Whether you’re a working professional who dreams of building a legacy of memories for your children, or a Baby Boomer approaching retirement, eager for a retreat that will draw your friends and family near, the second home trend has its appeal.

A second home looks different for everyone – it may be a house in Ocean City, a cabin set on a lake in Maine, or a peaceful retreat in the countryside. But no matter what it looks like, the big-picture questions are the same: Is it a smart investment? How should it figure into your long-term financial goals and retirement plan? How do you weigh the financial investment with the time and emotional investment?

Here are a few benefits and considerations to keep in mind when evaluating whether investing in a second home is right for you:

Turnkey convenience, tailored to your taste and needs

When you have a second home, you can pick up and go with little to no notice – no reservation required. When you arrive, you’re home – no need to settle in and no chance of being disappointed if your rental doesn’t match the pictures from the online ad. The home is decorated to your specific style and taste, with the amenities that you value and enjoy. Plus, all your vacation clothes, linens and recreational items are in one place and ready for use. Another added benefit is the opportunity to invest in your own equipment – whether it’s camping gear, beach chairs, kayaks, etc. – that you can enjoy year after year.

Immediate return with potential long-term value

At the point of purchase, there is immediate value in the utility of the home. To help offset maintenance and upkeep costs, you can choose to rent out the house. But, keep in mind that managing a rental takes time and resources and that you will need to fit yourself into the rental schedule. In the long-term, the house may serve as a retirement residence. Or, if you monitor the market and sell when conditions are favorable, you can aim to make a profit.

A place to make memories and build your legacy

A second home is more of an emotional investment than traditional investments, such as stocks or bonds. Whether you have a young and growing family or you’re nearing retirement, a second home can serve as a gathering place for family and friends – a place to retreat, discover new hobbies and passions, start traditions and make lifelong memories. Establishing a secondary residence also gives you the opportunity to build new friendships and community outside of your hometown. For many families, the sentimental value attached to a vacation home far exceeds its financial value.

Maintenance and upkeep costs

There are carrying costs associated with a second home, including taxes, insurance, utility bills, and general maintenance. As the owner, you are responsible when something goes wrong – whether it’s a broken window, leaky roof, or liability from an injury on the property. Some homeowners will hire a management company to clean and maintain the grounds, particularly if they plan to rent out the property – however, this additional cost can cut into revenue. Homeowner insurance rates and mortgage financing terms also tend to be higher and more restrictive.

Reduced flexibility to travel and experience new places

Keep in mind that if you’re paying a mortgage and taxes on a second home, you’re probably going to spend most of your vacation time there. To make the most of your investment, you may feel compelled to visit your vacation home as often as possible, foregoing other options. Plus, the associated costs may start to cut into your budget to travel elsewhere. If you like to explore new places and go somewhere different every summer, tying yourself down to one destination might not be the most strategic move.

Financial risk and tax complexities

As with any investment, there is financial risk involved in owning a second home. Real estate is illiquid – there’s no predicting what the economic climate will be in 20-30 years and whether conditions will be favorable to sell. Before you decide to buy a second home, consult with a trusted financial advisor to evaluate your options. A financial planner can conduct an overall cost-benefit analysis and help gauge the impact of the purchase on your long-term financial security and retirement plan. You should also consult with a CPA to evaluate the tax implications, weighing factors such as expected use and revenue from rent.

Whether your kids or grandkids are 4, 14, or 24, teaching them about money is one of the most important gifts you can give them. Good money skills last a lifetime. Budgeting, prioritizing savings, living within your means, long-term investing, are all skills that we can teach. Obviously, the application of these skills will differ based on the child’s age, but it is best to start when they are young.

If we teach them our values and principles about money today, they will be well positioned to succeed in the future.

Younger kids tend to live in the moment, with little consideration of the future. Encourage them to save a portion of each cash gift with an eye on the future. Show them how a savings plan can help them obtain a more expensive or treasured item in the future.

For teenagers with a job, help them understand their paycheck. Explain FICA (Federal Insurance Contributions Act is a United States federal payroll contribution directed towards both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, people with disabilities, and children of deceased workers). To help them get started with savings, offer to make a matching Roth contribution if they are willing to save some of their hard earned pay.

If you thought it was challenging explaining good money habits to teenagers, just wait until they are in college and have everything figured out. They will be out on their own for the first time with little money and lots of spending opportunities. College students are flooded with credit card solicitations. Credit cards can be useful in an emergency or to help build a credit history, but they can easily lead to overspending. This is a good time to discuss credit cards and avoiding high interest debt.

As your young adult starts their career, make sure they prioritize savings from the start. Encourage the establishment of an emergency fund and contributions to a retirement account. Their lifestyle will adjust to their take home pay. As bonuses and pay increase, so should their commitment to savings. Show them how slow and steady savings grows over 40 years.. According to Einstein, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

What should we tell them about investing?… focus on the long-term, stay invested through all market cycles, and own a low-cost diversified portfolio.

We frequently field questions about this topic and have many resources to share. If this involves an adult family member, please feel free to make an introduction to us. If you would like additional advice and guidance, please reach out, we are here to help.

Who doesn’t enjoy tying up year-end loose ends? The original SECURE Act was signed into law on December 20th 2019. Its “sequel,” the SECURE 2.0 Act, was similarly enacted at year-end on December 29th 2022.

Both pieces of legislation seek to reform how Americans prepare for retirement while juggling current spending needs. How, when, or will each of us retire? How can government incentives, regulations, and safety nets help more people safely do so—or at least not get in the way?

These are questions we’ve been asking as a nation for decades, across shifting socioeconomic climates. Throughout, a hard truth remains:

Employers and the government play a role in helping you save for and spend in retirement, but much of the preparation ultimately falls on you.

That’s America for you. The good news is, you get to call your own shots. The bad news is, you have to. Neither the original SECURE Act nor SECURE 2.0 has fundamentally changed this reality. SECURE 2.0 has, however, added far more motivational carrots than punishing sticks. Its guiding goal is right there in the name: Setting Every Community Up for Retirement Enhancement (SECURE). Following is an overview of its key components.

Note: Implementation for each SECURE 2.0 provision varies from being effective immediately, to ramping up in future years. Many of its newest programs won’t effectively roll out until 2024 or later, giving us time to plan. We’ve noted with each provision when it’s slated to take effect.

Below are a few provisions that may have an impact on your future financial planning:

• Required Minimum Distributions (RMDs) pushed back in 2023 (Age 73 if born between 1951-1959, Age 75 if born in 1960 or after)
• Elimination of RMDs for Roth accounts within employer-sponsored plans in 2024
• Employers may deposit matching or profit-sharing contributions to Roth accounts, which would be taxable to employee in year of contribution in 2023
• High wage earners (wages in excess of $145,000 in previous calendar year) will be required to use Roth account for catch-up contributions in employer-sponsored plans, which would be taxable to employee in year of contribution (beginning 2024)
• 529-to-Roth IRA transfers – may be able to move unused 529 plan money into Roth IRA –subject to numerous restrictions and limits in 2024
• Post-death option for surviving spouse beneficiary to delay RMDs until when deceased spouse would have reached RMD age – only applies if younger spouse pre-deceases older spouse in 2024
• IRA catch-up contribution limit ($1,000) indexed for inflation starting in 2024
• Increased employer-plan catch-up contributions when in 60’s – catch-up contribution limits will be higher (at least $10,000 and inflation adjusted) for those ages 60, 61, 62, and 63, starting in 2025
• New QCD rules which start in 2024 include:
• Maximum annual amount of $100,000 indexed to inflation
• One-time $50,000 QCD allowed to charitable trust/charitable gift annuity

How else can we help you incorporate SECURE 2.0 Act updates into your personal financial plans? The landscape is filled with rabbit holes down which we did not venture in this article, with caveats and conditions to be explored. And there are a few provisions we didn’t touch on here. As such, before you proceed, we hope you’ll consult with us or others (such as your accountant or estate planning attorney) to discuss the details specific to you.

Come what may in the years ahead, we look forward to serving as your guide through the ever-evolving field of retirement planning. Please don’t hesitate to reach out to us today with your questions and comments.

There have been so many big events competing for our attention…

Inflation is real, and needs to be managed. Heightened levels of market volatility across stock and bond markets alike may have left you once again wondering whether this time is different. Wider worries prey on our minds as well, such as the war in Ukraine; totalitarian aggression in other hot spots around the world, political discord at home, and natural disasters.

But it’s also important to remember, we’re biased to pay more attention to recent alarms than long-ago news. In the right context, this form of recency bias makes perfect sense. As we go about our lives, it’s often best to prioritize our most immediate concerns.

However, as an investor, if you overemphasize the news that looms the largest, you’re far more likely to damage your investments than do them any favors. You’ll end up chasing hot trends, only to watch them combust or fizzle away. Or you’ll jump out during the downturns, without knowing when to jump back in.

Yesterday’s News
How do we defend against recency bias? It can help to place current events in historical context. Do you remember what investors were worrying about a year, several years, or several decades ago? If you experienced some or all of these events first-hand, you might recall how you felt at the time, before we had today’s hindsight to inform our next steps:

• 2021: The Taliban takes control in Afghanistan, while a “ragtag army” of online traders led by Roaring Kitty storms Wall Street.
• 2020: COVID-19 shuts down economies worldwide. Civil unrest rides high across a gamut of socioeconomic concerns, and a divisive U.S. presidential election looms large.
• 2018: Two U.S. government shutdowns occur—in January and again at year-end, with the latter lasting more than a month.
• 2017: The year-end Tax Cuts and Jobs Act (TCJA) upends U.S. tax code.
• 2016: The Brexit referendum and U.S. presidential election deliver surprising outcomes.
• 2015: A long-simmering Greek debt crisis erupts.
• 2013: A 16-day U.S. government shut-down occurs in the fall.
• 2012: The U.S. narrowly averts plummeting over a fiscal cliff.
• 2011: For the first time, the U.S. federal government credit rating is downgraded by one of the major rating agencies from AAA to AA+, and the Occupy Wallstreet movement is born.
• 2008: Wall Street broker and former NASDAQ chair Bernie Madoff is arrested for fraud.
• 2007: The Great Recession and global financial crisis begins. 2001: The 9/11 terrorist attacks send global markets reeling. An accounting scandal at Enron culminates in the energy giant’s bankruptcy.
• 1999: The dot-com bubble bursts; the Y2K bug spurs massive, worldwide computer reprogramming.
• 1990: Iraq invades Kuwait. 1980: U.S. inflation peaks at 14.8%; Americans are marching in the streets over the price of groceries. Also, the U.S. Savings and Loan crisis begins, ultimately costing taxpayers an estimated $124 billion.
• 1973: An OPEC oil embargo “fueled bedlam in America.”

Investment Mainstays
These are just a few examples. They don’t include the market’s endless stream of lesser alarms that are easy to dismiss in hindsight, but often generated as much real-time storm and fury as the more memorable events.

The point is, there’s always something going on. And even as global markets persist, we forget or rewrite our memories, until they’re no longer available to inform our current resolve.

In the face of today’s challenges and tomorrow’s unknowns, we advise looking past recent trends, and focusing instead on a handful of investment basics that have stood the test of time. They may seem unremarkable compared to the breaking news. But when has “buy low, sell high,” or “a penny saved is a penny earned” become a bad idea once all the excitement is over?

It’s always important to take a step back and reflect. Stay tuned for more in our Investing Basics series!