Ellen James Martin: Preparing for retirement and buying a second home

A couple in their early 60s wanted to build a mountainsidecottage they could enjoy after retiring from the cleaning supplycompany they owned. But before signing a contract with a custombuilding firm, they wanted to ensure they could afford the cottagewithout putting their retirement funds at risk.

To be certain they were on sound ground, the couple headed to theoffice of a certified financial planner, Shawn Koch. She helped themcompare their savings against their expected future cash-flow needsin retirement. She also factored in the Social Security benefitsthey could collect to help cover their income needs during their non-working years. This gave them the confidence to go forward withtheir plans.

One reason the self-employed couple could afford to fulfill theirhome-building plans was that they'd lived frugally and socked awaymore than $1 million in retirement savings. Equally important wasthe fact that both could qualify for substantial Social Securitybenefits once they reached 66, what the government currently definesas their "full retirement age."

Leslie Brey, the president of a fee-only financial planning firmwho's developed an expertise in Social Security, suggests you do athorough analysis of your retirement readiness before taking theplunge.

"Financial planners won't tell you whether you should orshouldn't buy a house. But they can help you run the numbers andmake the right decision for your particular situation," she says.

Here are a few planning pointers for those nearing retirement agewho would like to buy a second home:

-- Do your homework before committing to a property purchase.

Eric Tyson, co-author of "Personal Finance for Seniors forDummies" and a personal finance expert who formerly worked as afinancial counselor, recommends that before they start shopping fora second home, older boomers should ask an accountant or financialplanner to help them develop a retirement budget.

Alternatively, they can create their own budget with the use ofone of the free retirement income calculators available on theInternet through such investment companies as Vanguard(www.vanguard.com) or T. Rowe Price (www.troweprice.com).

In making your calculations, Tyson strongly recommends you assumeyou'll survive into your 80s or even 90s.

"You want to project forward for your income needs for as long asyou think you'll live -- even if that means retiring somewhat laterthan you'd like," he says.

-- Don't claim early Social Security benefits just to fund yoursecond home.

Brey says once they're eligible, many people find the notion oftapping Social Security benefits tantalizing. This is especiallylikely if they're anxious to purchase a second home.

But she urges anyone who can hold out for larger retirementbenefits at age 66 or beyond to do so. And she says it would beparticularly unwise to claim early benefits -- with diminishedamount -- for the purpose of helping fund a second home purchase.

"In case you live to 94, you want to be sure you have asufficient financial buffer," Brey says.

-- Don't let political rhetoric undermine your financial future.

One of the hottest topics of the current political season iswhether the government should cut Social Security benefits to helpreduce the ballooning federal budget deficit. Such talk has manyolder baby boomers fearful their benefits could be slashed, saysCraig Copeland, a senior research associate with the EmployeeBenefit Research Institute in Washington, D.C.

In the belief that cuts could be imminent, Copeland says manyolder boomers think they should claim their Social Security benefitsas soon as they're eligible, at 62. That way, they reason, they can"lock in" benefits while there's still time.

But Copeland and other Social Security experts contend that forpolitical reasons it's highly unlikely that older boomers -- thosenow in their late 50s or early 60s -- will ever face benefit cutsfrom Congress. And he thinks it's even more doubtful that thebenefits of those already receiving Social Security will ever becut.

"Remember that older people represent a powerful voting bloc,"Copeland says.

-- Make sure to factor retirement assets into your second homedecision.

While Tyson says older boomers who are already well-funded forretirement can now take advantage of discounted real estate prices,he strongly recommends against carrying mortgage debt intoretirement if this can be avoided.

Tyson says people who've amassed a large war chest of retirementassets or who are entitled to benefits from a healthy traditionalpension program, or both, may now be well positioned to buy thesecond home they've long wanted.

"Preparing for retirement is not all about numbers. It's alsoabout having a great quality of life going forward," he says.

Ellen James Martin is a syndicated columnist. Contact her atellenjamesmartin@gmail.com.