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Today’s economic environment is forcing many young professionals to choose between saving for a down payment on a house or investing for retirement.
The challenge is amplified for a 30-year-old woman living in a high-cost-of-living area, where housing expenses consume a significant portion of her monthly budget.
A Reddit post from the woman, who has take-home pay of about $7,400 per month and $100,000 saved in a high-yield savings account, outlines her dilemma. She also has about $60,000 in her retirement account.
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While her financial position is strong and she’s contributing 5% to her 401(k) to secure her employer’s 4% match, she’s torn between putting more into her retirement account right now or continuing to add to her high-yield savings account for an eventual down payment on a house.
“Am I losing out on money for retirement since I’m not really putting much into my 401(k)?” she posted.
Responses from the Reddit community vary, with many posters advising saving for retirement, while others suggest that owning a home provides security in retirement.
“As a divorced woman, quite a bit older than you, I can say that I wish I could have put more in my retirement accounts than I did when I was your age,” one person wrote. “Time is a big factor in how much you’ll have for retirement. In your shoes, I’d load retirement accounts, including your 401k and a ROTH, and then save what you can for a house.”
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Another commenter said owning a home outright is a source of security during retirement.
“That’s that much less income you need to depend on, you won’t be dealing with constantly increasing rents, changing landlords, more rapid turnover of neighbors,” the person wrote. “Even if you have a major financial disaster, you can at least keep a paid off home (assuming you still have enough for taxes at least)”
Losing out on your employer’s 401(k) match to increase your down payment or pay off your mortgage early, is generally a bad trade, according to Fidelity.
