Are you better off saving for retirement than buying a home?
According to HelloWallet’s research, some 40 million households would do well to just say no to homeownership. Why? The report found that people in those households would have built more wealth by renting and investing their money in retirement vehicles like 401(k) s, IRAs or other tax-advantaged accounts.
Why renting can make sense
Furthermore, the study found that the benefits of homeownership can be hyped, especially when it comes to the tax benefits of buying a home, worse still if you’re in a lower income bracket, the tax benefits can be a mere pittance.
"Saving for retirement, rather than buying a home, is a better investment for a majority of people," says Todd Kading, managing director of LeafHouse Financial Advisors.
Retirement investments are tax advantaged, thus the same investment amount that an individual could invest in a house could prove more lucrative if it were invested in a 401(k) or IRA, for example.
Secondly, retirement accounts are more liquid than are houses. "You could feasibly withdraw some or all of your retirement savings income if you wanted, whereas the assets invested into a home are not nearly as liquid."
A house is a lifestyle, not an investment choice.
Retirement savings allow for diversity. Depending on your home to fund your retirement can be a huge mistake. "A house is a lifestyle, not an investment choice."
Renting also allows flexibility. This is something that is especially impactful in an economic climate where relocating for a job may be helpful or necessary.
Critics are quick to point out, "The study makes an assumption -- that people would actually invest the money that they would have been putting toward a home into a retirement account instead. I’m not sure if this strategy would actually work in practice," says Katie Brewer, a certified financial planner with Your Richest Life Planning. Success depends on discipline.
The bottom line?
The key if you choose to buy a home is to buy a house that is affordable. Then ideally, you can have your house and have breathing room in your budget to save for retirement too.
As with most financial decisions, it’s best to step back and take a look at your entire financial picture and coordinate your savings between all your goals. The question shouldn’t be is renting better than buying a house, but what is the right answer for your lifestyle and goals? Renting is not necessarily the ‘right’ or ‘wrong’ answer to success in retirement, but it’s just one factor to balance with your other financial choices.
#HowYouLiveExcerpts - depositaccounts.com