I have no money saved for retirement, and I am 43. I will have $60,000 saved in 3 years. Should I.....?

Question

1. Put half my savings into a retirement account and use the other half for a downpayment on a house? (We want to buy a $200,000 home in 3 years.)

2. Put all the $60,000 into a retirement account and put no downpayment on the home? I also want to have CLOSE to a million$ in retirement by the time I am 72, and I don't want to put more than $4000 per year into the retirement after the initial investment.

3. Just put the minimum ($4000/yr) into a retirement, and put the remaining $48,000 into a downpayment for a house?

4. Other. Please explain.

Answer 1

There are too many variable and without knowing more about your combine income, available investment options etc, it is difficult to make a good suggestion.

Keep in mind if either of you has 401k through employer, generally you can borrow from 401k for purchasing a home.  Usually it is your best option for borrowing.

Also if your income level is such that you are qualified for Savers' Credit.  Then putting money in an IRA or Roth IRA might be the best option.  Government encourage people to save for retirement and thus provides tax credit up to $1000.  This tax credit might be the best return you can get for the saving.

Further, if you meet certain requirements you can withdraw up to $10,000 from retirement accounts toward purchasing a home without tax penalty.

As I said, without more information it is difficult to help you determine the best course of action.

Best wishes.

Answer 2

Unless you have an employer that matches your retirement contributions, I'm not sure if you'll be able to reach your retirement goal of $1,000,000 in 29 years with only a $4,000/year contribution... and it's also hard to imagine you'd want to work until age 72.

Answer 3

All I want to say is that after the current mortgage mess, it will be difficult for you to get a mortgage in 3 years with less than 20% down. If you do get one, you will probably pay a high interest rate. So you should try to have that downpayment money.

Also, when you say retirement account, what does that mean. Most tax advantaged retirement accounts (which is what you want) have a yearly maximum, can can't put in $60,000.

Answer 4

First of all, Option 2 isn't really an option.  You didn't mention having the possibility of a 401k through your job so I'll assume that's not an option.  For IRAs, the max contribution is $5000/year.  The good news is that you can have one for you and one for your spouse.  Therefore, you can contribute $10,000 total per year into 2 IRAs (one in each of your names).  With that said, I would recommend a variation of Option 4.  Put all of the money you save on a down payment.  This will help you avoid PMI as well as significantly reduce your house payment (you'll save $500/month on a 15-year loan).  Once that is done, put $5000 into each IRA every year (total of $10,000/year).  After 25 years, you could have $1.1mil (assuming a 10% rate of return).  Good luck.