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I am 47 yrs old, married and I own a townhouse (paid off recently).

I currently contribute 23% into my 401K with a company match of the first 6%. I have maxed out my 401K every year for the past 3 years and currently have $440,000 balance in current 401K. (I also have 2 other 401K from previous job which have combined about $125.000 in them)

I have $80,000 in an emergency fund, $175,000 in savings for a house, and $22000 in CD's.

I would like to purchase another home and rent out my townhouse. In order do that, I would like to save additional funds for the new house and have a down payment of at least 250,000 or more for a $400 - 450,000 home.

Would it make sense to drop my 401K down to 6% and take the additional money to save for the house? Right now, we are trying to survive off my husband's salary and everything I make is going towards the house account. I have managed to save $5800.00 in 6 weeks but it just doesn't seem enough to me right now.

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This is very opinion based and you guys are in great shape regardless of the decision. What you are telling us is that you need to find 75k (250k-175k).

Currently you have about 102k (between CDs and Efund) in cash that is not dedicated to the house savings. That is a very large emergency fund for a two income household with a paid off house. What are your expenses? If there was an emergency, could you guys live off of 2500/month even after the purchase of the new house? I bet you could. So you could easily reduce the efund to something around 50k. That will yield 52k, so you only need another 23k.

For that, sure, I would reduce my 401K contributions. It will not take you long to save the 23k, and then you can either get back on track or work on lowering the new home's mortgage after purchase.

Or you can just keep going as you are with the 401k, and while it will take longer it still won't take long to save up the 23k.

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Financially, no. You're reducing your retirement savings (giving up the potential returns) and are adding a debt payment (the $200k+ you need to borrow). So you're paying interest and reducing investment earnings. It's not going to bankrupt you, but it's not the optimal scenario. You're already saving less than you'd like - why reduce that even more with a mortgage payment?

You could probably reduce it a little, to 15% or so, but adding the debt payment is going to eat into the returns from the rental. Mathematically, it would be the same as taking out a mortgage on the townhouse and buying the new house for cash. The interest payments are going to eat into your rental income, reducing the return significantly. Plus, what happens if it goes unrented for 6 months? You still have to make the loan payments but have no rental income to offset them.

Why not sell the townhouse and use your existing savings to buy the house? Then save up for a rental property if you really want to be a landlord.

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  • You ignore the income from the rental, which should offset the loan payments.
    – TomTom
    Commented Jul 24, 2018 at 21:02
  • @TomTom No - I say that the loan payments reduce the return from the rental.
    – D Stanley
    Commented Jul 24, 2018 at 21:11
  • I am not counting on the rental income for anything because it isn't a sure thing to keep it rented and how much we would be collecting from it monthly. The purchase of a new house cannot be based on a "what we might get for rent". I am just getting ansy about moving which is more a decision of the heart and not the head and no matter how much i am saving every month, it is hard for me to see big results right now. Thank you both for the input... I guess I will just keep saving without decreasing the 401k until we have a big enough down payment for me to feel comfortable with a purchase.
    – Elliott
    Commented Jul 26, 2018 at 12:56

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