Housing Affordability Matters. But So Does Not Running Out of Money in Retirement

Don’t risk becoming house-rich now and cash-poor later in life.

Right now, the White House is floating an idea that sounds really appealing on the surface: allowing Americans to tap their 401(k) retirement savings to help fund a home down payment. The goal is straightforward — help more people buy homes.

I understand why this proposal is getting traction. I’m not against it – it would be like taking a stand against peace on earth. For many would-be buyers, the down payment is the single biggest barrier. And retirement accounts often represent the largest pool of money people can tap into.

But this is where I pause.

Because retirement plans were built for a very specific purpose: helping people accumulate enough money so they don’t outlive it. And we don’t have to look very far for proof of what happens when retirement plan guardrails loosen.

Research from the Center for Retirement Research at Boston College shows that retirement “leakage” — money taken out before retirement and never replaced — reduces retirement wealth by about 20% over a lifetime. When people leave jobs, roughly 40% cash out their 401(k) instead of rolling it over. Most don’t intend to drain it– they just never manage to rebuild it.

I think back to being in that exact position – in my mid-30s, when I was just at the point of buying a house on Cape Cod. I wanted a chunky 20% down to avoid paying PMI. That was the whole challenge. And when looking at the sources to fund that downpayment, my retirement plan was sitting there with its hand raised.

And yes, employees can already use their 401(k) for a down payment today — but only by taking a loan. That’s if their employer’s plan allows it. That option comes with strict limits ($10,000), mandatory repayment schedules, and real risk if someone changes or loses their job.

Let me walk you through how I think about this. Say I needed $50,000 for the down payment. I had two choices: borrow that $50,000 as part of a 30-year mortgage, or pull it from my 401(k) to avoid borrowing it.

If I borrowed that $50,000 through a 30-year mortgage at around 5% — a typical rate back then — the total interest over 30 years would have been roughly $46,000.

If that same $50,000 stayed invested in a 401(k) earning a reasonable 7% annual return, over 30 years it would grow to more than $300,000.

So yes, using retirement money might save you $46,000 in mortgage interest. But is it worth costing you over $300,000 in lost retirement growth?

Looking through the lens of the actual trade-off you’d be making is a game changer. So you have to factor in what it’s really costing to raid your retirement plan, which forces an honest question: If you need to tap your 401(k) to buy a home, is that truly an “investment” decision, or is it a lifestyle purchase you want very badly at that moment? Can you really afford the house?

There’s nothing wrong with wanting the house. But policy shouldn’t drive your decision-making. Housing affordability matters. So does not becoming house-rich and cash-poor later in life.

There are many personal financial considerations that go into deciding whether a home is truly a good investment. Your employer is not your financial advisor and can’t offer the kind of deep-dive analysis you’d need to make that decision smartly.

Retirement plans already carry enough responsibility. Turning them into a housing affordability tool risks creating a problem that won’t reveal itself until it’s much harder to fix.

If this becomes law or rule soon, expect a gradual rollout starting perhaps in 2027 for early adopters, not an overnight change.

If you’re thinking about a home purchase, or any other major financial milestone, Wealthramp is here with a trusted network of fiduciary, fee-only advisors who work for you — and only you.