WaPo: People Aren’t Saving Enough for Retirement

While homeownership may not solve all of the problems concerning bolstering one’s own net worth or issues that could come out of needing flexibility to move, making decisions early in life about the most efficient ways to save for the years they won’t be working is often a key to financial stability late in life. A reverse mortgage can also be an option, though not one “for everyone.”

This is according to a column in the Washington Post that aimed to respond to a reader’s concerns about 401K savings while gathering input from a financial professional.

“We encourage [homeownership because it is a way to reduce future housing costs when the home is totally paid off or builds equity for the next home purchase,” says Carolyn McClanahan, financial planner and founder of fee-only Life Planning Partners based in Jacksonville, Fla. “If you need flexibility to move, renting is a better option. If you are lucky, you’ll make money on your home purchase and have a bigger nest egg.”

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One way to unlock that equity is through the use of a reverse mortgage, the article says. “You could extract your equity through a reverse mortgage, but that isn’t for everyone,” the article reads.

The Post reader who asked about these problems contended that it may have been better if he had invested in the purchase of a home rather than a 401K savings account to try and maximize the money available to him in his later years.

“As it is, I’ve gotten decent (even amazing) gains in my 401K account, but putting my savings there meant that money hasn’t been available for a home’s down payment and mortgage,” the reader says. “So I’ve remained a renter.”

This leads him to believe that the inaccessibility of 401K funds for mortgage purposes serves the larger benefit of the 401K industry, at the expense of the clients who are advised to save more than they’re advised to invest. The core issue, says McClanahan, is more fundamental than that, however.

“People aren’t saving enough for the day they can no longer work,” McClanahan says. “The 401K industry has benefited but it is a stretch to say putting money in a 401K account is wrong. The real answer is [that] people need to make decisions early in their life about the different ways to save.”

Read the full article at the Washington Post.

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