Homeownership for millennials is an important goal. So is saving for retirement. In fact:
- Being able to retire and owning a home rank as top priorities, per a recent survey of millennials
- Yet research suggests that many Gen Y-ers need to work harder to achieve either goal
- Accomplishing both a comfortable retirement and homeownership, for millennials, is possible with the right planning
Fresh data show millennials rank homeownership high
A new poll by Bank of America has some interesting findings. Based on the report, among Gen Y:
Being able to retire was their top priority (chosen by 80 percent).
Owning a home ranked number two (at 72 percent).
Other goals included traveling the world (61 percent), getting married (50 percent) and having kids (44 percent).
When considering a first home purchase, 47 percent feel mature/responsible. 47 percent said they feel like an adult, 36 percent said that home ownership made them independent, 34 percent indicated that owning a home would make them feel established, and 26 percent equate home ownership with empowerment.
Nearly four out of 10 first-time buyers plan to purchase in the next two years, while 36 percent plan to buy in the next three to five years.
Those who don’t plan to buy soon gave the following reasons: lack of down payment funds (44 percent), can’t afford the home or location they want (43 percent), not knowing where they’ll be in a few years (33 percent), and lacking good credit (16 percent).
Why Gen Y values being able to retire
There are many reasons why millennials place a high priority on retirement.
“Taking charge of their personal finances and life by buying a home is a clear step toward showing that they are mature and responsible,” says Kathy Cummings, senior vice president of Homeownership Solutions and Affordable Housing Programs with Bank of America.
Heather James, real estate attorney with Cook & James, isn’t surprised that millennials rank “being able to retire” as their number one goal.
“They seem much more focused on the quality of their life. They’re saving more than previous generations,” says James. “Millennials understand that their employer isn’t going to take care of them just because of their tenure.”
Also, Gen Y “realizes that the buck stops with them on retirement. They want it to be a focus and possibility,” James adds.
Matt Gellene is head of Financial Center Merrill Edge and National Performance executive. He says saving for retirement and saving to own a home “are equally important financial goals. Our latest Merrill Edge Report found 41 percent of millennials do not have a monetary goal or ‘magic number’ in mind for putting a down payment on a house or for retirement. The key to achieving both is to plan accordingly.”
The media often report that millennials are fearful of not saving enough for retirement.
“But the Merrill Edge fall report shows that 53 percent of them salt away 10 percent of their monthly income into long-term savings. That’s a good sign,” says Cummings.
Why millennials want to own
Gen Y equates owning with stability.
“Many millennials saw what happened to those without a good housing option during the Great Recession. They saw friends displaced,” says Keith Baker, Mortgage Banking Program coordinator and faculty at North Lake College. “Or they had to move due to parents losing jobs or homes. It’s understandable that they connote owning their own home with stability.”
What’s more, older millennials are now ready to commit.
“Many of the reasons not to purchase are fading away,” Baker notes. “Their student debt is paid down or gone. Their rent is up. They’re marrying older. Job stability for them is much better in this economy. And their confidence is up.”
Millennials also view owning a home as a status symbol and a sign of success.
“There’s the traditional desire for a secure and stable home,” says Cummings. “In fact, our report found that they equate homeownership with personal success and financial success” (53 and 45 percent, respectively).
In addition, better technology is making home ownership more accessible.
“There are resources to help people understand the buying process and tools to help them take the first step. And these are more readily available than ever before. Millennials can easily go online and get tips to make smart decisions and feel prepared,” Cummings says.
Millennials make good owning candidates
Cummings notes that home ownership has become more attractive. This is especially true as rental prices climb and the job market improves.
“This is the right path for those who have established a financial plan and figured out where owning a home fits into their budget,” she says.
Robert R. Johnson is a finance professor at Heider College of Business, Creighton University. He says buying makes sense for the right candidates.
“It may be smart for millennials to consider purchasing rather than renting if, by building equity, they can save money,” adds Johnson. “For some people, owning a home and building equity is their primary way of building wealth.”
Cummings believes Gen Y will keep ranking homeownership as a top goal in future years, too.
“I don’t foresee homeownership dropping down the priority list. I continue to meet younger and younger clients with big goals,” she says.
How to fulfill your dreams of owning
Yearning to buy a home of your own? Try these tips:
Figure out what you can afford. A good rule of thumb? “Ask yourself, ‘How much should I borrow?’ instead of, ‘How much could I borrow?’ suggests Cummings.
Lenders allow everything from 28 percent of your before-tax income to 50 percent, depending on your credit, income, savings and program. So a good rule of thumb is to consider what you’d be comfortable paying each month. And if that’s more than your current rent, decide where the extra will come from.
Check and improve your credit. Take a look at your free credit report. Correct anything inaccurate. And work to get your credit score higher.
Save, save, save. “Try to automate as many savings habits as you can,” Johnson recommends. “Agree to have a specific amount or percentage deducted from your paycheck monthly. Put it into an account designated for a home down payment.”
Research carefully before buying. “Think about costs and how they fit your overall financial picture,” Cummings adds. “Also, consider, if you’re ready to stay in one place. Do you know where you want to put down roots?”
Learn the facts, and explore your options. “Needing 20 percent down is not a steadfast requirement,” says Cummings. “There are plenty of low down payment loan options, as well as down payment assistance programs, that can help you overcome obstacles.”
How to reach your retirement dreams
Want to retire comfortably and at the future age you choose? Follow these suggestions:
Develop a financial plan right now. The longer you delay, the less you’ll have saved by the time you want or need to retire.
Opt into a tax-deferred retirement savings plan. Maybe it’s a 401k plan offered by your employer. Or perhaps it’s an IRA. Learn how these plans can help you invest for retirement and score tax breaks, too.
Make your savings automatic. Have a predetermined amount taken out of your bank account or paycheck each month. Designate this toward your retirement savings plan.
Take advantage of free money. If your employer matches your contributions toward retirement, capitalize on it. “Do whatever it takes to participate in your company’s 401k plan to the level to get your full employer match,” says Johnson.
Get expert help. “A financial planner can share tips, tools and resources for saving that can help make retirement possible,” Gellene says.Verify your new rate (May 26th, 2020)