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I need some advice... I can't decide whether I should max out my 401k or instead put the additional money toward a monthly condo payment (the condo will be a future purchase.)
I currently don't own a home, and I'm contributing 6% to my 401k with my company matching another 6%. For the time being, I've been putting any additional money I have left over each month into a savings account with a 1.6% interest rate... this money is being put into savings for a down payment, closing costs, and emergency savings.
So once I get enough saved for a down payment, I can't decide if the additional money that I've been putting into savings every month should go toward maxing out my 401k, or can I buy a slightly more expensive condo (it'll give me a higher monthly payment, so I'd use some of the extra to cover the higher payment instead of putting it into the 401k).
Either way, I'm investing the money... either into the condo, or into the 401k. I'm just not sure if one option is smarter over the other.
Just my take but I'm sure others will chime in with others. How much difference in real value will that "slightly more expensive" condo actually have? You might have to buy something a lot more expensive to make much difference. And you'll be paying more for it, so what you can actually afford month to month will be more important. If you max out your 401K the leverage you get from increasing the contributions may be greater. A condo may not be a great investment depending on the local market. What local value research have you done? If condos are a dime a dozen and just sit on the market, not great. Would a modest single family home hold value better than a condo? If the market tanks you may have to get out of it quickly a lot sooner than you planned before you lose your nest egg entirely. A 401K invested conservatively over a longer period may be more stable. IMHO, you have more "say" about the funds in your 401K (because it's money that you can shift around more easily). If you need to get at the funds invested in the condo you can't until someone buys it. Besides, that condo isn't yours, it's the mortgage holder's. The 401K is yours.
Last edited by Parnassia; 11-15-2018 at 12:32 AM..
I think it's a very bad idea to stretch to buy the more expensive condo. Most people need to save a minimum of 15% of their income for a decent retirement in their 60s. Most people stretch themselves too much when it comes to housing and undersave by a big margin for retirement. Don't be one of those people with a condo you can't really afford and a skimpy retirement account balance. I know putting 12% of salary (between your contribution and the match) into a 401k sounds like a lot because people save so little, but it really isn't.
A property you live in shouldn't be thought of as an investment; it's a consumption item. And condos usually show less appreciation than single family homes do. Put the money in your 401k.
You might do both, by investing some of your retirement savings in a Roth (versus a standard 401K or IRA). After 5-years, you can withdraw Roth funds (which have appreciated as an investment) without a penalty (or taxes). A 401K or IRA will cost you interest and a penalty for pre-59-1/2 withdrawal. Also, in 5-years, you might be looking at a different situation.
One thing you've got to consider in a "future" condo purchase is appreciated value might eat-up any added savings value. One option there might be to look for a long(er)-term lease/purchase option.
And condos usually show less appreciation than single family homes do.
I tend to agree. Buy a house.
Whatever gives you higher growth and return down the road. The only solid one I see so far is your employer vestment of 6%. It's pretty much free money. Question is, what happens to your 401K funds next? Is it growing in value at steady pace? Or, is it in nose dive and you keep tossing money at it and depreciation eats it all, and then some, right away? I shut down my 401K and never regretted it. It was doing nothing but losing.
While our properties do nothing but grow in value.
Either way, I'm investing the money... either into the condo, or into the 401k. I'm just not sure if one option is smarter over the other.
Unless you plan to rent out your condo or use it for a business I don't see it putting more cash into a condo that only serves as your primary residence as an investment. I have never said to myself, "I'm going to invest in paying off my mortgage" or "I"m going to invest in buying a larger home than I really need".
I have heard of people, many times, say that their house (primary residence) is an investment and I suppose for a lot of people this is as close to an investment that they will ever get.
If you want a nicer place to live and can afford it then go ahead and buy yourself the more expensive condo.
Since you do not know what you want the ROTH suggestion is a very good way to go as you can get your original investment (not earnings) out to buy the condo if you go that route or leave it in the ROTH for tax free retirement growth.
I need some advice... I can't decide whether I should max out my 401k or instead put the additional money toward a monthly condo payment (the condo will be a future purchase.)
I currently don't own a home, and I'm contributing 6% to my 401k with my company matching another 6%. For the time being, I've been putting any additional money I have left over each month into a savings account with a 1.6% interest rate... this money is being put into savings for a down payment, closing costs, and emergency savings.
So once I get enough saved for a down payment, I can't decide if the additional money that I've been putting into savings every month should go toward maxing out my 401k, or can I buy a slightly more expensive condo (it'll give me a higher monthly payment, so I'd use some of the extra to cover the higher payment instead of putting it into the 401k).
Either way, I'm investing the money... either into the condo, or into the 401k. I'm just not sure if one option is smarter over the other.
Comparing apples to oranges.
As others mentioned, condos don't appreciate like single-family homes.
But, you can't live in your 401K and enjoy it.
So which do you prefer? Spending money to live in a bigger/better place or skimp to save for retirement?
BTW Marcus (Goldman Sachs) bank offers 2.05% on savings, several others offer 2%+, Vanguard MMF offers 2.11% the last time I checked. A little bump over your 1.6%, roughly $40-$50/year/$10K savings if you want.
I would buy a nice condo in a very good location over a crappy SFH any day. Location location location.
I didn't start maxing my 401k until I was 33, I do wish I had done it a lot sooner.
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