To buy or not to buy
Hi Terry,
I’m a 51-year-old woman and have been renting for the past 13 years ($167k total paid in rent). After a rough divorce 13 years ago, I became an under-employed single mother reliant on state benefits for insurance and food assistance. After many years of hard work, I steadily increased my earning and have been debt-free for the past 11 years.
I live in the Bay Area ($$$), my gross income is $91,000/year. I currently put 12% of my salary into a 401k (current balance of $120k). I have $23k in an IRA and about $10k in cash.
I’m thinking of relocating to Wisconsin where I have family and where the home prices would be in the $200k range. I would need to borrow from the 401k for a 20% down payment.
1. Is it worthwhile to take out a 30-year mortgage at my age?
2. Is it worthwhile for me to borrow from the 401k to do that?
3. is it wise to invest the money in a home at my age, or am I better off letting someone else deal with all the expenses of homeownership?
I work remotely so my location doesn’t impact my income, though my community is here in California and there are plenty of downsides to not having friends nearby.
There are probably 2 dozen other questions I’d love to ask about saving and investing for retirement. I feel like I got a slow start in saving for retirement, not for lack of wanting to, but not having the income stream, and when I did the only advice from the advisor for our 401k program was “you better start saving.” I was ashamed and just started putting in what I could thought I could afford but essentially ignored the details. I’m now committed to getting into the nitty-gritty and learning as much as I can. I love your podcast and really appreciate the knowledge and understanding of you and your co-hosts. It leaves me feeling empowered!
Thanks for what you do!
Terry Says
What a lovely note. I’ll give you my general ideas, but it’s hard to give advice without knowing more. In that regard, I suggest you go to the site created by my co-podcaster Pan Krueger, which is www.Wealthramp.com. there you will be connected with several carefully vetted, FEE-ONLY, FIDUCIARY financial advisors. That basically means you can trust them!
(And for those not yet listening to our podcasts, you can find them at www.FriendsTalkMoney.org.)
OK, back to your situation. I almost always think it’s a good idea to own your own home — but your case is an exception. You don’t really seem committed to one place. I love Wisconsin, am typing this at my Wisconsin home (!), but the winters are cold here! Why tie yourself down to one place?
How about trying a long term AIRBnB rental for a few months to see if you like it? Yes, mortgage rates are low, but your future life should not be tied to a mortgage — or the unexpected expense of a new furnace (like the one I just had installed!) One day you might want to move into a senior community.
And I never like borrowing from a retirement plan for any reason. If you leave your job it will be immediately treated as income — and taxed!
Basically, your plan should be to keep working as long as you possibly can, spend as little as you can (impossible in SF) and save as much as you can! Invest conservatively inside your plan, and it doesn’t all have to go into your 40l(k). Save some outside– just money in the bank (which doesn’t pay much these days) but gives you great peace of mind.
But do have a talk with a planner who can go over your status and goals in more specific detail.
