Should I Invest in Retirement or Buy a House?

Date: February 6, 2019



This is a question we get a lot. Should I sock money away into my retirement account, or should I put some of that money towards a down payment on a West Chester or Liberty Township home for sale?


Most young people incorrectly believe this is an either or question. In reality, we suggest you consider doing both.


At a minimum, if your employer offers a 401k match (or the equivalent), you’ll want to invest in your retirement account. That’s essentially free money. And if you’re early in your career, you’ll want to max out to receive the company match now because of compounding interest. You have the most to earn by investing earlier in your career compared to down the road thanks to compounding interest.


The question then becomes: if you’ve already invested enough in your 401k to receive your company’s match – then what should you do? Should you continue investing in your retirement account, or should you save some of that money to invest in your first home?


We’re biased, but we believe that investing in West Chester and Liberty Township real estate is part of a well-balanced investment strategy.


Most people don’t think of buying a home as part of a retirement strategy, but it really is. Instead of spending, say, $1200 a month on rent, you could instead be putting that toward a mortgage. Your mortgage payment is split – a portion of the payment is principle, a portion of it goes toward paying interest on your loan. So while, yes, the interest payment is a “waste” – it’s no different than “wasting” money on rent each month. At least with a mortgage payment, you’re putting SOME money towards the principle.


Think of the principle you pay as though it was money you were putting in a savings account each month. For simplicity’s sake, let’s say your mortgage is $1200 each month and half goes to principle and half is used to pay interest (it’s not usually that evenly split). That’s $600 going towards the principle each month. Over time, that $600 each month adds up and you begin to build equity in your home.


There are a few ways to look at equity. On one hand, you could never touch the equity in your West Chester or Liberty Township home and after 30 years, you’ll own the home free and clear (assuming you take out a standard 30-year fixed rate mortgage). If the home is valued at $300,000 today, it could very well be worth double that 30 years from now (assuming homes continue to appreciate, which we know is not always the case). So 30 years from now, you could have $600,000 in equity in your home to draw on for retirement.  


But say you don’t want to wait 30 years to tap the equity in your home. Instead, you can draw on a portion of the equity to invest as you please. For instance, if your West Chester or Liberty Township home drastically appreciates in value, you may end up with more equity in the property sooner rather than later. With a home equity line, you can take money out for any purpose – including investing in a traditional retirement account. Or maybe you take out equity to invest in a rental property. Over time, you’d pay down that mortgage, too, which would be another asset to tap for retirement down the road.


As you can see, it’s really not an either/or question. You can invest in your traditional retirement account to some degree, while also saving for a down payment on a West Chester or Liberty Township home for sale. Once you purchase a West Chester or Liberty Township home, this home is effectively like another retirement account. Just because your home isn’t called a retirement account doesn’t mean you shouldn’t think of it like one.


Of course, we’re real estate people – not financial planners. A one-on-one with a financial planner will help you figure out the best strategies for retirement given your specific circumstances. But if it appears a West Chester or Liberty Township home for sale is in the future for you, give us a call! We’d love to show you homes that work within your long-term financial goals.