OBSERVER & ECCENTRIC NEWSPAPERS COLUMN
April 3, 2016
Q Hi Rick:
I am 55 and my husband is 49. To make a long story short, since 2009 my husband has lost two jobs. We claimed bankruptcy and had a short sale for our home. We are now leasing for the last four years. My husband is now working full time and we only have about $5,000 set aside for our retirement. I recently received a full-time job that allows me to start saving possibly $1,000 a month. We have a 14 year-old that we hope will receive a scholarship for college. The question is do I start saving for a home to purchase or do I continue to lease and put the money into retirement?
A Dear Sue:
Hopefully your luck has changed and brighter days are ahead for both you and your husband. The recession hit many people hard and unfortunately, too many people have not been able to move forward like you have; therefore, congratulations.
In reviewing your situation, I believe you need to put money away for your retirement. When it comes to your retirement, other than Social Security, you’re going to have to be self-funded. Considering that you can live 30 years plus in retirement, as far as I’m concerned, it makes sense to fund your retirement.
Many people are under the mistaken belief that owning a home is always much better financially than leasing; that is not the case. From just a financial standpoint, leasing is a very good way of going. When people look at buying versus leasing a home, there’s a tendency to think that if you’re leasing, you’re just throwing your money away. The theory being that at the end of the lease you have nothing to show for it. On the other hand, when you’re done paying your mortgage, you own the home. That is true; however, that’s not comparing apples to apples. What you also need to consider is the cost of maintaining your home. We all know that there’s not one house in America that’s not a money pit. People tend to forget that when you own a home your cost of maintaining that house is substantially higher. When you take paper to pencil, factoring all the cost of owning a home including the maintenance, and taking into consideration the favorable tax consequences of owning a home, you will see that from a purely economic standpoint, leasing holds its own. In fact, looking at just the economics in many situations, I would venture to say in most situations, leasing is better economically than owning.
Just because the economics in many situations favor leasing, it doesn’t mean I tell people never to buy a home. I believe that a home is a quality of life issue, not necessarily a financial issue. Therefore, in the case at hand there’s no doubt in my mind that at this point in time, Sue and her husband have to lean toward the financial aspect versus the quality of life. In that regard, saving for retirement is going to have a much better financial outcome than owning a home.
I recognize when you own a home, eventually you can do things such as a reverse mortgage. I believe reverse mortgages are an excellent tool for many people. However, in the case at hand I do not think a reverse mortgage would be beneficial.
I am a big believer that you and I have to save for retirement as soon as we can. In today’s world, retirement is the great unknown because we have no idea how long we can live. But suffice it to say, 30 plus years in retirement is becoming more the norm. Because of that, saving for retirement has to take priority over buying a home and in many situations, even saving for your child’s college education.
Rick is a fee-only financial advisor. His website is www.bloomassetmanagement.com. If you would like Rick to respond to your questions, please email Rick at firstname.lastname@example.org