| Want to buy home soon - cut back on retirement? |
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earwax
New Poster
Cash: $ 0.45
Posts: 2
Joined: 06 Feb 2010
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| Want to buy home soon - cut back on retirement? |
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I have about $23K in liquid cash saved up. I also have about $20K saved up in my combined retirement 403(b), 457(b), and ROTH IRA. I am 30-years old. I would like to buy a condo or a townhouse soon, and I understand that most places want at least 20% down payment. I'm looking to try to save up to $50K liquid cash so I can buy a $250K condo or house one day. I live in California where houses are expenses.
My current retirement plan and savings are this:
$500 into my savings every month
$300 into my ROTH IRA every month
$100 split into my work 403(b) and 457(b) every month
What's the best I can achieve this goal? Try to save more every month by cutting back? Also, I heard that I could pull up to $10K out of my ROTH IRA, without penalty, for a first time buyer. I've already surpassed $10K on the ROTH IRA. Should I cut back on my monthly ROTH IRA or stop it for now to increase my monthly savings?
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Sat Feb 06, 2010 5:54 pm |
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oldguy
Senior Member
Cash: $ 274.90
Posts: 1312
Joined: 21 May 2006
Location: arizona
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Your $20,000 fund, invested at 11%, plus your $4800/yr contribution will be $1,410,000 at age 60.
If you were to take out $10,000 and stop your $4800/yr for one year, you will have $1,050,000.
So your idea will cost nearly $400,000. Personally, I would avoid de-railing the plan that has the largest affect on your far-future.
With mortgage rates at 50-year lows, I would (and do) borrow as much as possible, get a fixed rate 30 yr loan, and keep that low rate locked for as long as you can - it is very inexpensive use of someone else's money.
You can buy a house with a low down payment - probably 5% now. Pay the PMI for a few years, it is part of the cost of establishing a solid loan. If you try the easy way, you get a shortterm 20% high cost loan - sometimes with a balloon. Or you get an ARM with a teaser rate.
It is important to keep your cash in reserve (Roth, taxable account, savings) so that you do not fail financially in the event that the house goes upsidedown at a time when you are forced to sell it.
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Sat Feb 06, 2010 8:36 pm |
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earwax
New Poster
Cash: $ 0.45
Posts: 2
Joined: 06 Feb 2010
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Thank you for the advice, old guy. I really appreciate it. I don't know much about money except to live below my means and save, save, and save.
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Sat Feb 06, 2010 9:26 pm |
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coaster
Senior Advisor
Cash: $ 1318.80
Posts: 6496
Joined: 11 Oct 2005
Location: Wisconsin
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quote:
Originally posted by earwax
I don't know much about money except to live below my means and save, save, and save.
That's about all you REALLY need to know 
~Tim~
Eye Candy : Why Whimsy
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Sun Feb 07, 2010 3:02 am |
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TheCaptain
Member
Cash: $ 2.65
Posts: 13
Joined: 09 Feb 2010
Location: Florida
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Saving as much as you can is a great lesson to learn. I do want to point out though that assuming an 11% rate of return is extremely aggressive. Stocks, just like other assets classes, have longer bear and bull markets than most people understand. We just completely one of the biggest bull markets in equities and it is likely we will see much lower returns in the coming 20 years (this bear market realistically started around the turn of the century). Make sure you have a diversified approach that is not all equities. Our country has some enormous hurdles to overcome and we are headed down a dangerous path. Having a low rate locked in right now is a great idea as you will not be able to attain a similar rate for a long time (my guess is you have about 12 months to get a rate below 6.5%). I am not predicting hyperinflation, but interest rates will need to stay high for a while.
Check out
www.therationalinvestors.com
Honest, independent and straightforward financial insight
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Tue Feb 09, 2010 3:55 am |
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