Question: “My situation is better than most, but still seems hopeless since I live in California. I’m 41 and currently living with my parents and my 38-year-old wife, while we pay down debt. I make $90,000 a year pretax and my wife makes $20,000 a year, for a total household income of $110,000. My parents are willing to gift us $150,000 for a down payment, but a decent house in Southern California is about $500,000 minimum.
I want to have enough savings to retire by age 65. I have little investments so far, only $5,000 in Fidelity and crypto and about $15,000 cash. After March, I will have no personal debt and will only have my wife’s car payment. There’s about $15,000 left on it and our payment is $300 a month. My current car is worth about $10,000. What do you suggest I do? Is it time to pay for help?”
Answer: It’s positive that you’ll be mostly debt-free soon, and pros say with some hard work, and luck, you may be able to buy a home in the future. While you likely could benefit from a financial adviser — maybe someone who can work with you hourly, as needed — it’s also possible to DIY your situation, especially given your budget constraints. Should you opt for an adviser, you can find one using the CFP Board, NAPFA or this free tool that matches you with fiduciary advisers from our ad partner SmartAsset.
Have an issue with your financial adviser or looking for a new one? Email questions or concerns to picks@marketwatch.com.
The easiest place for you to start might be with a financial plan. “A simple DIY version would include a net worth statement, cash flow and tax and retirement projections. Then I’d ask if either of your employers offers a retirement plan. If there’s a match available, I’d want to get you set up for that as soon as possible,” says chartered retirement planning counselor Jake Falcon at Falcon Wealth Advisors.
You will also want to create a budget for you and your wife that itemizes every cash inflow and outflow, says independent adviser John Gillet at the Gillet Agency. “This will be a great first exercise to become mindfully aware of any moneys that are slipping through the cracks on unnecessary expenses and be able to reallocate that to your savings plan. After determining your monthly allocation to your retirement savings plan, you can invest in yourself via a self-directed retirement account. Based on the financial profile mentioned, you’d qualify to contribute to a Roth IRA and at your age, you can contribute up to $7,500 annually. If you have more money than the $7,500 available, you can open a separate self-directed brokerage account,” says Gillet.
The budget will help you finish paying down the debt and start saving. You will want that debt eliminated and an emergency fund before buying a house, says certified financial planner Jay Zigmont at Childfree Trust. “Then your goal should be to max out your 401(k)s. With no debt and maxing out your 401(k), you’ll be on the right path to retirement,” says Zigmont.
For her part, debt and bankruptcy lawyer Ashley Morgan at Ashley F. Morgan Law agrees on getting that retirement match: “If you or your spouse has a 401(k) at work, make sure you are at least contributing for any matching. From there you can plan on other investment plans. Compound growth helps ensure larger retirement accounts and the longer you wait to contribute, the more time you are losing out on.”
Can you afford a home?
There’s no doubt you’d benefit by getting your household income to increase. “If your spouse could increase her income, it would give you more to save. Since she is only making $20,000 a year, trying to find an increase of $10,000 a year could help dramatically increase your retirement savings,” says Morgan. And if she earns more ongoing, it can make housing payments more manageable.
The gift from your parents makes buying a house more attractive, but Southern California is expensive. “The best solution would be to buy a house in a lower cost-of-living area, but that depends on whether you can move without impacting your work. Buying a $500,000 home with $150,000 down will result in a $2,200 mortgage payment just for principal and interest. With taxes and insurance, it’s likely to be more than you can safely afford at your current income. I encourage people to keep their monthly housing expenses less than one-third of their take-home income and this would be very close,” says Zigmont.
When it comes to home buying, in addition to utilities, you need to budget for unexpected expenses like home repairs and maintenance, which you’re probably not paying any of while living with your parents. “Look at your current budget and see how it looks if you add a mortgage and related costs. You might need to delay buying a house until you’re able to increase your income,” says Morgan.
Should you get a financial adviser?
Meeting with a financial planner could help point you in the right direction, but you can also do this yourself. If you go the adviser route, “you should only meet with a fiduciary adviser and someone who is willing to give you advice versus selling products,” says Falcon.
Because of your more limited resources, you might want to work with an adviser on an hourly or project basis, just to set you up with a financial plan you can follow yourself and answer pressing questions. You can find advisers using CFP Board, NAPFA and you can get matched with fiduciary advisers with this free tool, from our ad partner SmartAsset.
Have an issue with your financial adviser or looking for a new one? Email questions or concerns to picks@marketwatch.com.
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