I’m 29, been investing into my 401k since I graduated and started my Roth IRA and HSA a few years later. I like to think I’m doing well for my age in terms of my retirement saving, but now I’m realizing I may want a house around age 35-40 and I’m not really sure how to start building a down payment big enough without slashing my retirement savings and falling behind.
Do you put money in a taxable account, in a total market fund? MMF/HYSA? Bonds/CDs? I’m just lost on how “best” to do it.
Given my income and my expenses, I don’t see how I can build up enough money for a good down payment without cutting my 401k down to 8% from 12% (for maxing company match) and would likely need to stop maxing the Roth IRA and/or HSA as well, and that just feels awful to me. My main thing is I hate knowing that if I save for a house I am likely losing out on 30+ years of compounding, tax advantaged growth. Especially so if I end up saving for years and then buying a house just never ends up happening for XYZ reason, and I essentially missed the growth for nothing. How do you stomach that and accept it’s not a mistake to do so?
Extra info about my finances currently:
I’m on a single income of 118k that I don’t realistically expect to increase too much in the next few years, apart from ~3-4% merit increases annually.
For retirement saving, I put 12% into my 401k (5% traditional and 7% roth) and my company adds another 7.5% traditional, for a total of 12.5% traditional and 7% Roth going into 401k. I also max out my HSA and Roth IRA yearly.
My portfolio right now consists of ~25k emergency fund in FDLXX MMF, ~60k in my taxable brokerage account, ~125k tax deferred from trad 401k, and ~105k tax free from Roth 401k/Roth IRA/HSA.
Between all my investments, not including the emergency fund, I am currently sitting at 65.5/29.5/5 for US/Foreign/Bonds. I do VTI/VXUS when I can, but the 401k amount is in a TDF I can’t control perfectly.
How do you balance saving for retirement vs. saving for a house on a single income?
byu/Ackerack inpersonalfinance
Posted by Ackerack
5 Comments
Are you single or married / in a long term relationship? Why specifically do you want to buy a house?
It depends where specifically you live and work. $118k/year in rural Ohio gives you much more house-buying power than in NOVA.
For how to invest a house down payment, see my answer at [https://www.reddit.com/r/personalfinance/comments/1qw18zi/comment/o3lq7uj/?context=3](https://www.reddit.com/r/personalfinance/comments/1qw18zi/comment/o3lq7uj/?context=3)
Most people want to contribute 15% to retirement each year, including match and IRA. Sounds like you would still hit that target, even if you reduced your contributions some. Going lower than that for a year or two isn’t a huge deal, but the probably becomes once you do it for one year, the temptation to say “what’s one more year” grows.
You seem to really care about maximizing your compound interest, which is a great headspace to be in making these decisions.
Are you absolutely sure you need to cut into retirement contributions to start saving for a down payment? There’s no other expenses you could reduce? Lowering/eliminating your car payments, camping instead of international travel, etc?
depends entirely on buy (~1.5mil) vs. rent (~1.5k/month) ratio, mortgage interest rate (~6%), and also stock market performance (~10%), those will dictate how aggressive I will be for saving for house
and right now, I’m putting a near-zero value in buying homes due to those numbers
notice I intentionally left out “income” or “amount already saved in my retirement account”, those 2 are totally irrelevant
Saving for a house *IS* saving for retirement. Having a paid off home makes your retirement expenses much lower.