Should I buy a house now or just before retirement?

Published: December 29, 2023 at 6:00 am

A reader says, ” First of all, thank you for providing all the answers needed by me & all. A long time ago, I came across one of your articles about the rent vs buy topic wherein you mentioned that we need to save about half of the cost of the house and then get the loan to buy it”.

“I started by saving money for this goal, not the regular one like EMI. An emergency came, and I lost a big chunk of the amount. I am 43 years old, a PSU employee, and residing in government quarters. Having two daughters, and my wife is a homemaker”.

“I have 17 years of service left and till now saved around four lakhs in shares, six lakhs in mutual funds, and 43 lakhs in PF. That’s all I have. No plot, no house. My brother is residing at my father’s house”.

“Earlier, I had decided to start investing 30000-40000 in mutual funds for this goal, like an EMI, till my retirement and then buy a house to live with that amount alone. A decent 2 BHK flat in the rural Nasik area will cost around 50 Lakhs today”.

“But, my seniors are asking me to either buy now on full EMI till retirement or buy at least five years before retirement, say at the age of 55, so that I can utilise that house fully. They say that buying a plot can be an alternative. I am unable to determine what I should do”.

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“I don’t want to use my PF money to buy a house. I will instead save for it.
I don’t know the numbers and what course of action I should take. I am a bit late for almost everything, but I have prepared to start today. kindly guide me”.

The best thing you can do at this stage in life is do a proper financial goal-planning exercise. We recommend the freefincal robo advisory tool for DIY investors, which will consider your future pension while computing the retirement corpus and the amount to be invested each month.

We recommend working with a flat-fee-only SEBI registered investment advisor on our curated list for those needing guidance. That is how you get to know the essential numbers.

You still have some work to do on retirement planning and your children’s future. The bulk of what you can invest in the next decade or so would (must, IMO) go towards these goals. You are correct in thinking that the PF corpus should not be used for any goal other than retirement.

If you take a home loan now, most of your other mandatory long term goals will suffer. You must do the exercise recommended above to find the exact shortfall. However, there is no need to despair about starting late.

Many people in your age group have purchased one or more properties and have spent most of their service paying EMIs. You have avoided that. There is still enough time to accumulate a reasonable retirement corpus.

If you try to live well within your means, you can invest a little extra which can be used for property purchase later.

After systematically investing for the next ten years or so, you will be in a comfortable position to ensure financial independence after retirement. At this stage, you can take a call on whether to buy a property or not.

Circumstances change in a decade, and you may want to live closer to your children or even consider buying a retirement villa instead of a regular house. If you buy a property now, I am pretty sure that you will not be able to accumulate enough to combat inflation after retirement over and above your pension. Therefore we recommend prioritising retirement planning over a property purchase.

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Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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