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4 Home-Buying Mistakes that Jeopardize Your Retirement

4 Home-Buying Mistakes that Jeopardize Your Retirement

A lot of people don’t realize that certain home-buying mistakes can put their secure retirement at risk—especially if retirement is still a few decades down the road. But even if you have time to bounce back from this sort of financial misstep, there’s no guarantee that you will, and it will still be a considerable setback. As you undoubtedly know, the earlier you begin proactively planning and saving for your retirement, the better off you’ll be when you get there.

So, to help protect your retirement security, here are four home-buying mistakes to steer clear of. They apply whether you’re purchasing your first home or a subsequent one.

Home-Buying Mistakes to Avoid to Protect Your Retirement

  1. Buying too expensive a home. This is a big one, of course. If you’re paying too much for your mortgage, it will be harder to take important steps like building up an emergency reserve of funds and saving and investing for retirement. And, when you’re looking for a home, remember that your household income won’t necessarily always rise. What happens if you or your spouse gets laid off? If you’re a young couple, what happens when you have children and your cost of living goes way up, and perhaps one of you stops working to be home with the kids for a while?
  1. Withdrawing from a retirement account to buy a home. Generally speaking, accessing money in a retirement account early should be a very last resort. This includes when you’re purchasing a home. Not only do you lose the funds you take out, you also lose more in penalties and all the interest that money would have earned over all the intervening years. Even a small amount of just a few thousand dollars can be a significant hit—particularly if you’re still many years away from retirement.
  1. Paying off your mortgage too soon. Yes, it feels fantastic to be free of a major monthly expense like your mortgage payment. But with typical interest rates on mortgage payments, in many cases, you’re better off wisely investing the money you would use to pay off your home, including in a 401(k) or IRA. You can earn more toward your retirement this way that you’ll save by paying off your home early. Again, this is generally all the more true the further away you are from retirement.
  1. Not downsizing your home when appropriate. As retirement draws nearer, many people are in a position where they should downsize. Your spacious four-bedroom home made sense when you had two or three kids at home, but this usually isn’t the case once they’ve moved out to live on their own. You’re continuing to pay more than you need to each month, but more significantly, you could acquire a considerable amount of money to invest or save for your retirement by selling a larger home and buying a much smaller one.

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