Saving for Retirement Vs Saving for a House

[steve77777]

@otosongphuc At your age and so little into retirement, I will focus into the 401k. Why? with a 2900$ monthly spending, you need to save until 65 years old an amount of 1M. From other comments I learned you save under 1600 per month, that's enough to retire 65 years old if you keep same saving rate for the next 20-25 years.

When it is about buying a home, I looked, first, to buy a starting home - a small one, and aligned to income (the common rule for mortgage + insurance + taxes under 33% of income so for your case to stick with less than 1300$ mortgage) and your needs (now you are single) - and to replace the actual rent with similar mortgage value. After 4-5 years or when you living situation is different (bigger family / bigger income) you can sell and upgrade.

It is ok to add an extra job in order to save more for the paydown. Target the 20% of home value. Pay attention, the extra jobs are not for all the life, your age and health is for 40 years old, so when you calculate the mortgage, calculate under one income, not 2. I did this extra job when I was 25, now, same at your age, I would think twice before, I found it more effective to learn and find a better job, and to cut the spending.

 

[plainme]

@otosongphuc In your position (and if you are in the USA), I would put any single dime directly into the 401K.

First would prioritize your retirement, but also you can buy a home with that same money when you get the opportunity.

USA's law, at least up to the moment, allows you to retire money from your 401K plan without penalty if it's would be used for the purchase of your first home.

As you can see, you can play both "games" at the same time here... while saving for your home you are also being aggressive with your retirement plan too!!!!

Double-check with your 401K plan holder before making any decisions.
I hope this can help you, Good luck!!

 

[chaosensues]

@plainme Isn't a caveat to this that you get severely penalized with interest if you quit your job or get fired with a 401k loan?

 

[baptistp]

@otosongphuc At your age and current savings you should prioritize retirement because compounding interest growth benefits from time in the market. With each passing year you don't contribute, either the less you will accumulate or the more you will have to save to achieve the same ceiling. Generally, income goes up as you age so that you can maintain your investment rate while having extra income to save for a secondary goal like a house. If you're 20 and just starting, you'd have time to recover from spending 5 years or so saving for a house.

 

[justin_holmes]

@otosongphuc Recommend jump starting the retirement savings. Reassess once you're at 2-3x annual expenses saved. Get an IRA started.

It's a slow, annoying, mildly unprofessional (eg nonresponsive staff) program but you might look into NACA.

 

[saved3john16]

@otosongphuc Start funding a Roth IRA. It is after tax money, and whatever you put in can be taken out, also once in a lifetime you can withdraw 10K in unrealized gains from it to buy a house. 7K is the maximum amount to put in this year. Try to max that out, and then put any excess into the 401k.

The Roth IRA Provides more flexibility in your situation.

Part of the big wealth building of buying a home is what is called forced savings. Meaning Money has to go toward the asset. People will cut back on other things to fund house payments.

 

[resjudicata]

@otosongphuc Why is everyone in this sub advising op to not buy a home but risk it on index funds? Help me understand here - how is index funds and market volatility more preferred over security of a house in oldage? Are we saying op should loose investments if things go downway and not even have a house? Even if things dont go down way why not have a home( even if house market crashes its for living) and little bit savings over lots of savings and being homeless? Not to mention the house is basic necessity and will always be valued more than the luxury to buy tech conpany stocks when in downtrend/ bad economy. What is that i dont understand here?

 

[forgivenandloved]

@resjudicata You need cash to pay for expenses in retirement. If all of your net worth is tied up in your house, you won't have enough cash to fund your everyday expenses and will have to sell the house anyway. If you have liquid investments, you can always use those to pay rent as well as fund your other expenses. Houses are also very expensive to maintain and require you to pay property taxes every year. The actual cost of living in a paid off house is much higher than most people realize, and that's not even taking into account the opportunity cost of having assets tied up in illiquid and non-income producing real estate vs. liquid and income-producing financial assets like stocks and bonds.