What do you save for first - home or retirement?

I'm a working college student - working my butt off, to be precise, so I don't have any debt. I want to buy a house in the next year or so. I'm already 26, and I know I should have a retirement account - but getting your hands on a piece of real estate is a really important investment, too. My plan so far has been to put every dollar into savings for a down payment to get the house ASAP - ignoring starting a retirement account for now. But I also know that time is on your side as far as retirement investing- when money is tight and you're aiming to buy a house, how do you decide?

Public Comments

1. I would save for a house. Who needs all that retirement money when you can play with your grandkids for free:-]
2. House.
3. Home.
4. You need to understand the real estate market in your area and your commitment to that area. A house can be a real ball and chain if you are going to move a few times as you start your career. Also houses in some areas do not appreciate enough to justify buying over renting. On the other hand if you are staying put and buy a house in the right location it is the right investment to start with. Good luck and remember you make your money on a house when you buy, not when you sell.
5. Well, this is a toughy. But, investment for a home and a retirement can all be the same thing if you look at it at a certain view point. Your best bet is to save for retirement first. And when you feel that you have enough money to buy a house, then you can take your retirement money to buy a house. The thing is with houses, its all about the down payment. With regards to interest rates, you can end up buying a house with almost not enough to pay per month. Why do it then when you can easily lose your house if you get sick? But, if you save for retirement, and when you have enough for a sizeable down payment, you can down for a house and be better off in the long run. See, you are killing two stones at once. If you dont deposit enough for a down payment, you could end up paying like 2-3k a month. Then what will you have left at the end of the month? So, you live off of low income trying to save a house. But, with enough deposit, you can pay alot less, and still have money to save for retirement, and live easier at the same time. I say dont rush into a house. Get it when interest rates are a bit higher. That way house prices are lower. And even if they were a bit higher, everybody else is going to have to pay the same price. But, with a higher deposit, you have an edge. You wont be the person paying alot per month for a mortgage. I say invest your money into something small. Then slowly move up. Mutual funds, 401k and stuff like that arent bad. As a matter of fact, they work in your favor. When stocks are down, mutual funds and 401k pay off better in the long run. And when they pay off good is when interest rates go up, because business is up. Then house prices will be lower according to income. So, wait on it. You shouldnt be scared saving your money right now because you are still young. My brother decided not to buy his house when he was 24. Now hes 29 and just bought a house. He threw in a whopping 250k into the house. He has 40k to pay off in 30 years. Hows that for good strategy? If he were to buy his house at 24, he would still owe alot more then he would today. As a matter of fact, maybe 100k more. Even though the houses before were 100k less then they are now. So, was it worth it to wait 5 years? I would say so.
6. If your employer offers a retirement plan that matches, contribute enough to the plan to max out their match. If there is not a match then stay your course, save for the house. Remember though, as soon as you buy the house to setup a retirement account and some life insurance.
7. You can serve both purposes at the same time. If you dont plan to buy a house for atleast five years, invest in a Roth IRA. You can contribute up to $4,000 in 2006 amd 2007. Starting in 2008 you can contribute up to $5,000 per year. You also have until April 15 of any year to contribute money for the previous year. First time home buyers can take up to $10,000 (lifetime limit) out of a Roth tax and penalty free, as long as you have had the IRA for atleast 5 years. You can also take out your own contributions to a Roth IRA tax and penalty free at any time. If you take money from a 401k plan to buy a house, you either have to take a loan from the plan, which you have to pay back or else it becomes taxable as well as pay a 10 percent early withdrawal penalty. Or you have to qualify for a Hardship Distribution, which you have to pay the 10 percent early withdrawal penalty on. If you take the money from a Roth there are no strings attached, other than the $10,000 lifetime limit, and the 5-year rule. So, theoretically if you start a Roth in 2006, in 5 years you could take out $33,000 (your contributions from 2006-2010 plus $10,000) free of any taxes and penalties. And if you make a contribution before April 15 2006. for the 2005 tax year, you can meet the 5 year rule in less than 5 years.
8. Jeff is correct, but if you have a plan with your company and they do any matching you can save more through that plan and still take out $10,000 to purchase your first home without penalty. With Jeff's way your pull out is tax free also but since when you put it into your company plan it was differed the matching puts you way ahead. Try to get the most matchable funds you can and put the remainder of the money you are setting aside into savings then when you are ready to buy your first home you will have up to 10k in your retirement plan to use and whats in savings. Hopefully you will not have to wipe out your retirement and can continue to pay into it from then on. good luck oh and you dont have to wait 5 years in most other plans.
9. Time is not on your side. It will be gone very quickly, don't worry about the house, and don't get caught up in the real estate hype. Get skills to do what you enjoy..don't follow the money..it will not make you happy. Enjoy your life now. This is not a dress rehersel. Have a good life
10. Save for a house because of the leverage involved. Example: $10,000 saved invested in the stock market making 10% per year. At the end of the year you have $11,000. And have gained $1,000. The same $10,000 invested as a downpayment for a $100,000 home going up 6% per year at the end of one year the home is now worth $106,000. You have made $6,000 in equity.