Max out retirement or save for house?

[rugorak]

So my situation has changed quite a bit lately. I got a new job which is so much better than my old one the financials don't even play into it. But I am making a little more and the benefits are immensely better. I moved to an area I like better than where I was. So a win win all around. But I am trying to figure out the best course of action financially now.

Short version is by my estimates I need about 10-15K more for a 20% down payment for a house around this area I would like (aka not in any bad areas as far as crime, and something that doesn't need so much work I couldn't move into it right away, etc). I'm looking to buy in a year or 2. I've been putting in $450 a paycheck into my 403b and saving 1k a month (sometimes more) in taxable accounts. I also have been maxing out my Roth IRA each year. With my new job putting the same into my 403b I'll probably be able to save closer to $1300 a month. Or I could max out my 403b. Side note, the new job puts an extra 10% into a 401a as well.

So the big question is do I max out my 403b now and just do whatever else I can with the house down payment fund or keep at my current levels until I get the house? I know there is no right answer. I am more looking for opinions and factors I may not have considered.

[willn]

If you plan on being in that area for more than 4 or 5 years, I suggest buying a house.  The New York Times has a rent vs. buy calculator for the financial aspect that lets you play with numbers.

Housing is a good hedge against inflation since it fixes your housing costs.  Appreciation over a long period of time is generally the trend in most areas, though it may not be strictly the best financial investement.

Factor in the human issues of security, nesting issues like control over your domain, ability to customize your environment--these should not be underestimated and may contribute to your ability to succeed in career and family areas, thus making it the best investment.

You have time to carefully review the area's history and prospects.  Tips:  Don't buy the most expensive house on the block.  Don't remodel it to make it the most valuable on the block, don't buy without a decent emergency fund, check property tax rates and trends.

[rugorak]

I've looked into most of that including rent vs buy calculators, taxes, what to do and not to do, etc. I agree when you factor in all the human issues it is a good "investment" even if the pure dollar return isn't great. from what I am looking at I think at worst I might break even after inflation. But that isn't bad considering all the intangibles.

So I am leaning towards maxing out my 403(b) and then saving as much as I can. Although I haven't nailed down my new monthly costs due to a lot of things that have been out of the norm I am fairly certain they will be lower overall compared to where I used to live. This way I pay as little in taxes as I have to and still can save a bit towards the house. Using a take home pay calculator (it gets close but none of them can seem to get what I actually have in my paycheck) I have gotten decent enough estimates that even if I max it out my take home pay won't be that different from what I was bringing home before.

I'm going to run it by some family over the holidays just for a different but more personal viewpoint. But if anyone else wants to chime in with an opinion the more viewpoints the better. Especially from someone who has been down this road before.

[PeteD01]

So I am leaning towards maxing out my 403(b) and then saving as much as I can.

Yes, max out the pretax contributions - if you are going for ER, the likely lower tax bracket once you retire equals a gift from the taxman today.
Always max out these contributions - do not even consider it part of your income, look at it as a tax paid to yourself.

You can consider taking funds out of the Roth IRA - you MAY qualify for penalty free distributions (first home, contributions only)
After the recent run up in the market, you have an opportunity to put the gains to good use reducing your debt. Roth IRA's are not nearly as attractive as pre tax accounts with a low retirement tax bracket - and if your retirement tax bracket turns out to be high you won't really have a serious problem, right?

Consider a 15 year mortgage or make additional payments until you qualify for a substantial HELOC (in lieu of an Emergency fund)

If you can wing this you will be in awesome shape in just a few years and with hardly any risk ever being under water with your mortgage.

I did all this minus the Roth starting about 13 years ago.


Good luck,
Peter

[rugorak]

So I did end up maxing out my 403(b). My take home pay ended up being slightly higher than at my old job. From everything I have read and the numbers I have crunched it does seem the best course of action. I still should be able to save quite a bit each month as well. So time will tell but should be on track for a house later this year.

[EconDiva]

So I did end up maxing out my 403(b). My take home pay ended up being slightly higher than at my old job. From everything I have read and the numbers I have crunched it does seem the best course of action. I still should be able to save quite a bit each month as well. So time will tell but should be on track for a house later this year.

Do you mind sharing any more information about yourself?  Like age, industry of employment, budget, salary?

I understand if you wish not to...it's just inspiring to hear when people can do thing like this (I really really hope I can be in the situation of maxing out my 403b and ROTH -and- saving for an EF -and- house and car within the next 5 years, but it all seems so surmountable at times).

Do you still feel like you have enough in your budget to be able to 'enjoy life' (whatever that means for you...traveling, hobbies, entertainment, etc.)?

[NumberCruncher]

I was in a similar situation about a couple years ago, and ended up saving for a down payment but never actually bought a house (lots of reasons, one being we didn't plan on staying in the area for more than 5 years, maybe less)

-- really wish I did what you did, especially with how the market performed! --