Retirement Savings and Homeownership: Balancing Priorities

Decreasing retirement savings to save for a house should be as brief as possible to maximize benefits.

### Balancing Homeownership and Retirement Savings: A Personal Finance Dilemma
* 💰  At 30 years old with **$120,000 in a Roth 401(k)**, Logan is considering **reducing his retirement contributions** to save for a home.
* 🏠  The hosts emphasize the importance of **understanding the opportunity cost** of every financial decision.
* 💡 " My answer for you, Logan, how long is acceptable to put retirement savings on hold in order to be able to save up for a house? **As little time as possible** is likely going to benefit you the greatest.
* 📊  They recommend minimizing the time frame for **reduced retirement savings** to get back to **saving for retirement as quickly as possible**.
* 🔢  The hosts mention the "**wealth multiplier**" tool, which shows the **potential growth** of Logan's $120,000 Roth assets by age 65.
* 🏦  They highlight the **3-5% down payment requirement for first-time homebuyers**, rather than the traditional **20% down payment**.
* 💼  Even while reducing retirement contributions, Logan plans to continue saving **5% to receive his employer match**.
* 🏆  The hosts stress the importance of following the "**financial order of operations**," prioritizing **debt elimination and retirement savings** before saving for a home.

[Music] Okay, Logan's question is up next. It says, How long is it acceptable to drop my retirement contributions to save up for a home? Is 2 years too long while only investing 5% to receive my match? I'm 30 years old, I have no debt, and I have $120k in my Roth 401k. He is echoing something I think we see a lot, especially when it comes to homes, and I would love to hear y'all's take on this. Yeah, so how long, first of all, he said he's got $120,000 in Roth assets. One thing I want you to do right now, Logan, if you go to money.com resources, check out our wealth multiplier. Go look at what that $120,000 is on track to become by the time you reach 65, even without saving any more, even without adding another dollar. It gets really exciting. I want to say the number at 30 is what, 23? Is that right? Yes, 23. I'm going from memory there. It's pretty stinking exciting, but that's

not your question. That part was for free. Your question was, How long is it acceptable to decrease savings so that I need to save for a house? And this is a really hard one to answer because what if we said, Well, 6 months is it, then you would say, All right, well, I guess I will never own a home. What you have to do is you have to go into it understanding that every decision we make when it comes to personal finances has an opportunity cost to it. If I choose to save for a home instead of investing, there is a cost associated with that. If I choose to invest instead of saving for a home, there is also a cost associated with that. And you have to figure out what costs are acceptable and what goals am I trying to achieve. So, how long? My answer for you, Logan, how long is acceptable to put retirement savings on hold in order to be able to save up for a house? As little time as possible is likely going to benefit you the greatest. So, I would figure how to get as creative.

as I can to make that window as small as I can, so I can get in the house, and then get back to saving as quickly as I can. And we've actually built that into the system. That's why, if you'll notice on your first house, your very first house, 3 to 5% is the down payment requirement, not the 20% that you hear all the other Financial gurus talk about, not even 10%. They've had to modify their rules because they realize, hey, maybe there's a flaw in this structure. 3 to 5%, so that way you get on the home ownership train, but you don't have to forfeit your future self getting those retirement savings. So I'd ask you, go back and look at your assumptions. If it's taking you two years, then I'm curious to know, are you doing 3 to 5% on this first house, or are you trying to be an achiever of all things, and you're trying to be a debt Crusader, paying this

thing down to 20%. Um, go look at your assumptions on that because I do know you. You said he's 30 years old, 30 years old, 30 years old. That wealth multiplier is something else. We, we don't, we want you to extinguish debt early as well, but it's just, there's a time and a place, and while you're under 45, the multiplier, the wealth multiplier effect of every dollar that comes into your control is so valuable. We want to focus on the get wealthy behaviors, and then of course, when you're over 45, you can now do the risk-taking and the stay wealthy behaviors, but don't get it out of order, and that's why we've tried to build into the rules how do you deal with this so you can reasonably afford a house to shelter and grow your family in, but how do you also not hurt your future self and build up an army of dollar bills so your money can work harder than you can with your back, your brain, and even your hands.

know what I love that he said also. He said, I'm going to back it down, but I'm still saving 5%. I'm guessing there's probably some employer match or something in there. So, even when you're doing this, you're still following the financial order of operations: no debt, no step three, back to step two, doing that and safer house. Even just having your contributions and your employer contributions going to work for you, it's huge. It will make a huge difference, and I bet that your future self will thank you for it.

How Long Can I Drop Retirement Contributions to Save for a Home?

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Balancing Retirement Savings and Home Buying

It's challenging to determine the acceptable duration to reduce retirement contributions for home savings, considering the opportunity cost of each financial decision.

Logan, with $120k in Roth assets at 30, is advised to minimize the time his retirement savings are on hold for maximum benefit.

It's crucial to carefully consider the associated costs and the desired goals when making this decision.

The Benefits of a Low Down Payment for First-Time Homebuyers

A low down payment of 3 to 5% allows for early entry into homeownership without sacrificing retirement savings.

This approach challenges the traditional notion of a 20% down payment requirement advocated by other financial experts.

By reevaluating assumptions and adjusting the down payment, individuals can pursue both homeownership and financial security.

The Importance of Wealth Building Behaviors

Prioritizing wealth-building behaviors is crucial, especially for those under 45, due to the significant wealth multiplier effect.

It's important to focus on accumulating wealth before prioritizing debt extinguishment and risk-taking.

Building up financial resources early on allows for future financial security and the ability to afford a home without sacrificing long-term wealth growth.

The Significance of Continuing Retirement Contributions

Even with a 5% reduction, continuing retirement contributions, including employer matches, is crucial.

This approach aligns with the financial order of operations, building a secure financial future.

Prioritizing contributions will have a significant long-term impact, benefiting your future financial situation.