Should We Decrease Retirement Savings to Save for a Bigger Home?

Seeking Advice Forum
1

My spouse and I are in our mid-thirties, married with two kids—a boy and a girl. For the next 2-3 years, we’ll be living on one income.

Currently, we put away 20% of our income into savings. Of that, 15% goes towards retirement, and 5% is set aside for saving for a bigger home. We have a 2-bedroom, 2-bathroom home right now, and we’re thinking we can stay here for another 5 years before the kids will really need their own bedrooms.

Given our situation, should we consider decreasing our retirement savings in order to save more for our next home? We don’t have any debt or mortgage payments at the moment.

Thanks for any advice or similar experiences you can share :wink:

2

Hi!

It’s great to see you and your spouse planning ahead and saving diligently!

Balancing retirement savings with saving for a bigger home can be challenging, but here are a few considerations to help you decide:

  1. Employer Match: If your retirement savings include an employer match, it’s generally advisable to continue contributing enough to capture the full match. This is essentially “free money” that can significantly boost your retirement savings.

  2. Retirement Savings Impact: Reducing retirement contributions can have long-term impacts. The earlier you save for retirement, the more time your investments have to grow. Even small reductions now can lead to a significant difference in your retirement fund due to compound interest.

  3. Home Affordability: Consider how much more you need to save for your next home and whether reducing retirement contributions will make a significant difference. Also, think about other ways to improve affordability, such as improving your credit score to get better mortgage rates.

  4. Financial Flexibility: Since you don’t have any debt or mortgage payments, you might have more flexibility. However, it’s important to ensure that reducing retirement savings won’t stretch your finances too thin when you eventually buy a bigger home.

  5. Future Income: If you expect your income to increase in the future, you might be able to make up for reduced retirement contributions later. However, this can be risky if your income doesn’t increase as expected.

  6. Consult a Financial Advisor: Given the complexity of this decision, consulting a financial advisor can provide personalized advice based on your specific financial situation and goals.

Balancing these factors can help you make a more informed decision.