Personal finance advisor and investment guru Dave Ramsey has suggested a unique strategy for Americans grappling with the challenge of saving for a home down payment amidst escalating inflation and living costs.

What Happened: Ramsey has proposed that prospective homebuyers could temporarily halt their retirement savings to expedite their down payment savings. This suggestion comes at a time when many young Americans are finding it difficult to juggle rent payments, student loan repayments, retirement plan contributions, and general living expenses.

According to the report by Street, while most financial advisors advocate for setting aside 15% of annual income, inclusive of employer match, towards retirement plans, Ramsey’s view is that a temporary cessation of contributions to 401(k), IRA, or 403(b) plans could assist buyers in achieving their down payment target more quickly.

“If you're planning to buy a house in the near future, it's okay to hold off on your retirement savings and put that money toward your down payment,” Ramsey stated. He stressed that this should be a short-term pause, and contributions should recommence once the home is bought.

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However, Ramsey also issued a warning against premature withdrawals from retirement accounts to fund a home, as this could result in taxes, penalties, and long-term financial instability.

“Don't borrow from or cash out your retirement accounts to speed up your down payment savings. Not only will you get hit with taxes and early withdrawal penalties, but you'll also tank the long-term growth of your retirement savings -- costing you hundreds of thousands of dollars at retirement,” Ramsey advised.

Why It Matters: Ramsey’s advice is unconventional and may not suit everyone’s financial situation. It is crucial for potential homebuyers to consider their long-term financial goals and consult with a financial advisor before making significant changes to their savings strategies.

While accelerating the home buying process might seem appealing, it’s essential to weigh the potential risks and benefits.

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