68%
— you will be paying a chunk towards interest in those early years. The tipping point where you end up paying more principal than interest comes after a dozen years. You’ll be in your early 70s. On the plus side, Hawaii has the lowest property tax in the nation (at 0.27%) and prices have risen 38% over the last five years.

If you like what you do, it’s smart to keep working even part-time. Whether it’s for financial reasons or because people love what they do or simply want to stay busy, more than half of workers said they plan to continue working in their retirement, according to a survey released last month by the Transamerica Center for Retirement Studies. The US Bureau of Labor Statistics said that nearly 27% of Americans aged 65 to 74 were still working. 

You’re doing better than most. The average retirement balance in the U.S. hovers at around $408,420 for people aged 55 to 64, but the median retirement balance — which is the midpoint and is not skewed by outliers who have a lot in their accounts like you and/or those who have very little — is $134,000 for that same age group, according to data from the Federal Reserve’s Survey of Consumer Finances. But even that might be optimistic. 

Keep doing what you’re doing, but you want all of that hard work to pay off, and the best way you can do that is to keep your monthly expenses as low as possible during your retirement. Taking out a mortgage loan, whether it’s over 15 years or 30 years, would be a large burden when you are on a fixed income. But you know what I tell my retired friends? We’re all on a fixed income! If you have a limited income in retirement, having zero-cost housing will help.

If you sell a rental, you will of course lose the future appreciation on that property, but your new forever home will (all going well) appreciate too.

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