We’re empty-nesters in our 50s and bought $2.5 million house – what kind of return on our investment can we expect?

Downsizing can make a lot of sense when you become an empty nester. A couple in their 50s finds themselves in this situation and currently live in a big home that’s worth $2.5 million. They posted about it in the Cubby FIRE subreddit, looking for advice.

Most of their net worth is tied in equities, with the house only representing 15% of their net worth. The Redditor can retire next year and only has to withdraw 2% of the portfolio each year. I will share my thoughts, but it is good to speak with a financial advisor if you can. 

The Redditor Doesn’t Have to Sell the House Right Away

Although the house is too big for the couple, they currently like the house. The Redditor thought about holding onto the house for another 15-20 years before selling it. That’s a good timeframe since owning a big house makes less sense as you get older. Furthermore, the house should continue to appreciate during those 15-20 years.

The couple is already doing well since they can safely withdraw 2% of their portfolio each year instead of a higher amount like 6%. Then, the Redditor will realize a windfall between selling the current home and buying a smaller property.

It’s Okay for the Redditor to Stay in Equities

People often reduce their risk as they get older. The focus shifts from generating wealth to preserving capital, and the Redditor is thinking that way. They mentioned switching from a 90-10 portfolio to a 70-30 portfolio or even a 60-40 portfolio. The current 90-10 portfolio reflects that the couple has 90% of their funds in equities and 10% of their funds in bonds.

However, the Redditor only has to withdraw 2% each year, meaning it’s easier for them to endure market volatility and short-term corrections. Making big portfolio shifts makes more sense if the Redditor had to withdraw 6% each year and couldn’t afford much volatility.

Everyone has a different risk tolerance. While 60-40 may be a bit dramatic, the Redditor may want to consider an 80-20 portfolio depending on their financial goals and how they feel about volatility. The equity and bond positions do not include the couple’s house, which will provide quite the windfall when it’s time to sell.

The Redditor Has a War Chest

The Redditor responded to several comments that give us a better understanding of their portfolio allocation. The comments the Redditor provides further demonstrate that it makes more sense to stay in equities instead of de-risking.

The original poster states that they have about seven years of living expenses in bonds. That’s plenty of time to ride any market uncertainties. One of the commenters suggested that the Redditor can trim stocks during strong rallies and sell bonds when stocks are in corrections. That way, the Redditor doesn’t miss out on market recoveries and can take some profits when things are going well.

The couple has put themselves in a tremendous financial position. A low withdrawal rate and a $2.5 million property make it easier to stay invested in equities instead of significantly de-risking. However, everyone has to consider their ownrisk tolerance and long-term goals when allocating their portfolios.