Catch up on retirement or save for downpayment?

What to do first?

  • Catch up on retirement

    Votes: 31 37.8%
  • Save for a downpayment

    Votes: 7 8.5%
  • Put aside money for both

    Votes: 44 53.7%

  • Total voters
    82
SAVE for a house. Don't know how old you are, but my priority if you are young would be saving for a house. Start building equity and IF depending upon how large your mortgage interest would be , real estate taxes would be, if large enough to exceed the standard deduction this year with the tax law reform, then get the benefit of a tax deduction. In an "ideal" situation, save for both, retirement is important, but I would want to own my own home instead of renting.
 
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!

You personal preference certainly is a factor. For us, we were getting killed on taxes renting with no kids. We bought a house 11 months after getting married. We waited another 4 years after buying the house before having kids because we wanted to do some traveling and enjoy some time as a couple before kids.
Kids are 27 and 31 now, MAN time flies. Hope to retire in 2 years. No retirement plan at our work, and 401k plans didn't exist yet. Company gave us a choice of getting a weeks pay as a bonus, or putting it into the then new IRAs, we put the money in the IRAS. When 401ks came around, we have always put 15% in.
With one uncertainty , we are set to retire financially in 2 years. The uncertainly is health insurance. The misnamed Affordable Healthcare act means we will have to pay out $22,000 now per year for the 2 years before we qualify for Medicare. We do a review with our financial planner every year, and the healthcare costs have soared since the Healthcare act was passed.
 
One thing to consider is what will you need as a down payment when buying a house so you will not have to pay PMI (private mortgage insurance). If you don't have 20% down, the PMI will be money you will need to pay with your mortgage, insurance, taxes, etc on your monthly payment. It may not seem like a lot, but by the time you get that much equity in your home, it will have added up to several thousands of dollars lost if you have to pay PMI and you never will get that money back. My advice on the home is figure out what your mortgage payment would be on a townhouse that would fit your budget. Start "paying" that amount right now with it covering your existing rent and the residual going into savings for the down payment. You need to get used to paying that mortgage amount anyway, and it is a good way to get $$ into a down payment.

For retirement, always.....ALWAYS pay yourself first. Have an automatic payment to an IRA so you never see the money or build the discipline to do it yourself. My wife and I both have 401K's at work which we max out, but we also put away 25% of our income, on our own, each month as well as building 529 plans for our 2 kids who are rapidly approaching college age. We started doing this right out of college, when we did not have much of anything but it has grown over the years nicely and we should have close to $3 million saved when we reach our early 60's. Time is something you can never get back and the key to compounding interest is time.

If you don't already, have a budget (on paper) and stick to it each month. Once a house and kids come along, it is amazing how "poor" you can get in a hurry ! Both are expensive ventures. Good luck.
 
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!

I also had 1 kid before a 1st house...then went back to renting for 2+ years after a job move...and finally bought again after 2 kids:)...it sucks moving with kids, but that's b/c moving itself sucks...the kids were about the least worry for me in that whole process.

And I also mentioned, save for both items. The retirement should be saved automatically, so that doesn't get skipped (even if it's just pulling it from one account to another until your spouse can hit the minimum). Other savings can be skipped if money gets uber-tight, but I'd never skip retirement...
 


I’d evaluate what I pay in rent compared to what I’d pay in a mortgage. If the mortgage, even with PMI and 100% financing is less than rent, I wouldn’t wait. I’d make extra payments with the intention of refinancing when you hit 20% equity. And take some advice from someone older. Buy something small. Get rid of stuff. Stuff isn’t important.

A paid off house is a big part of retirement and one of you is already thirty.
 
You guys have been able to do a lot! That's great. Congrats.

Thanks. :) We like to joke that we are Scrooge McDucks because every financial decision we make, we put years of planning, analysis, and research before we jump in lol. We also don't spend money on activities like social drinking, etc. In our observations of our friends who are our age, a lot of them waste a lot of money that way going out every weekend. Every week we go out to eat and I usually have a drink with dinner but that is it. I like to do clip coupons and shop sales which helps with the money saving too. We are very fortunate that we have good jobs and can afford the lifestyle/toys that we have.
 
You are late so I would concentrate on your retirement. One other thing to look into is buying a house with nothing down. There are still some programs out there that can get you in for 0 down.

If you are rural there are farm bureau loans. A few minutes with a good realtor will let you know if something is possible.
 


Retirement ... your biggest strength is TIME. You're young, and you have years ahead of you for the magic of compound interest to work in your favor. Start now with 10% of your income. Here's an article that discusses the high cost of postponing retirement savings: https://www.fool.com/retirement/2017/04/01/delaying-saving-for-retirement-by-even-3-years-is.aspx .

Saving for a house ... buying a modest house is a huge money-saver in the long run. Insist upon a fixed interest rate, and as prices increase around you, your housing costs will remain stable. Make it a goal to pay off your house in 15 years, and just about the time your kids are in high school /college (when they become really expensive), your house will be paid off. You won't be worry. (You can do it in less, but most people can do it in 15 years without undue stress.)

The other important item ... stay out of debt. No revolving credit card debt, no cars that're above and beyond what you can really afford ... no excuses! Debt remains after the short-term enjoyment of the vacation or nice Christmas has passed.

How can you manage these things? Frugal living. It's not sexy, but cutting back on meals out, driving your cars longer, buying things second hand, and so forth will lead to financial stability. It's not easy because the whole world tells you to spend-spend-spend and because you have to plan /sacrifice now ... and the rewards don't come for a long time, but it's worthwhile.
 
Retirement ... your biggest strength is TIME. You're young, and you have years ahead of you for the magic of compound interest to work in your favor. Start now with 10% of your income. Here's an article that discusses the high cost of postponing retirement savings: https://www.fool.com/retirement/2017/04/01/delaying-saving-for-retirement-by-even-3-years-is.aspx .

Saving for a house ... buying a modest house is a huge money-saver in the long run. Insist upon a fixed interest rate, and as prices increase around you, your housing costs will remain stable. Make it a goal to pay off your house in 15 years, and just about the time your kids are in high school /college (when they become really expensive), your house will be paid off. You won't be worry. (You can do it in less, but most people can do it in 15 years without undue stress.)

The other important item ... stay out of debt. No revolving credit card debt, no cars that're above and beyond what you can really afford ... no excuses! Debt remains after the short-term enjoyment of the vacation or nice Christmas has passed.

How can you manage these things? Frugal living. It's not sexy, but cutting back on meals out, driving your cars longer, buying things second hand, and so forth will lead to financial stability. It's not easy because the whole world tells you to spend-spend-spend and because you have to plan /sacrifice now ... and the rewards don't come for a long time, but it's worthwhile.

@MrsPete ....are you a Dave Ramsey person by any chance? Because your post could totally have appeared on his podcast.

Thank you for your links and advice. I read the articles - very interesting. We are aiming for a modest townhome with a PITI + HOA on a 15-year mortgage that is <25% of our monthly take-home pay. We have no debt and 6 months of living expenses in our emergency fund*. Since we'll have to deal with the trickier aspects of financing a condo purchase, a 10% or more downpayment will put us in the best position to get a decent interest rate and minimize PMI.

I'm really loving all the discussion my question has generated!



* During one outing to IHOP when we were dating, I had to pick up the $25 tab because DH hadn't gotten paid yet for a cover band gig and didn't have enough money to pay the bill. That started a conversation about the importance of savings accounts and a budget real quick! I always try and keep that incident in mind and remain grateful that home ownership and saving for retirement are even on the table for us to discuss right now.
 
i think a visit with a cpa can be very helpful in making a decision.

when dh and i were first married we were thinking about buying vs. renting/planning for retirement so we went to the cpa who did our taxes and had her run the numbers. she took into consideration what we were paying for rent, what our income/previous taxes were like-and what was happening with our local housing market/what we could afford at that point to start putting into retirement. when she ran the numbers we found that despite not having the largest of down payments (so we would have pmi to pay) the estimated cost of mortgage/taxes/insurance was only a couple hundred more than what we were paying for rent. when the tax benefits were added in we were going to be pretty close to what we could anticipate our rent increasing to w/in a couple of years. the real clincher was looking at how much houses were going up in cost-it wasn't at the point of the crazy increasing market but there had a been a steady increase quarter after quarter such that the house we could afford within a year or so would be out of our price range (and interest rate goal) 3 or 4 years down the line. she ran the numbers on retirement and estimated how much we would lose out on by minimizing or forgoing any we could opt out of (we were both gov. employees w/mandatory contribution pension plans).

we ended up power saving so we could purchase w/in 8 months, and it worked out well for us. once in the house and having adjusted our withholding's to reflect what we knew our deductions would support we could again contribute to retirement. w/in a couple of years interest rates had dropped below what we had paid so we refi'd and b/c there was still that steady increase in home prices we were able to drop pmi-and put that towards other savings goals (including retirement).



i'm a dave ramsey fan, and have been able to live debt free for several years-but it was never so sweet as when we paid off our current home (WAY ahead of schedual). that said-i don't agree with everything he says. i personalty need to have a credit card to make reservations and rent a car (but it's paid in full each month), and i don't think the best way to pay off debt is to go with the smallest balance first (i say pay the one with the highest interest rate first), and while retirement savings are important i would much rather see my adult children forgo it for a couple of years if it means they won't be priced out of the market on ever being able to purchase their own home (which i'm seeing w/far too many people now).

a cpa can run the numbers for YOUR situation, YOUR goals and show you in black and white where the numbers FOR YOU fall.
 
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.
I think your husband's focus should be on getting a better job, as once you start having children, you might not continue working at yours.
 
Save for retirement early. This is an example of why:

Here's an example of what a big difference starting young can make. Say you start at age 25, and put aside $3,000 a year in a tax-deferred retirement account for 10 years - and then you stop saving - completely. By the time you reach 65, your $30,000 investment will have grown to more than $338,000, (assuming a 7% annual return), even though you didn't contribute a dime beyond age 35.

Now let's say you put off saving until you turn 35, and then save $3,000 a year for 30 years. By the time you reach 65, you will have set aside $90,000 of your own money, but it will grow to only about $303,000, assuming the same 7% annual return. That's a huge difference.
 
Save for retirement early. This is an example of why:

Here's an example of what a big difference starting young can make. Say you start at age 25, and put aside $3,000 a year in a tax-deferred retirement account for 10 years - and then you stop saving - completely. By the time you reach 65, your $30,000 investment will have grown to more than $338,000, (assuming a 7% annual return), even though you didn't contribute a dime beyond age 35.

Now let's say you put off saving until you turn 35, and then save $3,000 a year for 30 years. By the time you reach 65, you will have set aside $90,000 of your own money, but it will grow to only about $303,000, assuming the same 7% annual return. That's a huge difference.


i see your point, but when i look at the return on investment we've had by opting early in our marriage to make a home purchase our initial top priority i think we come out ahead-

we held off short term putting into retirement so we could save for a down payment. the down payment was equivalent to about 3 1/2 years at $3000 per year.

by purchasing a home we could afford (KEY-one that wouldn't draw much if any more from our budget than rent currently/was projected to cost us) the money we had previously spent for rent and a small amount more went to our mortgage, gaining us equity as our home grew in value. we lost out on the equivalent of 3 1/2 years of retirement investing (at your $3000 figure) BUT when we purchased we again began putting into retirement AND we were again effectively 'investing' our previous rent payments into our home. had we stayed in that first home we would be just shy of 30 years into it and it has gone up in value (conservatively) by $250,000 so we would have an asset of $380,000 by virtue of only forgoing 3 1/2 years of retirement savings. additionally- we would've no longer had a mortgage so our household expenses would've decreased such we could have put more into retirement or other savings. $10,500 withheld from retirement over 3 years=$380,000 asset at 30 years.

on a shorter term basis-we bought our current home about 10 years ago. because we could draw from our previous home(s) 'earnings' our monthly mortgage payments ran at about 64% of what comparable monthly rentals charged so we netted larger housing cost savings than when we were younger/newer buyers. this home over the course of 10'ish years has increased in value by 33% (and we are not in one of the areas that has had extreme lows and highs in housing-it's stayed pretty steady). we chose a mortgage of no more than we were paying 30 years ago for our first home so that meant more of our disposable income could go into retirement and other savings so that was still building up. $10,500 withheld from retirement over 3 1/2 years (20 years ago)=$120,000 return over 10 years.

for us it's worked (and it also worked to throw every freaking extra penny at the mortgage b/c even a few bucks at a time can turn a 15 year loan into a payed off in less than 1/2 the time).


ymmv.
 
Saving for a house ... buying a modest house is a huge money-saver in the long run. Insist upon a fixed interest rate, and as prices increase around you, your housing costs will remain stable. Make it a goal to pay off your house in 15 years, and just about the time your kids are in high school /college (when they become really expensive), your house will be paid off. You won't be worry. (You can do it in less, but most people can do it in 15 years without undue stress.)

I totally agree with the bolded statement. It is so important to make sure you don't go over board with the type of house you are buying. We could've bought a house that cost $200,000+ more than what we paid for our current house but we wanted to be done with our mortgage payments sooner rather than later. I still remember my MIL asking why we were just buying a raised ranch versus the mini McMansions that are further down our street. We live in a great neighborhood but we are on the lower end of the property values which is a win-win for us!
 
I totally agree with the bolded statement. It is so important to make sure you don't go over board with the type of house you are buying. We could've bought a house that cost $200,000+ more than what we paid for our current house but we wanted to be done with our mortgage payments sooner rather than later. I still remember my MIL asking why we were just buying a raised ranch versus the mini McMansions that are further down our street. We live in a great neighborhood but we are on the lower end of the property values which is a win-win for us!

i couldn't agree more. we've always bought well below what 'the experts' said we could afford b/c we never wanted to be 'house poor' and paying off early was our goal as well.

i'm finding it interesting reading these days on how many nearing retirement homeowners of mcmansions really want to downsize from their over sized houses both b/c of expenses and they are not the most user friendly for aging up in but are faced with little to no inventory. the housing crash dramatically decreased the construction of traditional smaller 'starter homes' and the older existing ones are being held onto fiercely by younger owners who (thankfully) learned from the mistakes of their parents and others who bought beyond their means.
 
i couldn't agree more. we've always bought well below what 'the experts' said we could afford b/c we never wanted to be 'house poor' and paying off early was our goal as well.

i'm finding it interesting reading these days on how many nearing retirement homeowners of mcmansions really want to downsize from their over sized houses both b/c of expenses and they are not the most user friendly for aging up in but are faced with little to no inventory. the housing crash dramatically decreased the construction of traditional smaller 'starter homes' and the older existing ones are being held onto fiercely by younger owners who (thankfully) learned from the mistakes of their parents and others who bought beyond their means.

My hubs has a notion to build once in a big while and I always squash it because I don't want to start over again with a higher interest rate along with bigger mortgage payment. Once I start ticking off why our current property rocks, he starts to calm down again. In southeastern MA, most of the new construction lots are so small and houses are big so they are basically sitting on top of each other. I think there are still a lot of buyers out there who want the McMansions but don't really think about the implications of that type of property in the future. A lot of the bigger houses in our neighborhood sit for a long while before they sell (significantly less than what they listed for) or they are taken off the market.
 
Look into the high cost of "getting in for 0 down". Here's an article about it: https://www.nerdwallet.com/blog/mor...ent-mortgages-ins-and-outs-and-pros-and-cons/

I was looking at the usda one. We sold a house through it. No money down small fees and a subsidized interest rate. Not a lot not to like there. I agree with your article on conventional loans however getting in a house and not paying rent is a good thing. As in all financial transactions run the numbers.
 
Make it a goal to pay off your house in 15 years, and just about the time your kids are in high school /college (when they become really expensive), your house will be paid off. You won't be worry. (You can do it in less, but most people can do it in 15 years without undue stress.)

So, while I completely agree with you about the importance of time when saving for retirement, I disagree with the advice to pay off the mortgage in 15 years. Current mortgage rates are below average stock market yield. So, if I pay roughly 4% in interest on my mortgage but earn 7% in my investments, I'm essentially getting that extra 3% to invest and grow my portfolio. Why would I put extra money towards paying down that 4% loan, when I could put it into my portfolio for an average 7% return?
 
So, while I completely agree with you about the importance of time when saving for retirement, I disagree with the advice to pay off the mortgage in 15 years. Current mortgage rates are below average stock market yield. So, if I pay roughly 4% in interest on my mortgage but earn 7% in my investments, I'm essentially getting that extra 3% to invest and grow my portfolio. Why would I put extra money towards paying down that 4% loan, when I could put it into my portfolio for an average 7% return?

You never know when you might have one of life's speed bumps come your way, like losing your job. When that happened to me, there was nothing better than knowing my house had been paid off for 15 years.
 
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