Most people’s financial ambitions include owning a home and accumulating enough money to retire — but both can feel insurmountably out of reach.
Many people believe that focusing on just one of those goals is their sole chance of success. Is owning a home, however, more important than saving for retirement?
The good news is that you don’t have to choose between the two.
First and foremost, choosing between purchasing a home and preparing for retirement does not have to be an either/or situation.
Anthony Watson, CFA, CFP, founder and president of Thrive Retirement Specialists, remarked, “The decision is not mutually exclusive.” “A home may be an important part of a well-designed retirement plan, and a reverse mortgage can even be set up to provide you monthly income while still providing you with a place to live in retirement.”
Keep in mind that owning a home is expensive, but owning a retirement account is cheap; don’t allow the former to prohibit you from investing in the latter.
“A home can be a terrific investment and a way to develop wealth,” Watson said, “but homeownership comes with many fees, like utilities, taxes, upkeep, and furnishing.” “Buying a home is a terrific beginning step, but be careful to factor in these extra costs so you can start preparing for retirement as well.”
America’s wealth-generation machine is the stock market, not the housing market
Unless you’re extremely skilled or extremely fortunate, your property will not appreciate as quickly as the S&P 500.
“In the long term, the stock market outperforms the property market,” said John Marsano, CEO and president of Inheritance Advanced.
You must also use your equity to gain access to the funds in your home. Bonds and dividend stocks, on the other hand, are income-producing assets.
“Having passive income after retirement is a great assistance in terms of living comfortably,” Marsano said. “Most people don’t realize this because retirement always seems so far away.”
Of course, there is no one-size-fits-all solution for everyone
In reality, each individual and family will take a different road than the reasonable option.
“Whether someone chooses to put money down or save for retirement is dependent on how they view long-term financial stability,” said Giovanni Braghieri, CEO and co-founder of MyConsultingCoach. “Having a sizable retirement fund is considered by some to be the most important predictor of long-term financial stability.
They prefer long-term investments to more immediate and concrete returns. Saving for retirement will be an obvious choice for them. On the other side, due to ongoing economic fluctuations and recurrent downturns, some see long-term financial stability as an impossible ideal.
People prioritize short-term investments since it makes little sense to save for retirement in such a chaotic and unpredictable climate.
Nothing is more tangible in the near term than purchasing a home, but it has enormous long-term worth.”
It has a lot to do with the type of work you do.
“Your income source is the most crucial aspect in determining where your funds should go,” Marsano added. “If you work in a corporate position, you’ll have to put in more effort to save for retirement, and it’s better to save for it first.”
However, if you work for the government or are a war veteran, you won’t have to worry about retirement and can focus on saving for a home.”
It’s preferable to be a renter who saves for retirement rather than a homeowner who doesn’t.
Finally, whether or not to buy a house is a deeply personal decision – homeownership is not for everyone.
The same cannot be said about retirement savings, which everyone should have if they do not want their senior years to be marked by poverty and reliance.
In other words, if you can’t save for a down payment while also preparing for retirement, you’re probably not ready to buy a house.
“For most people, saving for retirement before saving for a down payment on a house makes more financial sense,” said Stephanie Genkin, a certified financial planner and founder of My Financial Planner, LLC, a registered investment adviser in Brooklyn, New York.
“There are several advantages to investing for retirement over the long run. First, whether you choose pre-tax or after-tax Roth contributions, there are tax advantages in retirement savings accounts.
Second, the compounding nature of investing delivers a considerably stronger punch over decades, helping savers augment Social Security by generating cash flow.
Aside from the fact that a property is an illiquid asset, home values only rise by a percentage point or two over inflation over time. Meanwhile, for retirement investors, an age-appropriate mix of equities and bonds can earn substantially more.”
If you can only do one thing, save it for later.
“Buying a home is a wonderful objective, but it should be pursued after one has maximized annual retirement savings,” Genkin said.