One of the parts of Walter Updegrave’s latest article on retirement and housing was whether one should forgo retirement savings for a home downpayment saving. Updegrave separates the discussion into two parts:
- Should you defer retirement savings for a while to save up for a downpayment?
- If you do defer, will the house’s upkeep and mortgage payments prevent you from continuing your retirement savings?
Updegrave’s answer is that it’s okay to defer retirement savings a few years (Yes to question 1) as long as you don’t buy so much house that you risk question 2. My answer is that you certainly should save for your house because that’s a certainty, whereas retirement is more of a nebulous uncertain certainty. Let me expand on this a little bit.
When you save for retirement, whether you follow the 10% rule or some other percent you come up with using a multitude of calculators and tools, you’re essentially trying to put away money so that you have an income stream whenever your stop working. Retirement is uncertain because the future is difficult to predict and the only thing you really know about the future is that it will certainly arrive, hence it’s an uncertain certainty (a play on words!).
Putting off retirement savings for a little while to put yourself in a better financial situation to buy a home is important because your home will become part of your retirement planning, hence it is worth it to put a little less (get that 401k match!) to ease the burden. Why is it important to retirement planning? If you have to pay rent when you retire, that’s a drastic drain on your income because it would likely be one of your greatest expenses. If you have a home paid off free and clear (30 year mortgage means you’re free and clear if you start before you’re 34.5), all you owe are upkeep costs and taxes. I don’t know what projection you want to use for inflation but I’m pretty sure upkeep costs and taxes will likely be cheaper than rent in the future, plus you have the option of downsizing and pulling out some equity to further pad the war chest.
Just remember to keep contributing to retirement after you buy that house.