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How much money do you have in your retirement plan savings accounts? Is it enough?
Take a look at what the Economic Policy Institute (EPI) says the mean retirement savings of all working-age families aged 32 to 61 years was in 2016: $95,776.
This amount may or may not sound like a lot to you, but by putting this number into further perspective, it demonstrates how the average American worker doesn’t have nearly enough retirement savings. The EPI revealed that the median retirement savings was only $5,000. This accounts for the high achiever savers and those who have saved nearly nothing.
To bring the point home even more, Fidelity Investments compiled a timeline to reach retirement saving success, by age group:
- By age 30: Have the equivalent of your salary saved
- By age 40: Have three times your salary saved
- By age 50: Have six times your salary saved
- By age 60: Have eight times your salary saved
- By age 67: Have 10 times your salary saved
These numbers will definitely make everyday Americans think about their future and how to supplement their savings.
Because of their duty station changes, military members are in a unique position to add a real estate income to their retirement portfolios.
Real estate presents the tangible good of providing a home for your family to live in while you’re at a duty station. This is money you’d spend to live while you’re there anyway, so it makes sense to try to get the double benefit of living in your future retirement funds.
Investing in Real Estate as a Military Family
For this to work, you’d have to consider the home you’ve just bought as a long-term investment strategy. This means that you’ll buy the home to live in for the duration of your duty station, and then you’re going to follow the best landlord practices you can find to rent out the home until the mortgage is paid off.
When it’s paid in full, then, you can either sell the home and transfer the amount into a retirement savings account, such as an annuity, or continue to receive a monthly rental income as a cash flow supplement. Make sure to consult a tax advisor before making one of these two choices, so you can avoid unpleasantries such as capital gains taxes.
Understanding Your Loan Options
As a service member and military family, you have a phenomenal benefit in the form of a VA Loan, which is a loan that offers a zero down payment opportunity to buy a home. If you’re PCS’ing, buying a home with a VA loan often has far fewer upfront out-of-pocket expenses than moving into a rental property, as the rental will likely require a security deposit, first month’s rent, and sometimes even last month’s rent, in addition to pet fees and so forth.
A VA loan won’t require a first payment until the following month. Don’t let the low upfront costs fool you, however. Houses require significant expenses that a renter wouldn’t have to shoulder, such as replacing water heaters, annual HVAC system maintenance, and termite inspections.
What if you don’t want to buy a home with a VA loan? One of these reasons might prohibit you:
- You’ve already used your VA loan.
- You aren’t buying a home that meets the minimum purchasing requirement for the second VA loan entitlement.
- You’re not too keen on adding the VA funding fee to your closing costs, meaning that you’ll walk into your new home owing more than the home is worth. It’s akin to the same yucky feeling that the financially squeamish among us feel after driving a brand new car off the lot and realizing that the 100 feet you’ve driven just cost about 5% of the value of your car.
- You’re trying to buy a condominium in an area that the VA has tagged as a bad investment for such properties.
- The market in which you’re buying is too competitive to try and work a deal with a VA loan.
- The VA just doesn’t like the property you’re buying.
Don’t be tempted to thwart your home buying plans just because the VA loan isn’t presenting a good option for you.
You have other loan options! Celebrate!
Many states offer down payment assistance programs for which a large number of military families would qualify.
According to MarketWatch, housing programs that offer down payment assistance generally use calculations based on median incomes, but they also note that "it’s not unusual for those who make up to 120% of an area’s median income to qualify for a program." Meanwhile, BankRate declares that some programs offer prospective home buyers down payment assistance even when they earn more than 140% of the median income in an area.
Both sources agree that these down payment assistance programs are not designed for low income families; instead, they’re for those earning steady, moderate incomes, making them perfect options for military families. Prospective candidates must have solid employment, good credit, and low debt-to-income ratios to qualify as good candidates. What they don’t need, however, is high savings for a down payment.
While some down payment assistance programs are available through individual lenders, such as Wells Fargo’s CityLIFT, NeighborhoodLIFT, and HomeLIFT programs, most of these programs are funded and distributed by each state and their housing commission. So, if you’re interested in buying a home with the help of a down payment assistance program, make sure to check with your state’s government. A good local real estate professional should also be able to give you guidance, too.
There are obvious benefits to becoming homeowners and beefing up retirement savings. But before you celebrate your new plan, keep this in mind: prior to buying a house, put aside some cash for the costs and maintenance that arise with homeownership.
Original article by Karina Gafford. Updated 2018 by Dawn M. Smith.