Planning for Retirement: Saving Versus Buying

Contrary to popular belief, a 401(k) plan, an IRA or other tax-advantaged investments is a more effective way to build wealth than owning a home.  As tax benefits of owning a home deteriorates over time, changing the mortgage interest deduction to a refundable tax credit for homeownership with an equal sized refundable tax credit for retirement would “send a signal that there are tax benefits to either approach to building wealth.” 

With the Republicans’ victory in the midterm elections, the federal government is likely to decrease Social Security and Medicare benefits.  However, Congress and the Obama administration will look for ways that push workers to save for retirement.  Apart from Social Security and Medicare, there could also be changes to the Affordable Care Act, pension, and retirement saving that would affect retirement security. 

As Americans are expected to live longer, the increase in life span will have a direct impact on pension plans.  Because plan sponsors will have to raise their projected future costs for higher life expectancy projections, these sponsors are likely to adopt strategies to curb risk, such as offering lump sum payment to retirees.  They may also reduce equity exposure in plan portfolios or transfer their obligations to private insurers by buying huge group annuities.

See Why You’re Better Off Saving for Retirement Than Buying a Home: Retirement Scan, Financial Planning, Nov. 14, 2014.