Whether it’s a cabin on the lake, a condo in your favorite resort town, or a rental property you use part-time, buying a second home can be alluring once you’re in a strong financial position. It’s a tangible way to enjoy the wealth you’ve worked hard to build.
But when you’re balancing a busy career, family life, and long-term goals, it’s not always clear whether your surplus money should go toward a vacation property or your retirement savings. You might be able to justify either option depending on your priorities. The challenge is figuring out which option makes the most sense for your life today and how it will impact your plans for the future.
Here are four questions to ask when deciding to buy a second home or invest toward your retirement.
1. Why do you want to buy a second home?
Understanding what’s driving your interest can help you make a decision that aligns with both your financial goals and your values.
For some, a second home is purely an investment opportunity—a chance to bring in rental income and build equity in a growing market. If that’s your motivation, it’s worth taking a hard look at the numbers. Consider the potential profit you can expect to earn based on projected occupancy rates, along with the cost of taxes, insurance, maintenance, and management fees. Then, compare the projected return with what you may earn by investing the same amount in your retirement portfolio. The better choice may come down to which investment builds more long-term value.
For others, a second home is a lifestyle upgrade: a place to unwind, make memories with family, or even spend retirement someday. Instead of only focusing on returns, think about how often you’ll use the home, whether it fits into your long-term plans, and how it might affect your overall financial flexibility.
With the right planning, it’s possible to get the lifestyle benefits of a second home without putting your retirement plans at risk. However, it’s important to understand how it fits into your broader financial picture.
2. Am I on track for retirement or playing catch up?
While there’s no one-size-fits-all formula to determine exactly how much you’ll need when you stop working, there are some general retirement savings goals by age that can help you know where you stand:
- By age 30: Save 1x your current annual salary
- By age 40: Save 3x your current annual salary
- By age 50: Save 6x your current annual salary
- By age 60: Save 8x your current annual salary
- By your target retirement age: Save 10x your current annual salary
If you need to play catch up on your retirement savings, putting your money into a tax-advantaged account (like a traditional IRA or Roth IRA) may offer more long-term value and stability than buying a second home. The earlier you invest, the more opportunity you’ll have to benefit from compounding growth, tax breaks, and employer matching programs.
If you’re already meeting your retirement goals, a second home can offer lifestyle benefits you can enjoy right away while diversifying your investment portfolio over the long term.
3. How will a second home affect my cash flow?
When you buy a second home, the expenses don’t stop at the purchase price. Ongoing costs, like property taxes, HOA fees, insurance, and utilities can add up quickly, impacting your monthly cash flow. And even if you plan to rent the property out, you’ll need to factor in the costs of vacancy periods, cleaning, management fees, and repairs.
Don’t forget to set aside money for upkeep on both your primary residence and your second home. Financial experts typically recommend setting aside 1-4% of your home’s value every year for maintenance, depending on the condition of the property.
Add up the estimated recurring expenses and compare them to your current budget. Will you still have enough room to contribute to your retirement savings, cover unexpected emergencies, and maintain the lifestyle you want? The answer could help you avoid serious financial stress or move forward with the purchase more confidently.
4. Can I comfortably do both?
If you already max out the allowable contributions to your retirement accounts, have a solid emergency fund, predictable income, manageable debt (or none at all), and a strong down payment saved up, you might be able to buy a second home without compromising your long-term financial goals.
Or, small adjustments—like delaying retirement by a few years, postponing a second home purchase to save more, or choosing a property with rental potential—could make your plan more feasible. The key is to find a balance that takes your entire financial picture into account and supports both your short-term lifestyle goals and long-term vision.
With the right strategy, you don’t have to choose between achieving your dreams now and preparing for the future. A Fulton Private Banker can help you evaluate your options and tailor a financial plan that fits your goals. That way, you can feel confident about your plan—whether it includes the lake house you’ve always dreamed of, a stress-free retirement, or a future that includes both.
Let’s evaluate what’s right for your future.
