We have two houses and farmland, but we don’t know how to plan for retirement

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We took out a second mortgage on our home to pay off some other debt and to get enough money to pay for a small home for our son to live in while he was in college. We are about two years away from paying our home off again, and the house we bought in a college town is now worth about twice what we paid for it.

We also have 45 acres of farmland where we were planning to retire. At this point, we are both leaning toward selling that land and using the money for a nest egg. It could conceivably yield around $500,000.

We both work for the school district. I am 25 years in and plan to retire in five years, when I’ll be eligible for full retirement benefits. I’ll be 65 then. My wife got started much later and she is not a teacher, so she won’t have the years I do or the funds, because she doesn’t make as much. She is also older. I know she can’t go on working forever. She’s already 67.  

We also have had IRAs since before we got in the school system, because neither one of us had jobs that paid into retirement. Our kids are grown. They’ve both been to college, gotten master’s degrees and have careers and homes of their own. Ever since they started making their own living, my wife told me she’s putting away about $7,000 to $8,000 a year into those IRAs.

We still attend retirement seminars the school district puts on, just trying to wrap our minds around what’s out there and what can help us. I plan to write when I retire, but I would also like to work a little as well. I could substitute teach a few days a week or work as a yoga or aerobics instructor.  

Does it sound like we’re on track, or is there something you can recommend that we should spend our time getting started on in the next five years?

Hopeful in Texas 

See: We’re in our 60s, have almost $3 million and want to buy a new home. Do we tap into our savings or take out a mortgage?

Dear Hopeful, 

There’s a lot more that a financial adviser would need to know to determine whether you’re on track — including your current income, overall savings and spending rates, expected expenses and financial needs in retirement. 

But you do mention some pretty big assets, and that can absolutely help you later in life. For example, you mentioned you’re leaning toward selling your farmland, and of course that sale would benefit your overall financial security. You also have that second home you bought while your son was in college, and if you don’t intend to give it to him, you have a few options, including selling it or renting it out. 

Of course, the renting option requires some work. You, or someone you trust — and pay — would have to manage that property, and you also need to find trustworthy tenants to live there. You also have to stay on top of the home’s upkeep — so that’s two roofs to worry about, not just the one you live under — and any other costs that come with owning a home. Still, it’s an option, and some people in retirement prefer to rent out property as a way of diversifying their assets. 

If you sell that house, on the other hand, that’s more money you’ve got to work with in your savings and investment accounts. 

Outside of real estate, it’s just a matter of crunching the numbers. Get serious about what you expect to spend in retirement and how much you think you’ll need for the span of your lifetimes. This is a very big number to estimate — and it is impossible to get it down to the cent, or the dollar or the hundreds of dollars, even — but having clarity on your expectations and realities will make the transition into retirement all the more comfortable. And you won’t feel so worried about attending all of those retirement seminars! 

Here are just a few things you need to think about. For housing: Will you stay in your house, what will it cost, and what money do you have set side to pay for any repairs or improvements if you intend to grow old there? If you don’t plan to live there, where will you live, and would you ever consider or need to go elsewhere, such as an assisted living facility? If you decided to build that home on the farm after all, what would it cost and where would that money come from? Are you willing to tap into your retirement savings to have the home, and what are the costs and benefits of doing that? And what are the implications regarding taxes and home insurance? 

Try to get a good estimate of what your Social Security and pensions will bring in and what you can expect the balance of those IRAs to be, including with your wife’s additional investments every year — and by the way, tell her she’s doing a great job. 

Also see: I’ll be 60, have $95,000 in cash and no debts — I think I can retire, but financial seminars ‘say otherwise’

Healthcare can be a huge expense — what insurance coverage do you have, and do you need more? How much should you both expect to spend on healthcare? Think about your own and your families’ medical history.

What other goals do you have for this time in your life, such as traveling or helping out the kids? What is your spending like week to week, and how much would you need for your hobbies or leisure activities? A side hustle would be great, not just for extra income, but to stay active. 

Read: Volunteering can be key to a happy retirement. Why aren’t more people doing it?

Write down all of those numbers and try to map it out. This isn’t a one-time conversation, but multiple conversations, and there will likely be a lot of back and forth. Basically, you don’t want to leave anything as a mystery. 

Having a financial plan, particularly one that will be flexible as your lives change, is necessary. If you don’t have that yet, I suggest you get started immediately, and that you be willing to adjust it over the next five years and then some. 

Readers: Do you have suggestions for this reader? Add them in the comments below.

Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com

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