Life’s Big Buys: Travel Splurges and When to Cut Retirement Savings for a Home Down Payment

Summary

Podcast Summary: NerdWallet's Smart Money Podcast

Episode: Life’s Big Buys: Travel Splurges and When to Cut Retirement Savings for a Home Down Payment
Date: December 8, 2025
Hosts: Sean Pyles, CFP®, Elizabeth Ayoola
Guest Nerd: Kate Ashford
Main Theme:
The episode focuses on making intentional financial decisions around two classic “life big buys”—splurging on experiences like weddings and travel, and carefully weighing whether to reallocate retirement savings towards a home down payment.

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1. Overview

Hosts Sean Pyles and Elizabeth Ayoola open by welcoming Sean back from his wedding and honeymoon, leading to a personal discussion about travel spending and budgeting for major life experiences. The episode then pivots to answer a listener’s complex question: is it wise to divert retirement savings to build a home down payment? The Nerds, joined by Personal Finance expert Kate Ashford, explore smart strategies for balancing short-term and long-term financial goals, with actionable tips for listeners navigating similar crossroads.

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2. Key Discussion Points & Insights

A. Splurging on Major Life Events: Sean’s Wedding & Honeymoon

• Wedding Experience (02:12–04:57)

  • Sean describes his San Francisco City Hall wedding as “one of the most beautiful days of my life,” emphasizing the value of pre-planning and saving to enjoy the big day without accruing debt.
    • “We brought everyone to tears, which I felt very proud about my writing skills for… the harpist was the perfect little addition. I'm glad I splurged on that.” — Sean (02:52)

• The Honeymoon Adventure (05:07–12:13)

  • Sean and his husband traveled across Japan (Hokkaido, Tokyo, Kyoto) and South Korea (Seoul) using a mix of advanced planning and travel hacks:
    • Splurging on culture, food, memorable hotels, and practical conveniences like laundry facilities
    • Reliance on accessible, affordable public transit in Japan vs. inexpensive Ubers in Seoul due to language and fatigue
    • Shopping: combining holiday gift-buying abroad with the “one-for-you, one-for-me” approach, resulting in needing a new bag

• Budgeting for “Big Buys” (12:13–13:41)

  • Sean highlights the power of intentional, long-term saving to permit guilt-free spending on milestone experiences:
    • His total wedding and honeymoon costs: around $26,000, with $2,000 left over in savings
    • Prioritizing what brings the most value and joy—and planning not to overspend or go into debt

• Practical Travel Tips

  • Prepay major travel expenses months in advance to avoid stress
  • Use savings goals (and occasional splurges) to maximize joy and minimize financial regret
  • Consider balancing impulsive travel shopping with donations and mindful gifting

B. Listener Question: Diverting Retirement Savings for a Home Down Payment (19:36–29:26)

Scenario:
Listener (33, stable state job, union inflation raises, 22% of income to retirement, wants to buy ~$400k home, $40k saved, $8k/year for a down payment, $1k/year for repairs) asks:

• “Can I divert savings money from retirement to a house down payment?
• Is diverting future investments to retirement accounts better than using a small sum from retirement for a down payment?” (19:58)

1. Prioritizing Competing Financial Goals (21:13–22:11)

• Kate Ashford (Personal Finance Nerd):
  • “It doesn’t have to be either/or, but you do have to prioritize.”
  • Emergency fund (3–6 months), mandatory/matched retirement contributions, pay down high-interest debt, THEN home down payment.
  • Saving for a home is valid—just order your priorities, don’t sacrifice critical retirement progress.

2. Is It Ever Smart to Pause Retirement Savings? (22:11–22:58)

• Get free employer match first.
• Pay off high-interest debt if necessary.
• “It’s possible to thoughtfully pause… but there are caveats.”—Kate (22:25)
• Divert “some but not all” retirement contributions temporarily, if ahead on retirement targets.

3. Calculating What’s Safe to Divert (22:58–24:34)

• Rule of thumb: Save at least 15% of pre-tax salary for retirement.
• Listener is already saving 22%; average is only ~7.7% (Vanguard, 2024 data).
• Use a reputable retirement calculator (e.g., NerdWallet’s) to ensure you remain on track if you cut contributions, and set an end date to ramp savings back up.

“They might be ahead of where they need to be, in which case they can divert a chunk… Set an end date. This is a short-term goal.” — Kate (24:04)

4. Key Benchmarks (24:34–25:04)

• By 30: 1x annual salary saved; by 67: 10x salary (Fidelity rules of thumb)

5. Risks of Stopping Retirement Savings, and The Case for “Both” (25:04–25:58)

• Compounding growth is lost if retirement stops or is too low.
• BUT: A home is a big asset that may support retirement, so pivoting for a down payment can make sense if it doesn’t “mortgage” your long-term stability.
• “It’s going toward another financial goal that supports your financial future.” — Elizabeth (25:58)

6. Which Account to Tap or Pause? (Retirement Vehicles) (25:59–27:33)

• Listener’s accounts: Roth IRA (after-tax savings, tax-free withdrawals) and 403(b) (pre-tax, like a 401k for government/nonprofits)
• 403(b) money is “locked up” until age 59.5; Roth IRA is more flexible—can withdraw contributions (not earnings) any time, tax/penalty-free.
• If reducing savings, pause or lower contributions to 403(b) before stopping Roth IRA.

7. Using Retirement Accounts for Down Payment (27:33–28:43)

• Roth contributions can be withdrawn for any use; up to $10k of Roth earnings for a first-time home purchase, penalty/tax-free (if account > 5 years old).
• Recommend only using this if absolutely needed and when the purchase is imminent—keep money growing as long as possible.

8. Final Considerations (28:47–29:26)

• Don’t deprioritize retirement if you’re not far ahead on savings.
• For significant money moves, consult a financial planner.
• Acknowledgement: “Super impressed that at 33, our reader is saving 22% of their income… and pre-funding home repairs. We should all be so disciplined, right?” — Kate (29:12)

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3. Notable Quotes & Memorable Moments

• On Personalizing Big Buys:

  • “We brought everyone to tears…I felt very proud about my writing skills for [the vows].” — Sean (02:52)
  • “That's what I love money for…being able to pay for experiences like this.” — Elizabeth (04:47)

• On Saving and Financial Freedom:

  • “I didn't go into debt. I'd been saving for so long and that helped me be in the moment and not be worried about my finances.” — Sean (04:57)

• On Retirement v. Down Payment:

  • “It doesn’t have to be either/or, but you do have to prioritize.” — Kate (21:13)
  • “Generally, the recommended savings level is 15%. So this reader is saving more than that.” — Kate (23:26)
  • “A house…can often be leveraged in your retirement years. So it can kind of be viewed as just pivoting with some of your retirement money.” — Kate (25:49)

• On Roth IRAs for Homebuyers:

  • “Roth IRAs are more flexible…You can take contributions out ahead of age 59½ without taxes or penalties.” — Kate (27:16)
  • “You can take up to $10,000 from a Roth for a first-time home purchase without paying any taxes or penalties.” — Kate (28:13)

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4. Timestamps for Key Segments

• Sean’s wedding & honeymoon stories — 02:12–13:41
• Practical travel (budgeting, transit, accommodation) — 06:00–13:41
• Listener’s retirement v. down payment question — 19:36–29:26
• Prioritizing savings goals — 21:13–22:11
• When to pause retirement savings — 22:11–22:58
• Calculating how much is “safe” to divert — 22:58–24:34
• Benchmarks for retirement savings — 24:34–25:04
• Roth IRA vs. 403(b) analysis — 25:59–27:33
• Roth withdrawals for home — 27:33–28:43

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5. Tone & Style

The conversational style is supportive, encouraging, direct, and practical, with plenty of real-world humor and empathy. Sean and Elizabeth openly share personal anecdotes, making advice feel relatable, while Kate provides a research-backed, “genius nerd” perspective balancing caution with realism.

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6. Actionable Takeaways

• Planning for Big Buys:
  Set a goal, save intentionally, and spend on what matters most—without going into debt.

• Balancing Competing Goals:
  If you’re ahead on retirement savings (22%+ contribution, benchmarks met), it may be smart to temporarily reduce contributions to accelerate a home down payment—especially if you set an end date for this shift.

• Prioritize Employer Match & Avoid Debt:
  Never leave free money on the table (get that employer match), and pay off high-interest debt before shifting funds to new goals.

• Know Your Accounts:
  Roth IRAs allow flexibility, but reserve withdrawals (especially earnings) for when you’re close to buying a home. Use 403(b) as a long-haul vehicle.

• Consult Tools & Pros:
  Use calculators to model your long-term retirement impact before making savings changes. Big decisions? Talk to a financial planner.

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7. For Listeners

Need help with your own money crossroads?
Submit questions via voicemail or text: 901-730-6373 (“N-E-R-D”).

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Next Episode:
How to invest your retirement fund.

Follow Smart Money on your preferred podcast app for the latest strategies, life lessons, and financial nerd wisdom.

Transcript

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[B]

Guess who's back from the depths of newlywed bliss in Tokyo and didn't come bearing any gifts for his favorite Sagittarius co host.

[D]

Sorry, Elizabeth, I'm back, but I just didn't have room in my suitcase. Maybe next time.

[B]

Oh, my God. Fine, I'll take it. But only because I love you. Welcome back, Sean.

[D]

Thank you.

Welcome to NerdWallet's Smart Money podcast where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Pyles.

[B]

And I'm Elizabeth Ayola. This episode we answer listeners question about diverting savings to a house down payment. But first of all, public surface announcement. As you heard, Sean is back and we want to hear all about his wedding and honeymoon. Congratulations again, Sean.

[D]

Thank you. Yeah. After three weeks away, I am finally back from my travels and my wedding and I'm Only a little bit jet lagged. And you know what? I missed you guys.

[B]

We missed you too. So let's chop it up. First and most important, how was the wedding?

[D]

I have to say, it was one of the most beautiful days of my life. Everything went so perfectly, and we were surrounded by our friends and our family. Garrett and mine's vows were so beautiful. We brought everyone to tears, which I felt very proud about my writing skills for. And the venue itself, San Francisco City hall was just delightful. Stunning. The harpist was perfect little addition. I'm glad I splurged on that. And I just wouldn't have done it any other way. I feel so grateful for how that day turned out.

[B]

Oh, I'm so happy you had a wonderful time. And I wish I could hear those wedding vows, but as you said that. A quick side quest. I saw some data in my inbox the other day that said people are using CHAT GBT for the wedding vows.

[D]

I can't imagine. There's a subreddit that I love called Am I Overreacting? And someone said, my husband, or Almost husband, used ChatGPT to write their vows, and I left them at the altar. Am I overreacting? Yes. And, you know, I'm gonna say maybe a slight overreaction, but it's your wedding vows. Put your heart and soul, not a robot's heart and soul, into these words.

[A]

Exactly.

[B]

And before we move on from that, somebody that I know used ChatGPT to write an apology note, and that didn't go well either to their partner?

[D]

No.

[B]

Okay, so we're gonna move back onto the blissful wedding ceremony. What were the most indelible moments from the ceremony and reception?

[D]

The ceremony itself. Just being in San Francisco City hall, the space, is stunning. And being there with Garrett, seeing him in this beautiful setting, being there together to celebrate our love, was perfect. So that was it. Just being in the space together. And the reception, I think part of it that was really fun was that we had fairly informal seating, so I could hop around to a bunch of different tables and chat with everyone. And then for the reception, the party part of it, we went out in the Castro. And I'll never forget the image of my mom dancing to Carly Rae Jepsen at my favorite gay bar in the Castro. It was just the best.

[B]

Wow. You see, this is what I love money for. I think money is about being able to pay for experiences like this.

[A]

Right?

[B]

These lifetime experiences. So I'm sure it was worth every.

[D]

Penny, especially because we didn't go into debt for It I'd been saving for so long, and I think that helped me just be in the moment and not be worried about my finances, because I knew it was all covered.

[B]

Well, now we want to hear about the honeymoon. We want to hear about Tokyo. Was it everything that you thought it would be? Was it more?

[D]

Yes. Well, to be totally clear, it wasn't just Tokyo. For my honeymoon, Garrett and I traveled quite a bit. We first went to the northern part of Japan, this region called Hokkaido, which is kind of like a rural area, and went to a spa there for a few days. Then we went down to Tokyo, and we were there for five days. Then we hopped down to Kyoto, and we're there for about four days. Then we went to Seoul, South Korea, and we were there for almost a week. So we went to all these beautiful, different places. Tokyo was so fun. I felt like I was living in the future because they just have society, like, done right there. Like, people are polite, the streets are clean. You can get amazing food at convenience stores in a way that you simply cannot in America. I walked over 20,000 steps pretty much every day, and I never felt healthier and just more relaxed at the same time.

[B]

I will say I have a couple of friends who have been to Japan, and they all give that same feedback that it's like living in the future. Now, I'm curious, since you were city hopping, how was the transportation and how.

[A]

Much did it cost?

[D]

I don't have a number for you because I spent this money back in July. I paid for it way back then just to have it all covered. But in total, we had about seven flights throughout all of our travels. And so that was kind of a lot by the end. But the travel itself was pretty easy. I was worried about taking airlines that were based in Japan or based in South Korea, but there was English on every flight. And I. I also, fortunately, didn't feel like I was pulled between too many cities too quickly, because we had enough time to, like, relax, unpack our suitcases in each location, and really feel grounded there, which I think was something Garrett and I really wanted for our honeymoon.

[B]

Oh, that's so important. Otherwise, you go through all the motions, and then you feel exhausted. And it's really hard to be present when you're tired all the time. Right. So I love that you guys took those breaks. And then I'm curious about, like, the public transportation. Did you take any buses, any trains? Were those, like, being in the future, too, if you did?

[D]

Definitely. In Tokyo, we took a lot of trains because the infrastructure There is just so accessible and really affordable too. It's the best way to get around the city. We only took a car to the train station when we were going to Kyoto because by that point I had acquired so much stuff. I had to buy a new bag that I had filled with all of my stuff.

[B]

So you're one of those chefs I'm.

[D]

About to schlep that. Yeah. Well, I knew that I was going to do that going into my trip and I did all my Christmas shopping while I was over there. So it wasn't just stuff for me. Although I was doing the classic one for you, one for me purchasing scheme. And I'm delighted to say I have so many new clothes that look so great on me, including this beautiful sweater that I'm wearing right now.

[B]

And y' all can't see, but me and Shawn are twinning right now.

[D]

We're both wearing beautiful blue sweaters. So check the social clips to see how nice we look. By the end of the trip, though, I'll say that I was experiencing what I'm calling exhaustion fatigue. And in Seoul, we didn't take public transportation one time over the course of the six days we were there in part because we went to the train station to load up a card and they wouldn't take foreign credit cards to pay for to buy a transportation ticket. Yeah. So at that point we were like, well, I'm just going to get Ubers because they were super cheap there. Like my Uber from the airport to Seoul itself, which was about an hour drive, was $40.

[B]

Shut the front door.

[D]

Yeah. And because we were so exhausted from at that point, you know, about three weeks of travel, we said, let me just take ubers everywhere. And 30 minute Uber was maybe $6. And so I think I probably spent about a hundred dollars over the course of the week on several Ubers, which really is a pretty good deal and well worth it because we were so exhausted and you know, at that point in a trip, we're just trying to like, enjoy things but not feel too much of the mental strain of like, okay, let me figure out this whole new transit system in a language I don't understand.

[B]

Yeah, that's the part that stresses me out about going to a non English speaking country. And of course it's my responsibility to learn some of the language. But yeah, it can be pretty stressful. You know, as you were talking about packing or rather buying things and needing an extra suitcase, I thought about great money saving hack that I use sometimes when I travel.

[D]

Yeah.

[B]

And I do not buy another suitcase. Sometimes I just leave things that I'm not going to wear anymore at the airport when my suitcase is too full. Yes, I know. It's pretty ridiculous.

[D]

You'll buy things. Things there and leave it there.

[B]

Things I brought. Yeah. I'd be like, well, I don't really need these pajamas anymore. I don't really need this T shirt. And then I'll just leave the things at the airport so that my baggage is not overweight.

[D]

Very ridiculous. That's kind of wild, Elizabeth. I can't imagine just partying with myself. For me, I will find a way to slam my suitcase shut. I don't care how full it is. But, yeah, maybe I'm just a hoarder. I can't get rid of my stuff like that. No.

[B]

And maybe I'm just ridiculous. That is not a real money saving.

[D]

You are a little ridiculous.

[B]

All right. So when I travel, Sean, I spend the most on food and accommodation. That's usually where most of my money goes. And then childcare because, you know, I'm a single mama and someone's got to watch IO when I don't bring him. So what were the most expensive line items in your travel budget?

[D]

Well, perhaps not surprisingly, the flights were a little expensive. Getting to and from Japan and everywhere else we went. And then hotels, too. They are decently affordable. In Tokyo, we stayed at this hotel that was really bizarre. I wanted to get us a room that had laundry in it. And so I found this place that seemed kind of nice, had laundry, was fairly centrally located. We get to the hotel, it turns out that this room that I booked, which is a VIP suite, is in the basement. It is really long. It's about as long as our house is here. And every surface is covered in mirrors and there are chandeliers about every. It is just like the most glittering, shining room you've ever imagined. There's a karaoke setup in it. It was kind of crazy, but somehow that was the most affordable room that we booked for the entire trip, but also the most gaudy, too. So I was happy to get a good deal on this totally ridiculous suite that we stayed in for a little while. Yeah.

[B]

Mirrors everywhere. Sign me up. And don't call me vain, but I like to look at myself.

[D]

Yeah.

[B]

Was there anything in particular in terms of cost that did surprise you in your travels?

[D]

A lot of it was just how affordable food was in particular. I mean, in Japan, I had the best version of Japanese food that I've ever had in my life, of course. And also the Most affordable, like in. In Portland. Here, my favorite ramen place, A bowl of ramen is going to run me close to $20. And I had a better version of ramen in Tokyo, and I think it cost me maybe the equivalent of $10. So that was surprising, just how accessible the convenience stores are. People talk about these a lot with Japan trips. You go into a 711 or a Lawson's and you get like, a little onigiri or an egg sandwich or a drink, and it amounts to three bucks, and that's your lunch for the day, and then you're just back out exploring again. So I found it to be much less expensive than visiting a city like New York or Chicago.

[B]

Well, it sounds like your money was well spent, but is there anything that you would do differently, budget wise, now that you're back home, now that you're looking at your bank account, you know, is there anything you do different?

[D]

I'm gonna say no, because guess what? I still have money in my savings account that I put aside for this trip. So I did pretty well.

[B]

Wait, you got some leftovers?

[D]

Yes, I have over $2,000 left in my savings account.

[B]

Oh, that's a win. A win is a win. Yeah, that is a win.

[D]

So I think in total, between my wedding and my honeymoon, I spent around $26,000. So not nothing. Especially because a lot of those expenses came over the past month. But again, I've been saving for so long, and I still have money that I was planning to set aside for it. So guess what? I'm buying myself a new bed frame.

[B]

Oh, look at you.

[D]

I'm fully in nesting mode now that I'm back home.

[B]

Really, really, really love that for you, Sean. Now, my last question for you is. Now, I know you were saying that you're going to have to replenish your emergency savings over time, which makes sense. What are you planning to cut back.

[A]

On so that you can do that?

[D]

It's going to be my clothes budget because I already bought so many beautiful garments in Japan and in Korea that I don't need anything else. And in fact, I need to start donating things because I'm pretty much out of storage. So I don't need to buy any more clothes, and so I won't. And I will use the money that I would have spent on whatever I wanted to buy, throw that right into my emergency savings or other life goal. Savings.

[A]

That's right.

[B]

You just got to reshuffle the buckets.

[D]

But, hey, Elizabeth, I know you've been asking me questions, but I haven't heard about your life over the last month, so I want to hear hotspot questions for you. What was your rose, thorn and bud, about your finances over the last three weeks? Rapid fire.

[B]

Wow. Okay, let me see. A rose is. My birthday is December 18th, and since I was 35, I do a countdown to my birthday. So I'll do 35 to 35. I'm turning 37 this year, so I started over the past three weeks, my 37 to 37. I have been surprisingly, or maybe unsurprisingly, spending a lot of those things because I find one joyful thing to do a day on food. So I've been eating a lot. And for me, that is a rose.

[D]

Wait, so just so I'm totally clear, you have. It's almost like an Advent calendar of 37 days leading up to your 37th birthday. Okay, I love that.

[B]

Exactly. And I have to choose one thing a day that brings me joy. And I'm just learning how much I like to eat because most of these things have been food related.

[D]

Okay, hold on. I love that. But quick aside, because my brain is looking ahead to the Future. When you're 100 and you're going to be spending a third of a year celebrating your birthday.

[B]

Do you know what? Do you know what? I'm not going to lie to you. Let me tell you something. So the first year I did a list, like, I wrote down 35 things I'm going to do this year. I was like, 1, 2, 3. 37. It was getting better. You got to get creative. So that's why I was like, you know what? So I haven't pre planned out the things, and sometimes I just look for a joyful thing in my life day. Right. So it's just about being present and aware of what's bringing me joy that day. But yeah, to answer your question, yes, exactly. At 100, I'm gonna have to start 100 days early, and it's gonna be a long journey, you know?

[D]

Yeah. Well, that's really sweet. That's a good rose. So what about your thorn in your butt?

[B]

Ooh. So I would say my thorn this year is figuring out or over the past couple weeks is trying to figure out Christmas gifts alongside the sales because.

[A]

I wanted to capitalize on Cyber Monday and Black Friday.

[B]

And I get really stressed out with buying things for other people because I want to buy something that they like.

[A]

And then I have to read all these reviews.

[D]

Not just junk.

[B]

Exactly.

[D]

And also, the sales are not really sales anymore. It's like, guess what? They raised the price two weeks ago just to lower it for Cyber Monday. We see your game and we're not.

[B]

Playing it or $2 off. Like, yeah, thanks. No, thanks.

[D]

Right.

[B]

So that definitely stressed me out. And then what was the last one? We had a rose.

[D]

We had a thorn, your bud. What are you looking forward to?

[B]

Ooh, of course. I'm looking forward to my birthday and Christmas last year. IO and I riding around neighborhoods to look at lights. And it was such a soppy, beautiful moment for us that I was almost crying. So I just. It just makes me so happy. Yes, I'm looking forward to doing that again this year.

[A]

And.

[B]

Oh, I didn't tell you, Sean. I would say this probably goes in both the rose and bud category, but I haven't celebrated my birthday with people since my 21st birthday. So this year I'm doing a gathering with some of my close friends, and we're gonna make gift boxes for homeless people. So that's gonna be how I celebrate my birthday.

[A]

Yes, I'm really to that.

[D]

You're a good person. I love that.

[A]

Oh, thank you.

[D]

Well, thank you for giving me the rundown on your finances over the past few weeks, because I've missed you. It's good to talk with you again.

[B]

Yeah. Thank you. All right, well, now that we've discussed all that you spent and you hit me with those surprise questions, I think it's a good time to mention the sweepstakes. If you haven't heard about it already.

[D]

NerdWallet has an ongoing debt free December sweepstakes happening to help people pay off debt. Every day from December 1st through the 25th, one person will get $100,000 from NerdWallet. You can enter for free at nerdwallet.com debtfreedecember or in the NerdWallet app.

[B]

And Sean, while you were away, our sweepstakes were announced on Jimmy Kimmel Live.

[A]

Did you know that?

[D]

I saw that. That is so crazy how cool it is.

[B]

I felt like, mama, I made it. We're on Jimmy Kimmel. All right, in a moment, we're gonna answer listeners question about whether it's a good idea to reroute savings for retirement to a house down payment.

[D]

But before we get into that, listeners, a reminder for you to send us your money questions. Maybe you're wondering about the best way to save up for your own wedding. Or you see the holidays rapidly approaching and are wondering about how to get the best prices on everything from presents to airfare to lodging.

[B]

Whatever your money question, Is we, the nerds are here to help you. Leave us a voicemail or text us.

[A]

On the nerd hotline.

[B]

The number is 901-730-6373. If you need it again, it's 901-730, nerd.

[D]

Or email [e-mail] okay, let's get to this episode's money question. That's up next. Stay with us.

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Feel your body relax, and let go.

[E]

Of whatever you're carrying today.

[F]

Well, I'm letting go of the worry that I wouldn't get my new contacts in time for this class. I got them delivered free from 1-800-contacts. Oh, my gosh, they're so fast.

[B]

And breathe.

[E]

Oh, sorry.

[F]

I almost couldn't breathe when I saw the discount they gave me on my first order.

[E]

Oh, sorry.

[F]

Namaste.

[E]

Visit 1-800-contacts.com today to save on your first order.

[C]

1-800-Contacts.

[A]

We're back and answering your money questions to help you make smarter financial decisions.

[B]

This episode, we're using a question from.

[A]

A listener who sent us a text.

[B]

But before that, let's introduce today's guest co host.

[A]

For this segment of the show, we have our fellow nerd, Dalia Ramirez. Hey, Dalia.

[G]

Hi, Elizabeth. It's great to be here.

[A]

All right, Dalia, since you are my guest co host today, I'm gonna let you do the honors of reading the listener question.

[G]

So, hi nerds. I'm writing in with a question about balancing savings goals, specifically whether in my current budget, I can reallocate some of my savings from retirement to a home down payment. Here's the information I think is pertinent. I'm 33 years old, with steady work in state government, with modest annual pay increases and union negotiated inflation adjustments. I currently contribute about 22% of my pre tax income to retirement. I have a competing financial goal, which is that I would like to purchase a home in the near future. In our area, homes that would suit my family's needs currently cost about 380 to 425,000. We anticipate living in this area for seven to 10 more years. My partner and I currently have $40,000 saved for combined down payment and closing costs. I set aside about $8,000 a year towards a down payment, and this year I started a separate savings bucket for home repairs that will grow at about $1,000 a year. So my question is this Can I divert savings money from retirement to a house down payment? And is diverting future investments to my retirement accounts better than using a small sum from my retirement to use towards a down payment? Thank you for your input.

[B]

To answer the listener's question, we have.

[A]

Kate Ashford, a core personal finance nerd who is not a stranger to the pod. Welcome back, Kate.

[E]

Hi guys. Thank you for having me again so.

[B]

The listener seems to be struggling to.

[A]

Decide financial priorities as it relates to saving. Now, Kate, if you had to provide a hierarchy for savings, what would that list look like? Sometimes people get hung up on it being either or when it can be both, as the listener seems to be doing.

[E]

It doesn't have to be an either or, but you do have to prioritize. Generally speaking, financial priorities might look like having a good emergency cushion of three to six months of living expenses. You want to make sure you're making any kind of mandatory or matched retirement contributions. This reader did mention to us that they have a mandatory 10.5% contribution to their pension plan, so that's a given. If your company offers a match, you should probably be contributing enough to get that bare minimum. Make sure you're paying off any high interest debt that's going to be high on the list. And then after that, saving for a home down payment can fit right in, along with maybe making additional retirement contributions and then longer term goals like college savings. So you just have to put things in an order for yourself.

[G]

Kate, does it ever make sense to hit the brakes on retirement savings to fund a different financial goal? At NerdWallet we suggest getting at least a 401k match so you're not leaving free money on the table. But for example, if you have compounding high interest debt, it can make sense to redirect some funds.

[E]

Dalia, it's definitely possible to thoughtfully pause your retirement savings to pursue other goals, but there are caveats, right? You mentioned a 401k match, so if you're eligible for one of those, you should consider saving at least enough to get that match because that's free money. And you also mentioned high interest debt. It's probably worth your while to get that off your plate or at least set up a solid payoff plan before you really get aggressive about retirement savings. But after that, you can pivot some cash toward other important short term goals. Generally I wouldn't pivot all cash, but that will kind of depend on how you're doing on retirement savings.

[A]

Now if the listener does reduce their retirement savings, how can they determine how much to reduce it by? A benchmark for retirement savings is at least putting aside 15% of your pre tax salary every year. But that amount could vary depending on how much you have saved. Now the listener said they're putting around 22% towards retirement savings, which is pretty high above that benchmark. How can you decide whether it's a smart financial move to reduce that percentage?

[E]

This listener is well above average. As you mentioned, they're putting 22% away for retirement each year. There's a number out there, I went and looked it up, of people who have a 401k retirement fund. The average employee is saving 7.7% of their income, so that's from Vanguard for 2024, so not as much as 22. Generally the recommended savings level is 15%. So this reader is saving more than that. So they may be ahead of the game, but they're going to have to do some math. I recommend using a retirement calculator. NerdWallet has one to get a sense of what you'll need and whether you're on track to get there with your current contributions. They might be ahead of where they need to be, in which case they can divert a chunk of their savings toward a home down payment. Easy. Then see what happens to your numbers if you divert, let's say, 7% of your income toward a house down payment for a year or two and save only 15% of your income. Set an end date. This is a short term goal, so at a certain point the idea would be to go back to your original savings level as needed. And if you're way behind on retirement, diverting retirement funds to a house down payment might not be the wisest course of action. But this reader doesn't seem like they're in that position.

[B]

I know when I first started trying.

[A]

To calculate my retirement savings or how much I should have, I did use a calculator. But sometimes it still seemed overwhelming. So for anybody out there who may feel like that, another way to look at it is that we recommend having having at least by 31 times your annual salary saved.

[E]

That's a very good marker. Our reader is 33, so they can check in on this kind of immediately. And in case you're wondering, the goal overall is 10 times your salary by age 67. Those are the rules of thumb from Fidelity.

[G]

So Kate, what are the pros and cons of halting retirement savings? We know losing out on compound interest is the biggest downside and the more you invest, and the longer you invest it, the greater the benefits for your savings pot long term. Are there more pros and cons we should know about?

[E]

Well, Dalia, for sure you're going to miss out on that growth over the years between now and when you retire. People talk a lot about the power of compounding and can kind of make your eyes glaze over, but they're not exaggerating. The earlier you start, the less money you have to save each year. But the reader wouldn't be stopping all savings. They're just talking about decreasing the amount for a period of time. And that money isn't just disappearing into a black hole. It's going to be put into a house, which is also a big asset that can often be leveraged in your retirement years. So it can kind of be viewed as just pivoting with some of your retirement money.

[A]

I often have apprehension about minimizing my retirement savings, but I like how you're looking at it as it's going towards another financial goal that supports your financial future.

[E]

Exactly.

[A]

All right, let's move on to the next part of the listener's question. Whether they should divert funds from their Roth or 403. Now they told us that they currently contribute about 7% of their after tax income to max out their Roth IRA. And they contribute 4.5% of their pre tax income to a 403 with an annual 0.5% increase up to 12.5%. Stay with us guys.

[B]

I know that was a lot of numbers.

[A]

Now both are retirement accounts, but they offer different benefits.

[B]

Kate, can you talk through the pros.

[A]

And cons of diverting funds from each?

[E]

So these accounts are different in a few ways. Roth IRAs are funded by putting in after tax contributions. So the money in there grows tax free and all qualified withdrawals in retirement are tax free. So that is a nice account to have. A 403B works like a 401K but it's for employees at public schools, nonprofits, some faith based organizations. And it works in that contributions are pre tax and they reduce your taxable Income, but you will pay tax on future withdrawals. You could make an argument for either choice, but one thing to keep in mind is that Roth IRAs are more flexible. You can take contributions out ahead of age 59 and a half without taxes or penalties. The 403, on the other hand, your money is kind of locked in there until age 59 and a half unless you meet some pretty specific requirements. So it's probably worth considering stopping or lowering the contribution to the 403 in the short term and keeping some or all of the Roth contributions. Because the money you're putting into the Roth is more accessible if you need it.

[G]

So that 403 money is locked in, but the listener wants to know whether they should consider moving a small amount from their Roth towards their home down payment fund. We know a benefit of Roths is you can take contributions, not earnings, without paying penalties or taxes. Can you touch on this?

[E]

So because a Roth IRA is funded with after tax money, all your contributions are available for you to take back out without penalty or taxes at any time. That's contributions, not earnings on those contributions. So this does require some pretty good record keeping. And to be clear, I'm not advocating using your Roth as a piggy bank, but it does have some flexibility.

[A]

If the listener is a first time home buyer, they may be able to benefit from a Roth withdrawal too, right?

[E]

Yes. So in addition to the flexibility to take out contributions at any time, if the listener is a first time home buyer, sounds like they are, they might be able to benefit from a Roth withdrawal of earnings. You can take up to $10,000 from a Roth for a first time home purchase without paying any taxes or penalties. But honestly, I probably wouldn't move any money from the Roth until it's nearing time to put money down. I would concentrate on building up that down payment fund with the knowledge that if you need it, you can pull out up to 10,000 from that Roth.

[G]

Right. They're not moving immediately, so there's little time to get that money built up.

[E]

Let that grow a little.

[G]

Yes. Is there anything else the listener should consider?

[E]

Kate, I do want to mention that my answer might be different if this reader was saving less for retirement. If someone had texted us and said, hey, I'm saving 10% toward retirement and I want to cut that in half to save for a house. I would really want them to look at the math and make sure their retirement still looked okay if they did that. And for anyone really considering a big money move like this, it's probably a good time to talk to a financial professional to see what they recommend. And I do want to say out loud, I'm just Super impressed that at 33, our reader is saving 22% of their pay toward retirement and has a pension and has thought ahead to pre fund home repairs. We should all be so disciplined, right?

[A]

We really should. All right, thank you so much for coming on Kate to answer this question and also lending your expertise.

[E]

Thank you for having me.

[G]

And that's all we have for this episode. Remember, listener that we're here to answer your money questions. So turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730 N E R D. You can also email [e-mail] and of course.

[A]

We want you to join us next time to hear about how to invest your retirement fund. In the meanwhile, follow Smart Money on your favorite podcast app that's Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.

[G]

And here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

[A]

This episode is produced by Tess Viland. Hillary Georgie helped with editing. Nick Krismi mixed our audio and a big thank you to NerdWallet's editors for their help.

[G]

And with that said, until until next time, turn to the nerds.

[H]

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