Catch up on retirement or save for downpayment?

[piccolopat]

The answer really depends on how rents compare to the mortgage and other ownership costs you would have on a townhouse. If these are comparable where you live, it might make sense to save for the townhouse first since you would start to build equity right away and not have out of pocket expenses that are much more than your rent. Afterwards plow as much into retirement as you can. If you are in an area where the mortgage would be a lot higher than your rent, you could start to save for both/ Don't forget to account for the possible reduction in income if one of you opts to stay home or change to part time when your future kids arrive. I'm retiring in a month and didn't start saving for retirement until after we bought a home. It took a lot of discipline and saving the maximum allowed for many years to be in a position where our retirement savings are in good shape. We also bought a house that is really too big now that we are empty nesters and we'll be looking to downsize to a lower cost area (NY property taxes are insane). Buying a house that meets your needs rather than your wants minimizes your housing costs and allows you to save for other things.

 

[barkley]

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 bumpers 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.

for me it's just a sense of tremendous peace to know that i am in financial debt to absolutely NO ONE. then there's the additional discount i get on my homeowner's policy (no change in coverage-they applied it when i showed proof of pay-off) and some more savings from canceling the term life insurance policies dh and i had for each other to cover the mortgage in case one of us passed. it adds up and i enjoy paying myself each month vs. paying the mortgage company. while i can see the upside of 4% paid vs. 7% earned i've never had the stomach to invest in the stock market so for the time being i'll be content w/the rate i'm earning on my home's increasing value (averaging about 3.5-3.8% net since I'm not paying interest) and my fixed 2.2% short term cd's.

 

[ClapYourHands]

You never know when you might have one of life's speed bumpers 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.

I can see that. But I also feel like if I hit one of life's speed bumps like losing my job, I'd rather have the money than the house. Money is flexible; houses aren't. Getting back on my feet with a new job might mean a move to somewhere else, so I'd prefer my main asset not be my house that I'd need to sell quickly.

 

[crisi]

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!

In 2009 (post crash) I almost sold our house (worth then about $250k) for a house that was selling for $400k that was beautiful. We could have afforded it easily.

We chose to stay put. And rather than paying on a mortgage, we've traveled and been able to afford things we wouldn't have afforded if we'd bought a bigger home.

Life is full of trades, figuring out the balance is something everyone needs to do for themselves. But I do think a lot of people buy too much house and it ends up dragging down what else they can afford.

I also think its REALLY easy to put off saving for retirement until its too late to do anything about it. There will always be something else to spend money on - and someday it will be kids and not vacation. You still need to prioritize it. Is everyone eating? Roof over our heads? Clothes? Transportation? OK, retirement....now we can start thinking about more expensive necessities and luxuries.

 

[tvguy]

I can see that. But I also feel like if I hit one of life's speed bumps like losing my job, I'd rather have the money than the house. Money is flexible; houses aren't. Getting back on my feet with a new job might mean a move to somewhere else, so I'd prefer my main asset not be my house that I'd need to sell quickly.

Well, I did have 15 years of house payments banked since it had been paid off that long, so I did have that reserve. But getting equity out, based on my wife's income would have been almost as easy as taking it out of the bank. But, I come from a background where a house is not an asset to be sold quickly. My parents had their first house 10 years, and their second 53 years. We've been in ours 35 years now. My wife is from a similar background. Her dad and step mom have had their house 46 years. Only reason it isn't longer is he was career Air Force, so he had free base housing for 20+
years.

 

[Luna81]

Are you in an area where you have to do a town home with association fees? We rented a town house for a while and much prefer our home.

We did Buy with 0% down seven years ago. We have refinanced to drop PMI already.

I get it. It’s hard. My husband is a free lance artist. I only last year started putting 10% of his income into an IRA for him. My work matches 4% of my 401k contributions. So I do at least that.

I say start saving for both and look into first time home buyers programs. I get the people who say you don’t want to pay PMI. I hated it. But with PMI we paid 1072 a month. The townhouse and apartments we rented prior were 1200 a month. I’d rather pay PMI.

 

[starry_solo]

I voted for saving for retirement.

The answer(s) to your question really depends on how old you are, how much each of you make, how much rent is versus a mortgage, etc. Don't forget that besides the mortgage, there are property taxes, utilities, insurance, etc. that you don't pay when you rent.

 

[Jax1023]

Are you in an area where you have to do a town home with association fees? We rented a town house for a while and much prefer our home.

We did Buy with 0% down seven years ago. We have refinanced to drop PMI already.

I get it. It’s hard. My husband is a free lance artist. I only last year started putting 10% of his income into an IRA for him. My work matches 4% of my 401k contributions. So I do at least that.

I say start saving for both and look into first time home buyers programs. I get the people who say you don’t want to pay PMI. I hated it. But with PMI we paid 1072 a month. The townhouse and apartments we rented prior were 1200 a month. I’d rather pay PMI.

What people forget in the straight rent to mortgage comparison is maintenance. Last summer is spent 12k to replace my hvac system and this year 9k for a new roof. And that’s major stuff, there’s also minor stuff- reset a toilet, new sink faucet cause it leaked etc.

When you rent that’s not your problem.

 

[kymom99]

What people forget in the straight rent to mortgage comparison is maintenance. Last summer is spent 12k to replace my hvac system and this year 9k for a new roof. And that’s major stuff, there’s also minor stuff- reset a toilet, new sink faucet cause it leaked etc.

When you rent that’s not your problem.

Yeah sometimes I wish I didn't own a house.

 

[starry_solo]

Yeah sometimes I wish I didn't own a house.

Ugh, sometimes I do too. Especially when I'm writing out the check for the property taxes and other bills

 

[kymom99]

Ugh, sometimes I do too. Especially when I'm writing out the check for the property taxes and other bills

A while back I posted that my roof was leaking. We got take repaired. Then a couple weeks ago our AC went on the fritz. That cost $1200. Add the repairs on 2 of our cars and I am feeling defeated.

 

[disykat]

Definitely both. The house thing really depends on age and if you already have kids. For us, it was really important to have the house paid off before the kids went to college. (We bought shortly before kids and paid off in 20 years) We did some college savings, but having no mortgage was a MAJOR factor in getting the kids through college debt free. As others have mentioned, buying modestly (hopefully quite a bit less than you can afford) is another key player in being able to avoid credit debt and pay off mortgage and any other debts (college, medical,) and have an emergency fund so that you will be able to keep a steady stream all through the years going into retirement.

 

[tvguy]

Definitely both. The house thing really depends on age and if you already have kids. For us, it was really important to have the house paid off before the kids went to college. (We bought shortly before kids and paid off in 20 years) We did some college savings, but having no mortgage was a MAJOR factor in getting the kids through college debt free. As others have mentioned, buying modestly (hopefully quite a bit less than you can afford) is another key player in being able to avoid credit debt and pay off mortgage and any other debts (college, medical,) and have an emergency fund so that you will be able to keep a steady stream all through the years going into retirement.

We bought our house 4 years before starting a family, and had it paid off 5 years before our oldest started college. The equity was our backup money for our kids college. This was in addition to saving for college and retirement on combined income in the high 5 figures. But, I admit, I am cheap.

 

[deedeezee]

For us, it would depend on the housing market where we lived. I answer both, bc in a high COLA area, you might need to save for a downpayment just in the hopes of getting something, someday. I would fund Retirement heavily, like 70 percent of the savings, and I would see if I could squeeze anything extra from the budget. I also love the benefit of deferring $ tax free if you have a 401k, and the tax deferred benefits of a Roth.

 

[chicagodisneyfan]

Without a doubt retirement! You will not regret it.
My husband was making $6.50 an hour at age 20 when I met him and got him to start saving in his 401k - his company matched dollar for dollar at 7%.
My husband is now 45 years old and makes $30.00 an hour - but has more than $800,000 in retirement savings.
Compound interest is amazing.

 

[MrsPete]

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

I don't know. I've never read any of his stuff. My financial philosophies are a combination of a bunch of experts' opinions sifted through my own circumstances. I came from a family that barely scraped by, and when I was in college I realized it was possible to live differently ... but I didn't know how. I started going to the library a few hours every week to read about finances. I read everything: Real estate, investing, frugal living, coupons ... everything. I didn't have any money to manage at that point, but I developed ideas and opinions about how to manage the money I would earn one day.

 

[MrsPete]

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.

Oh, yes! Your real estate agent's agenda has nothing to do with your long-term financial stability; rather, it's about commission in his or her pocket. Before you ever go talk to an agent, decide how much you can afford and refuse to even look at anything that's out of your price range. REFUSE. If you look at "more" and like it, you'll constantly be comparing everything else to that out-of-reach item.

 

[MrsPete]

What people forget in the straight rent to mortgage comparison is maintenance. Last summer is spent 12k to replace my hvac system and this year 9k for a new roof. And that’s major stuff, there’s also minor stuff- reset a toilet, new sink faucet cause it leaked etc.

When you rent that’s not your problem.

Absolutely true ... but a homeowner won't face a big repair every year; we haven't had one for at least 6-7 years. And the real benefit of home ownership come when you make the last payment. We haven't made a house payment in well over a decade, which frees up a ton of money every month: Because of that, we took some great trips when our kids were teens, we were able to pay for their college without dipping into savings, and we're ALSO on track to retire in our mid-50s. If we'd "traded up" like so many people do instead of paying off their house, we would still have done some of this ... but not all of it.

 

[kymom99]

Oh, yes! Your real estate agent's agenda has nothing to do with your long-term financial stability; rather, it's about commission in his or her pocket. Before you ever go talk to an agent, decide how much you can afford and refuse to even look at anything that's out of your price range. REFUSE. If you look at "more" and like it, you'll constantly be comparing everything else to that out-of-reach item.

I was very lucky. When I bought my first house, my real estate agent said you can qualify for a loan for x amount but it's best if you stay below y. Of course she was a family friend.