Still more on Financial Management and Investing

During the Q&A period of the presentation of our experience at the retirement community of “BrookHaven at Lexington” on 9/14/2022, one listener was quite taken back by the requirement that

1.  we must pay the full Buy-in price of $800K for our two bedroom apartment and can only get back 90% of the buy-in-price ,

2.  without any consideration of inflation, interest payment we could have earned with the $800K,

3.  and future increase in real estate prices.

He thought this is a steep price to pay. In principle we agree. 

But let me go one step further and analyze this a bit. Suppose you elect to remain in your own home and NOT buying-into BrookHaven. You can invest the $800K in the best scenario with 

full principal protection in an interest-bearing account with 4% annual return which works out to $32K/yr. 

You ask yourself can you go out and purchase the same amenities/services that BH provides? A skilled live-in help in your home that cares for you 24/7 will cost considerably more than $32K/yr.

 Furthermore, at our current advanced age, how important is it that we tie up this $800K with no prospects for inflation or real estate price appreciation? 

If your children are not desperately waiting for their inheritance, 

and you are not desperately dependent on this $800K for your everyday living,

then in return for the financial simplicity as well as the luxury of 24/7 services/amenities offered, 

$32K/yr seems a reasonable price to pay.

 Otherwise, why should there be a waiting list of years to get into BH?

As our remaining time on earth gets shorter, tradeoff between money vs convenience and peace of mind also changes. Saving vs. Spending takes on different value, guilt, and perspective.

On this note, let me offer one further unrelated note on investing in real estate vs. the stock market. Both are good investments for people for the past century. However, there is one further advantage of investing in real estate if it is your own home. First, you need a place to live anyway. Thus instead of renting, buy your own residence – pay mortgage instead of rent. When you sell your home, the US government steps in to help you avoid paying capital gain tax each time (provided you have lived in your home for at least 2 years) while such help do not exist with appreciated stocks. I know of person who moves every two plus years just to take advantage of this government help and avoid paying capital gain tax on his appreciated home all together.