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Situation: Married w/ kids, 29, about to finish grad school, no debt. Accepted a job offer with $87k salary and an employer contribution to an SEP-IRA equal to $13k/year. No additional household income. We have ~$10k savings and no retirement savings. With our budget we anticipate having $20k-25k a year we could put towards saving for a house down payment or additional retirement savings.

Question I am trying to answer: once I have my 3 month emergency fund completed (should be relatively quick once I start the job), I am wondering how to split the extra $20k-25k a year between saving for a house down payment and additional retirement savings?

Our goal is a 20% down payment, which would be $50k-60k. We sure would like to get a house ASAP but with having nothing in retirement savings yet, and since the earliest retirement contributions are likely to have the largest growth by the time of retirement, I was thinking it might be good to save extra even with the SEP-IRA, perhaps in a Roth IRA.

Question that is more likely to be able to be answered here: given my situation, goals, and question above, what questions should I ask myself to determine how aggressively I should invest extra in retirement now vs. saving up for a house?

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    We can't answer that question for you. How quickly do you want to buy the house? – Todd Mar 8 at 0:44
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    You might think of the house (if it's likely that you'll stay in it a while) as another form of retirement savings. With a 30 year mortgage, you should have it paid off before retirement, and thus your housing costs would be only taxes, insurance, & maintenance: likely only a small fraction of what rent would be. – jamesqf Mar 8 at 4:15
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Accepted a job offer with $87k salary and an employer contribution to an SEP-IRA equal to $13k/year.

That's 15%, which is "exactly" what you should be saving. I'm a lot older than you and just reached 15% this year.

I was thinking it might be good to save extra even with the SEP-IRA, perhaps in a Roth IRA.

Sure. But is a bigger retirement nest egg worth fewer years in a house for your kids?

Question that is more likely to be able to be answered here: given my situation, goals, and question above, what questions should I ask myself to determine how aggressively I should invest extra in retirement now vs. saving up for a house?

Given that you'll be saving 15% for retirement, and "would like to get a house ASAP", I'd ask myself if I'm over-thinking.

You are...

  • Under 30,
  • saving 15%,
  • married,
  • have kids,
  • really want a house,
  • can afford a house while still saving 15% for retirement.

Socking that $20k-25k/annum in an online savings account for three years seems like a good idea to me!

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Nobody can predict which option will ultimately perform better, and nobody but you can decide how quickly you should buy a house. Personally, I hated paying rent and focused on real-estate before other retirement investments (other than my company 401k match).

Here are some things I suggest you do:

  • Assess your local market to determine how much extra renting is costing you (or in rare cases saving you) over buying. In some markets, there's much less incentive to buy because rents are quite low.
  • Evaluate how long you anticipate living in an area. If you aren't pretty confident that you'll want to stay at least 3+ years then buying is less advisable.
  • Review housing pricing trends and projections to understand if waiting carries considerable cost. For example, my area had a long period of 10%+/year price increases, during which waiting to buy could be quite costly. No guarantee that any trends will continue, but worth thinking about.
  • Consider the value of any lifestyle differences between owning and renting.
  • Compare current mortgage interest rates to historical and projected rates. Again, no guarantees, but if rates were at historic lows, there could be risk in waiting.

When you've decided to buy, I suggest buying the cheapest house you can be comfortable in, don't stretch your budget thin and count on potential pay raises to make things easier down the road.

Use pay raises to bolster retirement savings. You've got a very healthy income, which means you should be able to save plenty now and even more in the future if your pay increases.

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I just plugged the numbers for the SEP-IRA into a investment calculator: $13K/year ($1083/month) for 36 years @ 8% returns is $2.7 million when you're 65. $4.6 million if you can manage a 10% annual return. And if it turns out to be only 6% over that 36 years, it's still over $1.6 million. Using the 4% rule, that $1.6 million means $64,000/year income in retirement, increasing for inflation every year, for as long as you live. And that's just on your employer's contribution, without you saving another dime. And you'll get social security.

You're good dude, buy the house.

  • But after 36 years of inflation, $64K is like $32K/yr today. – JTP - Apologise to Monica Mar 8 at 23:17
  • @JoeTaxpayer And I'm sure OP will save more over time; besides, that was at the lowest assumed return rate of 6%. At 8% it's $108K/year, and at 10% it's $184K. The man is so worried about not saving enough he wants to delay buying a house. He's got nothing to worry about – Patches Mar 11 at 16:43

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