Comments on: Should You Save First for Retirement or a Down Payment on a House?

By: J-man

J-man — Fri, 16 Jul 2010 14:25:25 +0000

Everyone has a different strategy and different values and priorities. I live in a “$350+ starter home” area of the country. So I bought a $150K apartment. Then I bought another apartment and the first one is being rented (being bought with other peole’s money). So now I’m in my late 20′s, living in an apartment, just like all my friends, but I’m building equity on 300k in property acquired over time. I plan on doing this again and eventually getting a house. By the time I retire, the apts (and other properties by then) will be paid off and will be genearating a nice cash flow in my retirement. Am I being unrelaistic with this approach? I’ve crunched the numbers but it’s tough to say if I’d be better of just betting the stock market. I see the merit in both. I still put a good % of my income into my 401k, but I feel you need to be careful not to over do it. Please provide comments. Thanks.

By: Pyro

Pyro — Thu, 04 Mar 2010 23:58:01 +0000

I’d really have to hit the spreadshit and or calc, but PMI is really quite expensive, and if you were to contribute the cash you’d save not paying PMI and investing it I’m not sure that would be the best way to go. I did go the house route rather than retirement first, but my mortgage is a bit less than a comparable rent.

By: Zach

Zach — Fri, 26 Feb 2010 07:44:01 +0000

Well at 25 I have a Roth IRA for a couple years now, so I guess I chose retirement. To be fair, I was aware I could withdraw on my Roth IRA for a down payment on a house before I opened it.

I do have my regular brokerage account, which is just about increasing wealth, but I imagine down the road I would like to apply that money to a home. But I do not have an official Save for House type of account.

By: David Weliver

David Weliver — Wed, 24 Feb 2010 21:14:25 +0000

I appreciate the points so far, thanks guys!

Though I did write this post in favor or saving for retirement, I do support the “happy medium” approach and understand the emotional connection to home ownership, although I think people often get blinded by the emotions involved in home ownership and forget some of the drawbacks, e.g., the maintenance and the commitment. Similarly, Sara you mentioned saving a bit more is “putting me behind my friends in terms of buying a house”. If we’re not careful, first home buying can lead to a case of “keeping up with the Jones’”. If all our friends own, we wonder what we’re doing wrong renting. We should all be careful to base the decision to buy a home on whether it’s what we want and whether it makes financial sense for US.

A final note: The reader who asked this question crunched some numbers reminded me of something that tips the scale in favor of buying a home earlier (even, or perhaps especially, in an expensive market): the fact that you can deduct mortgage interest on your income taxes. He calculated that on a $417k mortgage (he’s in San Francisco, one of the priciest markets around) the tax deduction would be about $7500 a year, or $600 a month.

By: Sara

Sara — Wed, 24 Feb 2010 19:06:33 +0000

I agree with you -saving for retirement while young is so smart… However, I can’t WAIT to have a house!!! Like Crystal said, there is definitely emotion involved and I can’t wait to have that comfort and security. (And to decorate!)

HOWEVER, I just can’t deny that saving for retirement early on will have huge rewards and therefore I contribute my 401k beyond my match and max out a Roth IRA every year.. Then, I use whats left to pay off student loans, and once those are gone to save for a 20%+ downpayment.

It is definitely putting me behind my friends in terms of buying a house, but I know I’ll be very thankful in the future and it will be worth it. Not only will I feel secure in comfortable in a home, I’ll feel secure in comfortable with my finances which is even more important!

PS- As far as renting, what I pay in rent is what my friends pay on property taxes. That is just one of the many ways how I justify renting is NOT wasted money!

By: Crystal

Crystal — Wed, 24 Feb 2010 15:58:50 +0000

I agree with much of your post however I think for most people there should be more of a ‘happy medium’.

I never would have been able to purchase a home if I had to contribute fully to a 401k and max out my IRA. I agree you need to ALWAYS take free money from your company in the form of 401k match but doing that and fully funding an IRA every year is not practical for many (wanting to buy a home or not).

Contributing the full matching percent with your company’s 401k should be your top priority, period. But, after that point, I believe saving should be split between down payment and IRA contributions.

You forgot about the emotional aspect that many homeowners feel. Owning your own home is less about dollars and cents and more about the comfort and security the people feel. To a lot of people that is more important than a number on a statement.

(I do need to to say that I am a CPA and a real estate agent.)

By: moneyhoneysf

moneyhoneysf — Tue, 23 Feb 2010 20:50:53 +0000

I think a balance is important. Both paying down the mortgage to avoid having to pay too much on interests and saving for retirement are both essential.

By: WellHeeledBlog

WellHeeledBlog — Tue, 23 Feb 2010 07:35:32 +0000

I see retirement savings as my first priority, of course, ideally I'd have a nest egg and a paid off home by the time I'm retire. One reason is that it's harder to work up the motivation to save for retirement... (I wrote about it here, too).

By: Ryan

Ryan — Mon, 22 Feb 2010 20:32:23 +0000

I’m right on the verge of purchasing my own home and this was a great article. Living in CA I’m in the 350,000+ category and there is a lot of consideration when talking about those kinds of numbers.