Why NOT Budgeting for Home Maintenance Can Ruin Your Retirement

How much should I budget for annual expense on the general maintenance of my house?

Where most people ‘take it for granted’ until they need to replace the windows at $300/pc or the roof at $10/sqft. And if you retired and most of your money is in your IRAs, now we have to add taxes in top of the cost.

While conducting one of our Retirement Planning classes here locally, one of our students had an interesting question regarding how much he should budget for the general maintenance of his house. This is a question that usually arises when we are putting an income plan together in order to bring a couple successfully through retirement. It also happens when we are putting together an estate plan and the trustees want to set aside money specifically for the upkeep of their home so their beneficiaries don’t have to sell home before they are ready. They understand that at any time you ‘have to’ sell anything, especially a large ticket item, the buyer wants a pretty good deal.

There is a general rule of either 1% of your purchase price (Current Market Value) or about $1 per square foot of living area. The living area should include your basement, attic and garage in this calculation. For example: 2 story Colonial with a two car attached garage and full basement. If your assessed size of your home is 2400 sq. ft. then it is safe to assume you have 1200 sqft on the top floor as well as the main floor and the basement. So realistically, you are looking at a potential 3,600 sq ft of living space. A two car garage is usually about 440 sq ft. So if you add it all up, you have a little over 4,000 sq ft that should go into this calculation and not simply the square footage you originally purchased your home.

So the range in which to implement your budget is anywhere from 1% of the purchase price to $1 of the entire square footage of the home. In our example, assuming homes are selling for $100 sqft, and you bought your home for $240,000. The bottom end of your budget for home maintenance should be $2,400 and the top end would be $1 of the total square feet or $4,000.

Now let’s talk about the $100 per sq ft. If we place this as a par value, we can simply investigate what homes are currently selling for in our neighborhood to see if we are above or below that factor. For instance if we find that a similar 2400 sq ft home just sold for $220,000 then we know immediately that is below par value (22/24 = $91.67 sq ft). We would then budget at either 91.67% (2400*.9167) which is $2,200 or (4000 sqft * 92 cents) which is $3,680. Of course our budget would work the opposite way if we find that our home is currently valued above par. For example a similar home sells for $300,000 or 125% above par so our bottom end of the range is $3,000 while the top end is now $5,000.

So why the difference? How does the market value per square feet have any effect on my maintenance cost? When considering a budget for your home there are Geographic Cost of Living, Quantity and Quality of products and services, and level of outside influences as main contributors in how current market fluctuations effect the day to day maintenance costs of your home. More affluent neighborhood stores sell products at a higher premium compared at lower income neighborhoods. Those same stores have more specialized products versus more generic brands to choose. More affluent stores have better opportunity to buy in bulk compared to lower income demographic stores where premium is placed on smaller packages that fetch a lower investment from the customer. Bigger homes usually have more amenities, landscaping and changes in construction materials that add a higher ongoing maintenance cost.

Other Considerations that will affect your long term budget when you purchased the home:

– Age of the house, roof, windows, additions etc

– Age of the appliances, hvac, plumbing, electrical

– Construction of home, vinyl siding, brick, stone etc

– Ongoing maintenance prior to purchase

– Proactive Maintenance, protective paints and seals, and waterproofing

– Warranties on appliances, maintenance

– Topography of home, high ground or valley, windy with no trees or surrounded by trees

– City Water or Well

– Weather extremes

It doesn’t seem that it should cost that much to maintain a home? You’re right it doesn’t seem to but let’s look at the list:

Age of Life for

– Roof – 20 years at about $9/sq ft that is $22,800 ($1140/yr)

– Furnace – 15 to 20 years and will cost about $2500 in today’s dollars ($125/yr)

– Hot Water Heater – 10 years at about $500 ($50/yr)

– Water Softener (if applicable) – 10 to 15 years at about $500 ($35/yr)

– Central Air – 20 years at about $4000 ($200/yr)

– Sprinkler System 30 years at about $2500 ($85/yr)

– Driveway 30 years at about $9000 ($300/yr)

That’s a total of about $1935 in today’s dollars and with the rate of inflation at 2.5%, most of these costs will be quite a bit higher. In 20 years, this monthly maintenance fee will be approximately $3100. While budgeting for the long term maintenance, the day to day maintenance now has a range of approximately $465 and then topped out at $2,065. It’s tuff to take ownership and stick to a budget, especially when there is a chance you may never need it. But as my mother always told me as I scoffed at the umbrella on the way out the door, it is better to have and not need it than to need it and not have it.

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Source by Charles E Stevens