Catch up on retirement or save for downpayment?

[Artygal90]

Hi all!

Non-Disney question for the budget board, hope no one minds. My husband and I recently reached our goal of fully funding an emergency fund. Yay! BUT: Now we can't agree on what our next financial goal should be (besides saving for Disney, that is)! We rent an apartment, but I'd really like to buy a townhome in about 2 years, before we start having kids. That idea makes him super anxious! He has $0 in retirement savings and no retirement benefits at his job. He really wants to start putting money into an IRA so he has *something*.

With at least $500/month extra* to put towards savings, would you rather:
1) Play catch-up on retirement accounts, or
2) Start saving for a downpayment, or
3) Do both at the same time?

What would you do first?

*I'm looking for a new job that should pay more and have retirement benefits for me, so this number should go up in the next year. But assume $500/month for now.

 

[Allison]

You should always be putting something away for retirement while saving for other things.

 

[kydisneyfans]

I say both, but the urgency would depend on your ages. If you are in your low-mid 20s, I'd go heavier toward the down payment, but commit something toward retirement to let it gain compound interest. If in your 30's, I'd look at retirement harder.

In all honesty, I have maxed out my company match on my 401K at every job I've had since I was first eligible around 21-22 years old, now that I'm 45 that is the best financial move I've ever made.

 

[Artygal90]

I say both, but the urgency would depend on your ages. If you are in your low-mid 20s, I'd go heavier toward the down payment, but commit something toward retirement to let it gain compound interest. If in your 30's, I'd look at retirement harder.

In all honesty, I have maxed out my company match on my 401K at every job I've had since I was first eligible around 21-22 years old, now that I'm 45 that is the best financial move I've ever made.

Company match? What's that? (j/k...we're artists, we sometimes feel lucky to even have steady jobs! I hear some jobs include things like PTO and health insurance!)

In all seriousness, whenever I/we move on to greener pastures the goal is definitely to max out the company match, if there is one. Good on 21-year-old you!

We're late twenties/early thirties. So yeah, probably a good idea to focus on retirement at least equally as hard as the downpayment. Which is a bummer, as I currently desire a formal dining room more than I want a maxed-out IRA. Alas, priorities.

Thanks for your advice!

 

[toystory1130]

Your formal dining room will serve you for Thanksgiving but your IRA will serve you for many many future retirement years.

 

[crisi]

And you want to fit kids in there too? Save for both, and that may mean getting rid of the saving for Disney. Kids will be really expensive - particularly if you don't get health insurance through a job. When we were both consulting and getting our health insurance independently, our family of four paid $1600 a month for bad insurance - and another $300 a month for my daughter's medications.

 

[tvguy]

Both. No excuse for not having anything in retirement, no matter how little.

 

[shoney]

I would save for both. The house is an investment too.

 

[StacyStrong]

Both. Definitely. Owning a home is great, but if you can't afford to live after you can no longer work, that house won't help all that much.

 

[Allison]

There is always something else to save for other than retirement so you have to do it in conjunction with everything else. Otherwise, you are 40 years down the road and won't have anything set aside.

 

[Southernmiss]

Both! You are already a little behind on retirement savings.

The 30s and 40s go fast as life is busy. Before you know it, you are looking at 50. Suddenly, retirement doesn't look that far away.

Many people I know in their mid 50s have job insecurities. And it is harder to find work. Businesses can hire younger, more energetic workers. That is scary to me! And the 55ers certainly don't have enough saved for retirement. You start to notice ailments creeping in at this age.


I have a dining room and breakfast table. Wish my house was designed for just one bigger table now. Personal home needs change, too.

 

[Wild4Walt]

Both - leaning heavier towards retirement/savings accounts. The housing market is still too erratic in most states to be able to tell what's going to happen next. Pricing and interest rates are going up - so the jury is still out if it's wise to buy or not.

By doing both, you are saving for something you want in the more near future and for something that will be a benefit long term.

 

[CookieandOatmeal]

I'm 32 and started paying into my retirement fund right when I started teaching at 22. I also pay into a state pension too. In addition, I worked hard at saving for a rainy day fund and a down payment for a house. Bought the house at 28 but I was able to save so much by living at home with my parents who loved having me at home lol. Financial stability and comfort has always been important to me (and my spouse) so we make sure that when we spend, it is something that we can afford. We always put needs above wants so when we bought into DVC which is a want, we made sure we could afford to pay in cash.

 

[StacyStrong]

I'm 32 and started paying into my retirement fund right when I started teaching at 22. I also pay into a state pension too. In addition, I worked hard at saving for a rainy day fund and a down payment for a house. Bought the house at 28 but I was able to save so much by living at home with my parents who loved having me at home lol. Financial stability and comfort has always been important to me (and my spouse) so we make sure that when we spend, it is something that we can afford. We always put needs above wants so when we bought into DVC which is a want, we made sure we could afford to pay in cash.

You guys have been able to do a lot! That's great. Congrats.

 

[AmyAnne]

Hi all!

Non-Disney question for the budget board, hope no one minds. My husband and I recently reached our goal of fully funding an emergency fund. Yay! BUT: Now we can't agree on what our next financial goal should be (besides saving for Disney, that is)! We rent an apartment, but I'd really like to buy a townhome in about 2 years, before we start having kids. That idea makes him super anxious! He has $0 in retirement savings and no retirement benefits at his job. He really wants to start putting money into an IRA so he has *something*.

With at least $500/month extra* to put towards savings, would you rather:
1) Play catch-up on retirement accounts, or
2) Start saving for a downpayment, or
3) Do both at the same time?

What would you do first?

*I'm looking for a new job that should pay more and have retirement benefits for me, so this number should go up in the next year. But assume $500/month for now.

Both. Also, I would recommend starting with a Roth IRA, if your tax bracket is low now. You pay taxes on the income now (unlike some other retirement accounts) but the earnings are tax-free (if you withdraw according to the rules).

 

[Sagginit]

Both! Housing depends a lot on market and where you want to buy too so if you are in an aggressive or expensive market it may take more to get that house than you anticipated. We just bought our first home and our little one is just under 18 months. Moving with a toddler was a challenge but we had amazing rent and when they are little they don't take up that much room in your home. Continuing to rent for the first 2.5 years of our marriage ended up being a great move financially. I knew many eager to buy homes and some friends admitted they ended up being house poor so having children, planning weddings, changing jobs, etc. had to take a backseat to digging themselves out of the hole they put themselves in by rushing to buy.

 

[Artygal90]

There is always something else to save for other than retirement so you have to do it in conjunction with everything else. Otherwise, you are 40 years down the road and won't have anything set aside.

That is a great point! I always have a running list of 10+ items/experiences I feel like we "should" be saving for...just in case. But you're right, retirement has to take priority!

 

[Artygal90]

Both. Also, I would recommend starting with a Roth IRA, if your tax bracket is low now. You pay taxes on the income now (unlike some other retirement accounts) but the earnings are tax-free (if you withdraw according to the rules).

Yep, we are planning to do Roth IRA all the way! I already have a small one I started with a chunk of savings from before we were married. We put contributions on pause for a few months to focus on paying off all our debt and build our emergency fund, but now is the time to start up again.

The minimum to open an account with Vanguard is $1k, so I've added a line item in YNAB called "DH's First IRA", lol. It should be fully funded soon, and then we can get rolling on setting up recurring contributions to both that and a downpayment fund.

 

[Artygal90]

Both! Housing depends a lot on market and where you want to buy too so if you are in an aggressive or expensive market it may take more to get that house than you anticipated. We just bought our first home and our little one is just under 18 months. Moving with a toddler was a challenge but we had amazing rent and when they are little they don't take up that much room in your home. Continuing to rent for the first 2.5 years of our marriage ended up being a great move financially. I knew many eager to buy homes and some friends admitted they ended up being house poor so having children, planning weddings, changing jobs, etc. had to take a backseat to digging themselves out of the hole they put themselves in by rushing to buy.

I'm so happy to hear of another young couple who had kids before purchasing a home. I feel a lot of (internal) pressure to set up a household and enjoy it a bit as a childless couple before having kids. What was it like moving with a toddler? I know my 18-month old students at the daycare where I used to work would have caused a lot of mayhem!

Thankfully things are pretty stable in our housing market - prices go up year over year, but not crazy amounts, and the complex I've got my eye on has remained quite affordable. The places we're looking at are about 2x our annual gross income. Because we're talking about (relatively) shorter timelines to save enough, that's why I was wondering if it would be an okay idea to throw all the $$$ at a downpayment and keep holding off on retirement. But people unanimously seem to agree that we really must start saving immediately to catch up on DH's retirement funds and grow my contributions to my fund. Which is fine! It's just a great incentive to go out and get a better-paying job so we can save for retirement AND a house AND Disney!

Thanks for all the advice everyone!

 

[tcufrog]

Don’t forget that once you own a home you need a larger emergency fund. It’s recommended to have at least 1% of the purchase price in an emergency fund for repairs.