Saving for Retirement Vs Saving for a House

[otosongphuc]

I am a 40 y/o single person with less than $10k in my 401k. I only recently, within the last couple of years, started making enough to contribute to retirement savings.

I want to buckle down over the next year and save every extra dollar (planning to get a second income) toward buying my first home. I want the home to in a safe area and in decent shape, i.e. not too many projects.

I have a decent amount in emergency savings and I’m current on all bills. My question is, should I prioritize beefing up my 401k or is it fine to put everything toward a house? Thanks in advance for all advice!

 

[mo3b]

@otosongphuc If I were you I would prioritize the retirement savings. I understand your desire to own a home. I'm in a similar situation where my parents say the same thing about renting and throwing away money. However I'm socking away the maximum into my 401k, Roth IRA, and HSA so I know someday I'll own a home when I quit moving every few years for work.

 

[otosongphuc]

@mo3b Yeah, it makes sense. A Dream deferred!

 

[mimzpink]

@otosongphuc Save for retirement. You are way behind and risk being elderly and living in poverty. You will be just fine if you never buy a home and continue renting. You will not be fine if you run out of money in retirement.

 

[alexmertens]

@otosongphuc You’re so behind retirement savings that I don’t think I could recommend you buying a house.

 

[rubyfjord]

@otosongphuc I am NOT a Financial Advisor.

I would highly recommend prioritizing your retirement savings. If you do buy a house and manage to pay it off within 15 to 30 years, you would have to rely on social security to retire. You'll be house poor and will most likely struggle to pay property tax/home repairs when you retire.

 

[eternityondemand]

@otosongphuc You need to work out a plan to get to $1M [+ inflation] when you want to retire. That's going to look like "Save $2000/month and invest it in index funds." Get to work on that and make some progress. If you have extra savings above and beyond your monthly retirement target save and invest it as well in a taxable account. Keep working on both fronts. If that second "extra" pile of savings gets big enough to use as a down payment on a house and you are on track with your retirement savings/investments you can consider looking for a house, but you may also want to look at that pile of money and decide to keep it for retirement.

There is no point worrying about a house at this point. Worry about making as much money as you can, saving/investing as much as you can and when you have made a bunch of progress check in about the house buying idea at that point.

 

[hopeforme]

@otosongphuc I'm not sure why you cant buy a home and save for retirement. how much do you pay in rent vs how much would you pay for a mortgage. Yes owning a home will come with maintenance but owning a home is a satisfaction you cant quantify

 

[mae9]

@hopeforme

'm not sure why you cant buy a home and save for retirement. how much do you pay in rent vs how much would you pay for a mortgage. Yes owning a home will come with maintenance but owning a home is a satisfaction you can't quantify

Yes, do both. Buy a house, save for retirement, but most importantly, enjoy life and don't future trip, tomorrow is not guaranteed!

 

[whistleblower1]

@mae9 Enjoy life working till you die because you are 40 and have under $10k saved for the future should probably also be considered here.

 

[mae9]

@whistleblower1 Over half of all Americans don’t have a liquid $400 for an emergency so OP is doing better than most but still pretty bad.

 

[whistleblower1]

@mae9 Repeat that to yourself as you are commuting into work when you are 70 because you didn't save enough to retire.

 

[whistleblower1]

@mae9 These comments are about OP not you.

 

[diogenestousinope]

@mae9 You are sadly misinformed on the power of a 401k…

 

[mae9]

@diogenestousinope Yeah, 401(k)s are so powerful. Especially ones with no money in them.

 

[helenanna]

@otosongphuc I would keep putting 20% (probably should be 30% in your situation) towards retirement and then try to take money from my fun budget (should be 30%) to start saving for a house as well.

 

[longing4truth]

@otosongphuc If I were in your position, I would be exclusively looking at increasing the retirement savings. Put as much into a Roth 401k as you can, regardless of what the match is. You need to play catch up in your retirement savings. Social Security alone is not a good plan and you have 25 years or so to improve your position.

I’ve ignored your question about purchasing a home, and you should too.

You don’t need to buy a home. You need a reasonable place to live. If a home is out of reach today, that’s ok. If, at some point in the future you can better afford a home because your income has increased and you have your financial future secured, revisit it.

Best of luck.

 

[otosongphuc]

@longing4truth This makes sense. I’ve always wanted to buy but my family has also been pressuring me and saying that I’m wasting money renting. I appreciate the advice and feel I need to catch up too!

 

[longing4truth]

@otosongphuc I’m assuming that you’ll probably work until approximately 65. If you do, you have time for your money to grow. If you invest your money in aggressive growth mutual funds available in your Roth or Traditional IRA, it would be possible to get a return of ~10% on average over that 25 year period.

If you can get a 10% return, your money will double every 7 years. Your $10k that you have today will become ~$100k. If you can find a way to put 15% of your income (and hopefully get a company match) you could add a significant amount to this, perhaps an additional $200k or more.

I know there are a lot of assumptions here, but my point is to encourage you to invest in your future. Investing in the stock market is one way of doing this. And you can invest in the stock market today.

Investing in a house is another way to invest in your future, but the barrier to entry is huge today. The cost of homes and the cost to finance them are significant. So, perhaps you’re not in a position today to own a home. That’s ok. The idea of owning a home is great, but if you can’t afford it, it will become a curse.

I wish you the best of luck on your journey. You can make a positive impact on your future with small adjustments today.

 

[otosongphuc]

@longing4truth Thank you so much!