Have the Goal of a Paid-Off Home

Lynn is renting and would like to buy another home after a foreclosure. Her financial planner disagrees and advises her to continue renting while putting money toward retirement.

QUESTION: Lynn in New York City is renting and would like to buy another home after a foreclosure. However, her financial planner disagrees and advises her to continue renting while putting money toward retirement. Dave tells Lynn her financial planner is wrong.

ANSWER: I disagree with your financial planner. Where does he want you to live when you’re 92—in a rental? I don’t think that’s a good plan. Part of personal financial planning is remembering that it’s personal in that people are involved. People have risk aversion. People have personalities. We have dreams. That’s why your financial planning is not done in a vacuum, and it’s not pure mathematics. Absolutely we ought to talk about you getting back into a home.

You need to beef up your retirement and be putting in about 15%. My rule of thumb is this: I don’t borrow money, so I don’t tell people to borrow money, but the one thing I don’t yell at people about borrowing for is a home—if they do it on a 15-year, fixed-rate mortgage where the payment is a fourth of your take-home pay or less. In your case, you’re 62. That puts you at 77 before it’s paid for. That’s a little scary. I might even try to be a little more conservative and say I want to pay it off in 12 years or 10 years, but you could put it on a 15-year. We want to have the goal of the home being paid off before you quit working. At 72, it’d be great to be paid for.

We’re talking a very conservative purchase here. But if part of your plan is you start saving, doing a good job in your retirement, you get great employer contributions to your retirement, and your plan sounds like at 72 or 73 you have a paid-for house and you’ve got $500,000 saved, that’s a pretty good place to be. If you just have a pile of money in retirement and you’re dealing with rent going up every year, that’s an unstable feeling. I don’t like that feeling. I think your financial planner may need to be fired. Maybe you need a new one.

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