First Person: Buying a Home Hurt Our Retirement

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Buying a home can be one of those turning points in life. For us, it was a turning point all right…a down turn. We learned some valuable lessons from our first home purchase, many of which I would have been fine not having learned but that we found useful moving forward nonetheless. However, while this provided an educational experience, it proved a costly education both in the near term, as well as how it may one day affect our retirement.

Apartment Costs

Before we bought our first home, we were renting a nice vintage apartment in an upscale neighborhood for just $800 a month. Renters insurance was just $100 a year, utilities (including cable) were about $140 a month, and there were no repair or maintenance costs or property taxes.

In a word, we were "set". And while with the birth of our first child, the space certainly became tighter, it was manageable. And with total rental-related costs coming in at about $11,380 annually, we felt it was a reasonably affordable situation.

Home Costs

Once we bought our first home, our home-related costs blew our rental costs out of the water. Our monthly mortgage was about $1,350. Our monthly property taxes and home insurance came in right around $450 to $500 a month. Our utilities were almost $300 a month. Our repair and maintenance costs ran about $200 a month. So when it came down to it, our monthly expenses were closer to $2,350 a month -- $28,200 a year -- or about two-and-a-half times our rental costs.

The Differential

So overall, for the three year period we were in our first home, the cost differential between renting and home ownership was significant. In fact, once we sold our home, and after the loss we took, real estate agent commission, closing costs, and the costs incurred for us to live there over time, we ended up spending about $125,000 more to live in our home than we would have if we had stayed in our apartment.

Investment Returns Over Time and Effects on Our Retirement

As you can imagine, that $125,000 differential would have been nice to have to put toward our retirement. That amount invested at just 3 percent over 30 years would have added up to $300,000 by retirement. And invested at 6 percent, this amount would have built to more than $700,000 -- a huge difference and one that could set our retirement plans and situation back substantially.

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