Dear Quentin,
My husband and I are a 30-year-old, double-income-no-kids-yet couple, and make $120,000 a year between the two of us. We have $30,000 in debt in the form of a car loan. Our credit cards rarely carry a balance, and our rent, including utilities, never exceeds $1,500 a month. We both try to put $500 into savings per month.
I have a chronic illness/disability that I manage. This does mean that we are paying for doctor appointments, medications, treatments, etc. Our insurance is through my husband’s employer and, luckily, keeps our out-of-pocket costs for these medical expenses on the lower side. However, nothing in life is guaranteed, and losing our insurance is always a possibility.
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One of our most expensive treatments is for my disease-modifying therapy, which is $100,000 per treatment without insurance. I receive this infusion of medication twice per year. The drug manufacturer offers financial assistance, but having no insurance could increase our costs associated with this.
The nest egg
These last few years have felt impossible, and it’s been hard to not feel discouraged. My husband’s job offers amazing benefits, including an employee stock-purchase plan. His investment portfolio has $60,000, but it can be tricky to liquidate given the way restricted stock units are taxed. We both have a 401(k), his totalling $20,000 and mine just over $56,000.
We also hold a high-yield savings account with a balance of about $43,000 and a 5.1% interest rate, as well as a CD with about $10,500 and a 4.5% interest rate. We have never owned a home, and clearly make too much money for any sort of down-payment assistance. We currently live in the Denver metro area (one of the most expensive metro areas to be in).
We would like to start investing in equities, but I don’t want to liquidate our savings and become house poor. We are willing to move outside of the Denver metro area, but we both want my husband to keep his job with his amazing health insurance. We’d love to start our little family, but without a home, it feels bleak.
Do you think we’ll ever own a home?
Looking for Hope in Colorado
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Dear Looking for Hope,
Yes, 1,000 times, yes. You have to believe you can do it in order to do it, and you already earn more than the median wage in the U.S. (which hovers at nearly $46,000 a year). You are also a double-income household, which helps enormously. There are millions of Generation Z and millennial Americans out there trying to get a foothold on the property ladder solo.
Most people in their 30s would give their two front teeth to have more than $50,000 stashed away in a CD/high-yield savings account. That’s exactly the right thing to do in this current environment of high inflation. And given the strong U.S. jobs figures released last week, it seems less likely that the Federal Reserve will cut rates in the short term.
You are both still so young, and you are doing everything by the book, and you’re not taking any unnecessary risks. Thank God you have health insurance through your husband’s employer, and you are managing your illness. So far, so good. It may feel bleak, but you don’t want to buy a house with interest rates over 7%, so you still have plenty of time.
The average home in the Denver metropolitan area costs $579,019 on average, and prices have remained pretty steady over the last year (rising just 0.7%), with 48% of homes selling below their listing price and nearly 30% of homes selling above their listing price, according to the most recent data from Zillow Z.
The hard truth is that many homebuyers break the “30% rule,” which states that you should limit the size of your total housing repayments — mortgage, taxes and insurance — to 30% of your monthly income. If you were to buy a house at the current market rate, you’d be facing a monthly mortgage payment of $3,200, assuming a 20% down payment.
It’s not easy, and homeownership comes with maintenance costs and property taxes, but a steep mortgage when you’re 35 may not feel so awful when you are 45 or 55. But nor do I want to sugarcoat the road ahead: It’s not paved with cotton candy. Rising home prices, especially postpandemic, have been compounded by a lack of inventory and stagnant wage growth.
Low tax rate
I’m not the only one who thinks you are in a strong position financially. “Let me congratulate you on your financial discipline and early successes,” Martin Schamis, a certified financial planner with Janney Montgomery Scott in Philadelphia, says of your current situation. “It appears you have successfully been keeping your expenses in check and have enabled yourselves to save both for retirement and for the unexpected.”
Take advantage of your current low income-tax rate. “You don’t mention whether your 401(k) accounts are traditional or Roth accounts,” Schamis says. Given that, plus your ability to utilize the medical cost deductions for expenses over 7.5% of your adjusted gross income and your ability to save effectively, “you should take full advantage of the tax free growth offered within a Roth 401(k) if that’s something that is available from your employers,” he adds.
You also need an emergency fund. “The fact that you have the larger unknown amount of [medical] treatment-related expenses makes me think your current cash position equal to roughly half of one treatment is a more appropriate reserve,” Schamis says. “You didn’t mention the interest rate on your auto loan, but if it is higher than the 4.5% you are currently earning on your CD, you might consider accelerating paying that loan off.”
“Finally, you mention being interested in investing in equities, yet you list $136,000 in investment accounts, including your husband’s $60,000 investment account containing restricted stock from his employer,” he adds. “These accounts should be invested primarily in equities at your age, and you should also be careful to keep an eye on your overall diversification given that nearly half of your investment portfolio consists of a single company’s stock.”
A win-win situation
Still, you are in a win-win situation by having the opportunity to invest in a 401(k) plan. Given that you’re in your 30s, you are not yet close to your peak earning years, which typically happen between the ages of 45 and 54, per data from the U.S. Bureau of Labor Statistics. The maximum individual contribution to a 401(k) is $23,000 in 2024.
You’re already investing in equities through your 401(k) and, given the amount of runway you have before you launch into retirement, you have plenty of time to weather any dips in the stock market. By not having the cash on hand, you have been able to avoid investing in individual stocks and/or attempting to time the market.
Over the next decade or so, you may wish to consider applying for long-term care insurance. According to the American Association for Long-Term Care Insurance, the best time to take it out is in your 50s, but you may want to start earlier given the nature of your illness, especially if it’s a chronic illness that will get more pronounced over time.
In the meantime, it’s important to put the current interest-rate environment in perspective. The 30-year fixed mortgage rate went as high as 16% in the 1980s. Some economists say that 5% is the “magic number” that interest rates must reach before more sellers feel comfortable moving and more buyers feel like the time is right to jump. Historically, that’s a pretty good rate.
Real estate is a long-term investment, especially given that most people — when they sell — will need to pay 6% in real-estate agent fees, attorney fees and other closing costs. Put a figure on paper — how much you will need as a down payment? — and continue to put that $500 aside every month. Having that kind of extra money is a huge luxury for many people your age.
We always think that every chapter — whether we’re in our 20s, 30s, 40s, 50s or beyond — will last forever, but the older you get, the faster time goes because the more years (and, hopefully, retirement savings) and percentage of your life you have behind you. Continue to build your war chest and prepare for the unexpected. Remember: House prices can go down as well as up.
And please, don’t give up.
More columns from Quentin Fottrell:
‘My husband and I have 8 kids’: We have $200,000 in a high-yield savings account at 3.75%. Are we beating inflation?
‘He’s an egomaniac’: My husband said he’ll flush his $1.5 million IRA ‘down the toilet’ rather than split it with me in our divorce. What can I do?
‘He always managed to play golf’: My husband of 14 years never worked and now we’re divorcing. He wants half of my $1 million home. What now?
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