Millennial couples who have eschewed raising a family and have reached their career goal success can often find themselves at odds with the next step in their personal lives. A recent Reddit article posed an interesting crossroads for a couple that was also revealing as to their marriage life choices. 

Although they have $10 million invested and a comfortable lifestyle that includes frequent luxury travel, the 45-year old husband does not feel the need to spend extravagantly on a home or car, but the wife, who grew up poor, had always dreamed of owning a large home in order to entertain at parties. While the husband concedes that a large home in a nicer neighborhood can create a more serene frame of mine, he also sees elements of a “keeping up with the Joneses” in such a move. He also sees that their current 2,500 square foot single family house is often a mess and in no shape to entertain guests – likely because of their respectively busy work lives. 

Looking At the Numbers

There is no information given as to what state the couple lives in, what their occupations are, or the value of their present home and car, so the below info is what is disclosed with a guess indicated with a “?”.

 

Current Assets & Income                         Status                           Value

2500 sf single family house	Presumably no mortgage	$1.5 M?
Annual combined income	Presumably secure	$1.2 M
Stock Investments + Retirement a/c	Liquid (T+1)	$7.3 M
Private Investments (pre-IPO)	Illiquid for 24-36 months?	$3 M
Car(s)?	?	?
Collectibles, other assets?	?	?

 

Some Insights and Takeaways

This couple clearly are financially successful and have compiled a nice 8-figure nest egg. They travel frequently and do not spare any expense when it comes to hotels, food, or experiences, although the husband will not spend more than $5K for First Class or Business Class. However, there are gaps in the disclosures so a comprehensive assessment is difficult. Taking each category, one may inquire the following:

House Pros:  

• The husband acknowledges that buying a $4 million house in a nicer neighborhood would presumably be a calmer environment, and likely have better security.
• Hosting parties in a nicer, larger home would generate increased networking opportunities.
• The wife’s long-time dream has been to own a large home for entertaining. 
• The costs of a larger home would incentivize the couple to earn more money.

House Cons:

• The husband seems content with the current 2,500 sf home. He grew up in a large home, so obtaining a new one is a low priority for him.
• Due to their busy work schedules, the current home is often messy and unprepared for hosting guests. Cleaning a larger home would likely require hiring a maid and/or other maintenance staff.
• The husband himself dislikes parties.
• The cost of a large home would force the couple to put off any slowing down of their workloads.
• The husband admits that HHI, i.e. a competitive “keeping up with the Joneses” mindset is a strong factor in their friends’ motivation for splurging on large houses, and suspects this might also be his wife’s motivation also.
• Property Tax varies widely from state to state, but it will inevitably be higher with a larger home and assessment value.

Occupation Pros:

• With a combined $1.2 million annual income, the couple are presumably in secure positions within their respective occupations, which the husband says they love. 

Occupation Cons:

• The husband confesses that the drive in their occupations is starting to wane, hinting of a desire to move into a lower gear.
• No information is disclosed on what industrial sector the couple work in, so while they may have job security at present, it is moot if there is any industrial sector upheaval, such as in tech or banking, for example, both of which underwent massive layoffs this year.

Investment Pros:

• The couple has $7.3 million in the stock market, cumulatively with their retirement account(s). The stock market has done very well over the past 8 years. 
• The couple also has $3 million in private investments that are pre-IPO. Assuming that they all go public in the next 2-3 years, they may have get a nice boost to their nest egg.

Investment Cons:

• Diversifying a portion of the portfolio into precious metals or some other asset classes at this stage might be a prudent move. A number of analysts believe the current stock market is a bubble that has been inflated by the Magnificent 7 tech stocks and not indicative of an overall healthy market climate. 
• The private investments are high risk/reward, since a panoply of hazards, from SEC regulatory issues to the sudden departure of a key executive prior to an IPO can render the investments worthless, and the illiquidity offers minimal interim recourse.

 

Conclusions and a Suggestion

The decision on paying to get a large house in a nice neighborhood with this couple apparently has more to do with individual personal aspirations and how they view their marriage within the context of their social life than with raising a family. The move to a safer neighborhood with good schools, etc. is usually the motivation when couples plan to raise children, which is not a concern here. As they are already in an area with a Very High Cost of Living, a suburban neighborhood with larger homes will likely entail longer commutes to work, which may be another negative. 

One suggestion I might make, given their relative affluence, is to try to find a short term lease on a home in a neighborhood that contains prospective houses they may wish to buy. This option can give them a sampling of what life would be like in that neighborhood and what impact, if any, it may have with their respective jobs and social lives. This way, they can make a united decision on whether or not to commit to a larger investment in a new home with eyes wide open.

This article is purely intended to be analytical only, and is not to be taken as tax or investment advice. A professional accountant and/or financial professional should be consulted if such advice is sought.

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