I don't know.
I'm 26 years old and trying to determine whether I should max out my TSP and a Roth IRA for 2007, or save for a down payment on a house. I understand the priniciples of starting early for retirement and don't necessarily want to be renting a place for the next couple of years. Live in DC where real estate prices are declining, but still outrageous....
Thanks in advance,
I don't know.
Current signal = BUY and HOLD
You definitely should contribute at least 5% towards your TSP to get the matching funds. My opinion is that the $$ your will save from not renting combined with the tax savings, equity and possible appreciation, will make more than what you might make in TSP or ROTH. After you get in your house, then max out both. This will only be true if you can be discliplined enough not to spend you savings........just my .02
Thanks GatorinGA....that's the logic I had in mind, but I'm still weighing the pros and cons of both options. It's a tough one.
Definitely, you want to get the house as soon as possible (while also contributing the 5% for the match), hopefully while interest rates are still low, then you can start building that equity, while taking an interest deduction and property tax deduction. Rent is flushing money down the toilet. Get the house now and have it paid for by retirement. House is very important, in my book.
in addition to the other great insight posted already,
ask your mortgage broker about getting an immeadiate second mortagage, which will likely take care of what would usually be the down payment so you are financing 100% of the cost of the mortage (maybe closing costs included as well). That way, you will not have to wait and try to save up the down payment while wasting the money on rent...
This will also eliminate the PMI (mortgage insurance), which is the same as flushing money down the drain.
Pyriel would have lots of good advice in this area...
Best of luck!
Official Retirement Date: 06-31-2014!
Thanks for the insight everyone. I agree that renting is like flushing money down the toilet but unfortunately, it's a part of life for me right now. Getting married in June, so we're hoping that will help with the down payment...
Last edited by LostSoul; 01-17-2007 at 07:55 AM. Reason: typo
A good way to increase your contributions without really taking a big hit in life style is to ratchet up the contributions each year at COLA time.
Housing in the mid-atlantic seems to have stabalized. This winter may be the absolute best time to buy over the next couple of years. However, I don't think there is any rush from a pricing standpoint. While rent is throwing money down the toilet, in many localities it is significantly cheaper to rent (the rental market was gutted by the incredible high ownership rate) and as a result the price of rent makes of the difference of what you would gain in equity (especially in a flat market) plus insurance taxes, etc.
Keep in mind, you are going to earn about 6.5% from you home. Your house is like the ultimate margin investment, the bigger the price the more the return and the less likely you will have to upsize in the future. If waitng 6mo or a year will give you the down payment to buy a house that will last you 15 years as opposed to upsizing in 6, then wait. One last note, since you are soon to be a newly wed. If childern are in the near future be prepared for day care - it is very expensive (count on $700 - $800 a month for one, half again for two).
I don't disagree with Skypilot on this, but I do caution you against going with a 100% financing because that leaves you no wiggle room if you encounter a major housing repair, or if you have to relocate. Prices could continue to slide some more. If you do decide to go 100%, make sure the HVAC, roof, electric and termites are definitely not problems. Otherwise, there are options such as 80/15/5's or 80/10/10's (first mortgage/second mortgage/down payment). These all avoid PMI (PS so does a VA loan if you qualify - great options there for first time buyers).
As someone who has maxed out TSP for the past 19 years at the expense of having to sell two r/e properties in the process, I'd say in retrospect to balance your portfolio with r/e. Of course, if you're FERS never reduce your contributions below 5% and never borrow, if at all possible, against your TSP.
Keep in mind with a Roth IRA you can pull out your proceeds for the purchase of a primary house (See www.irs.gov for more details on Roth IRA).
Hope this helps.
Thanks for contributing Griffin and Ed, those replies are very helpful.....and Griffin, kids are not in the too soon future (4+ years), but thanks for the heads up.
Hmmm not sure what is your credit score, salary, and financial status. Giving you a piece of advice might be moot if you are not in good standing with the three things i mentioned. A high credit score gives you unlimited access to OPM. Salary will be determined on how much you can afford to buy due to the bank's calculation on buyers purchase power through "loan to value" method. Lastly, if you haven't done a financial statement for your household, then you really don't know where you are financially.
I've seen people earning 150k (and more) but when you look at their financial statements; its in shamble. They have alot of nice things but the money going in is also going out fast. Goodluck... I was in your shoes once and i know that the hardest part is getting started. Back then, I didn't have this forum with lots of good people to help me. You are lucky to have these fine people helping you out....
I have found one of my old college courses in economics concerning reduction in income is true to course. Everyone and I mean everyone can take a 10% reduction in income and hardly miss a beat when it comes to life style. The recommendation for the 5% contribution is a good one, as it is really getting you 10% each pay period, due to the Government matching! BTW, as a 59 year old civil servant, I can tell you retirement age will slip up on you without warning............be prepared.........don't count on anything except what you are putting back.........TSP is a great benefit and privilege.......don't waste it.
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