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A house for sale.J.P. MOCZULSKI/The Globe and Mail

The millennial's dilemma: Buy a house or save for retirement?

If forced to choose, retirement wins. But maybe the two goals can co-exist, even in the expensive housing markets in cities like Toronto and Vancouver. The challenge is to find a home that you can afford while maintaining a commitment to saving for the future.

The usual measures of house affordability compare your mortgage plus other debts and property taxes with your income. Let's tweak things by adding retirement savings to the picture. In fact, let's say a house is unaffordable if owning it will prevent you from putting a slice of every paycheque into long-term savings.

My Real Life Ratio spreadsheet will help you do this. It's designed for people who have a house price in mind and want to see if they can afford the payments plus other costs such as household upkeep and maintenance, car payments, daycare and retirement saving.

Let's say you and your spouse have combined household take-home pay of $80,000 (roughly $100,000 on a pretax basis) or $6,666 monthly. The Real Life Ratio applies a common standard of saving 10 per cent of take-home pay, which here means you'll be putting away $666 each month. There's a place in the spreadsheet to type both of these numbers. Once you've done that, you're ready to go house shopping.

When you find something you like, add in the following data for your potential home into the spreadsheet: Projected monthly mortgage and property tax payments, an estimate of your monthly house insurance costs and estimated utility costs (add condo fees, if applicable) and an estimate of maintenance and upkeep costs. There are other blanks in the spreadsheet to fill out, but let's ignore them for now.

The Real Life Ratio spreadsheet automatically calculates whether you're in good shape to handle your mortgage and any other debts plus save for retirement. Let's say you've crunched the numbers and they're all good. Now, try mapping out your ability to keep up a strong saving program as life gets more complicated and expenses mount up.

Having kids will be the real test because daycare costs can exceed $1,000 monthly a child in a big city. If you foresee having one or two car payments to make in the future, add those as well.

The ideal house, price-wise, would be one that lets you keep your savings program intact not only after you buy, but as you start raising a family. If you're confident your income will rise steadily, you can add a higher income to the spreadsheet to see whether that keeps you in line on saving.

It's okay if you have to squeeze your savings when you have kids in daycare, even if you get down to 4 per cent or 5 per cent of take-home pay. What you're trying to do in using the spreadsheet to model the future is ensure that there will always be at least some room for saving.

This kind of planning is mandatory for millennials because many of them will not have company pensions that combine with the Canada Pension Plan and the old-age pension to meet all or most of their retirement-income needs. The percentage of employed people covered by company pensions is in a long-term decline, while millennials may find themselves working on a temporary or contract basis where no pension is offered.

Adding retirement saving to a housing-affordability analysis will keep some buyers on the sidelines, particularly in hyper-expensive cities such as Toronto and Vancouver. But buying a house that won't let you save for retirement is the kind of financial mistake that quietly compounds over the decades in the form of a missed opportunity to make money in a diversified portfolio of stocks and bonds.

No, a house that rises in value won't provide substitute wealth. House prices could fall or stagnate for a long period of time. And then there's the fact that houses are not a useful form of wealth for generating retirement income. In many cities, you'll have only a modest amount of money left over after downsizing to a condo or small house.

Future financial security for millennials will depend more on strong retirement savings than home ownership. A house that prevents people from saving for retirement is a bad buy and should be avoided.

Are you under 40 and uncertain about  your finances? Do you have questions about debt, savings, real estate, investing or planning? Click here to share your thoughts.