2022 Real Estate Observations (student loans, job market, maintenance)

[CaseyB]

We have both.

[id77]

Originally Posted by matrix5k

Wow, so 21.3 million of those 22 millionaires don't even depend on their 401k. I gotta start buying property.

It's not just property, it's also liquid assets in taxable accounts. There's three major limitations to the 401k/IRA approach for higher net-worth individuals:

1. Contribution limits. Even with the after-tax 401k to Roth rollover option, the contribution cap is $61k for those under 50, including any employer matches. Add in another $6k for Roth IRA. Taxable brokerages have no such limitations.

2. Withdrawal limitations. 401k/IRA, and in particular Roth versions, are all well and good if you're 60+ years old, but there's heavy penalties for withdrawing before then. Taxable brokerages have no such limitations.

3. Inheritance/trust limitations. 401k and IRAs going to a spouse are fine, but beyond that they're among the the worst type of accounts for tax purposes.

That's not to say these accounts are bad; in fact, I would think nearly all HNW people are maxing them out each year (along with HSA). But the limitations, and especially the first one, make growing them at the rate of other assets very difficult and they tend to fall behind as one's net worth increases.

[bricka]

the truly staggering numbers are the net worth percentiles for folks who have reached the standard retirement age

ignoring home equity: 1 in 2 U.S. adults aged 60-79 have less than $100,000 in assets

the boomer generation going into retirement is extremely house-poor. likely hoping to string together social security checks.

[id77]

Originally Posted by bricka

the truly staggering numbers are the net worth percentiles for folks who have reached the standard retirement age

ignoring home equity: 1 in 2 U.S. adults aged 60-79 have less than $100,000 in assets

the boomer generation going into retirement is extremely house-poor. likely hoping to string together social security checks.

Remember that the Boomers are also the last generation where pensions were fairly prevalent. My parents have very little in assets, but between two pension checks and two Social Security checks each month, they're OK in terms of income. For that generation, 401k was a supplemental "third-leg" of the savings stool and not the major dependency that later generations will have upon it.

[New Englander]

Originally Posted by bricka

ignoring home equity: 10 in 100 U.S. adults have at least $1 million in assets
counting home equity: 12 in 100 U.S. adults have at least $1 million in assets

this is based on federal reserve data

based on this, 2 out of 12 millionaires are using home equity to count themselves as millionaires.

Great data. Many people have a myopic view of millionaires and the value of a million.

For the average person, I see three ways of getting to $5M net worth by the time they reach 65:

1. Save in their retirement accounts (401K/403B, Roth IRA). Easiest yet takes a longer time.
2. Buy income-producing real estate. Note I am referring to investment real estate not your primary home. The RE doesn't have to be residential, it could be commercial, industrial, mixed use, storage etc. It takes a medium effort and lots of people talk about it yet few act on it.
3. Start/buy a business. Ideally, this business is scalable and has many exit options. Most challenging in terms of success, yet very rewarding financially.

Beyond that, stuff like your primary residence, inheritance, or other windfalls should not necessarily be counted upon. If they materialize, great. If not, you're still in a good position if you have pursued a few of the above-listed items.

Since this is a real estate thread, let me clear up some misconceptions that people have about their primary home. While many enjoy seeing zestimates when prices go up and will be upset when they go down, these are all paper gains/losses. Your primary home is a place where you live, pay down the mortgage and unless you have roommates/are AirBNBing, do not make any income from it. If you do cash-out refinance, you'll have to pay more each month, and if you sell it, you are likely to use the (hopefully positive) proceeds to purchase another primary. Unless you have fully paid off the mortgage, it's difficult to consider it as a true asset -- I know that this runs counter to what many personal finance experts say, however one needs to understand the basic definition of 'investment.'

[massnative71]

Originally Posted by id77

Age factors into it as well. A 60 year old today with 2-3 million (plus Social Security kicking in soon) can probably retire modestly but comfortably, but a 40 year old with 2-3 million who tried to retire would have to severely restrict their spending in order to make it, despite what the FIRE blogs would have us believe. Workers with 25+ working years remaining really should be aiming for 8-10 million before putting in their notice, with that number decreasing as they get older.

This is total nonsense. Going by the 4% rule, 3 million will leave one with 125,000/year. That is not counting social security, other income and assets.

[bricka]

Originally Posted by id77

Remember that the Boomers are also the last generation where pensions were fairly prevalent. My parents have very little in assets, but between two pension checks and two Social Security checks each month, they're OK in terms of income. For that generation, 401k was a supplemental "third-leg" of the savings stool and not the major dependency that later generations will have upon it.

100%

however, the younger cohort of boomers (those who are 60-65 today) probably tended to have less access to pensions, and ALSO were not really aware they had to make up for it in some way (taxable assets or 401k). their companies probably encouraged them to save in their 401k, but their parents didn't do it, so they disregarded the advice.

this is the group of people who basically woke up one day recently and realized they have nothing to help them retire except social security.

for what it's worth i know a handful of these folks personally who are in this predicament. it's unfortunate.

[id77]

Originally Posted by massnative71

This is total nonsense. Going by the 4% rule, 3 million will leave one with 125,000/year. That is not counting social security, other income and assets.

Ah, yes, of course. Unless...

1. The 4% rule is based off a person with an expected lifespan of 30 years (or less), and is not to be confused with money available in perpetuity. A 40 year old relying on the 4% rule may well run out of money by the time they're 80, barring better-than-average success in investing in stocks (which itself is most definitely not a strategy to rely upon).

2. A 65 year old couple retiring today can expect to pay around $315k in health care costs over their lifetimes, but a 40 year old doesn't have the benefit of Medicare and can expect to pay double that or more over their lifetime for insurance premiums for 25 years plus whatever out of pocket. Most of those super-saver 40 year old workers have free or employer-subsidized insurance today, and I bet most haven't a clue just how much their plan actually costs each year.

3. Congratulations Mr. FIRE, you just gutted your Social Security benefit when you do hit 67-70. Given that one's benefit is indexed over a 35 year period, even if one gets sufficient credits in time to quality (which most 40 year olds should have), that same person just zeroed out over half of that 35 year period, years that usually were the highest earning years.

4. That's $125k per year before taxes. But with everything else on this list, this one's pretty minimal. Even then, $125k doesn't go very far around here, which means downsizing and/or moving somewhere not very interesting and cutting back on travel and all those other things we keep saying we'll do in abundance once we get the time to.

5. You're making financial estimates based on the costs of goods and the rate of inflation in 2022. In 2042 or 2062, those costs are almost certainly going to be higher and significantly so. Will you still be comfortable with $125k/year in 20 years? 40 years? I doubt it. And because of #3, Social Security isn't going to help you very much later.

Yeah, I'll play it safe and aim higher, and I'm not alone.

[msRB311]

I think we must know different types of boomers. I know lots of boomers who are retired (or not) physicians, lawyers, business owners with many assets and own several homes.

Remember all the folks around here in their 20's and 30's whose parents give them 400k + towards a house? Yeah their parents are boomers.

[bricka]

Originally Posted by msRB311

I think we must know different types of boomers. I know lots of boomers who are retired (or not) physicians, lawyers, business owners with many assets and own several homes.

Remember all the folks around here in their 20's and 30's whose parents give them 400k + towards a house? Yeah their parents are boomers.

ok?

did you read the fed data i posted?