Ask Terry Questions Balancing Retirement and Medium-Term Savings Goals

Balancing Retirement and Medium-Term Savings Goals

By Terry Savage on March 22, 2018 | Financial Planning / Retirement

Hello Terry, How should someone balance saving for retirement (for me, 30-35 years from now) versus saving for medium-term goals like a house downpayment? I'm saving about 22% of my gross income for retirement by maxing out my 401k and IRA contributions, and am fortunate enough to be able to put money into taxable savings as well. I'd like to save up for a house downpayment in the next 4-7 years, and I'm not sure how much is prudent to set aside (in low-risk taxable vehicles such as treasuries or savings accounts) for a downpayment as opposed to using taxable vehicles to save for retirement. I don't want to save too little for retirement, but I would also like to be able to accumulate the downpayment without taking too long. How do you advise savers to balance between retirement and medium-term savings goals such as downpayments? Thanks!

Terry Says

First guess:  You're not married -- and you don't have children!  That puts you WAY ahead in the savings game!  And you can never save too much! You'll want at least 20 percent for a down payment.  So have you looked at the kind of home you want?  Do you envision marriage and children in the future?  That will impact your choice of home -- and the potential cost.   Are you trying to save at least $50,000 to reach that goal within 5 years?  Since that is the kind of money you don't want to risk, you'll be leaving it in the bank where it will barely keep up with inflation.  But just divide by 5 -- and you'll see you need to put away at least $10,000 per year (plus more to have at least $10,000 left in a savings reserve after you buy the house). Now, here's an interesting thought.  If you made an extra $200 a week, by working at an evening or weekend job, you could save that money easily!  And if I'm right about no spouse or kids, that shouldn't be too tough to do. Then you could keep contributing to your retirement plan at work.  These early contributions, made while you are young, have such a HUGE impact on  your future retirement savings -- especially I you STICK TO THE PLAN though up markets and down. Congratulations on being so far ahead of the game at a young age.  Keep up the good work!

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