And of course the NYTimes calculator also factors in home prices appreciation. This is not really academic; it's fairly important. In cheaper housing markets with limited growth, it might be cheaper to rent because the expected cost of a major repair (and return on that investment) are both so low.
Of course, you can't ever recognize the value of your house unless you sell it and move somewhere cheaper (or buy a 2nd house and rent out the first one, but that's just another side of the same coin).
I think this highlights how expensive living is and how little income is. If we're going to have a "free economy" without an end of life safety net (i.e. Social security) then it has to be possible to work a lifetime and retire on savings made. But most indicators show little to no saving for most people. It sure seems something is deeply wrong.
There are most certainly many things deeply wrong.
Most people have negative savings every year. They have more debt. If one has bought a house, then it is very easy to go into more debt every year, when house prices are rising. Then they fall.
Since the beginning of written history (the first written records are records of debts) there are stories and parables about the evil of debt and the need for debt jubilees. Also the idea that lending with interest is immoral is found through out time. Having such easy access to debt/credit from strangers seems not to work well over the long term for human societies.
I mean, is it a good thing that one can get a "Rocket Mortgage" where you can "Get Approved Fast. Get an approval to buy a home or refinance your mortgage in minutes."? [1]
> Since the beginning of written history (the first written records are records of debts) there are stories and parables about the evil of debt and the need for debt jubilees. Also the idea that lending with interest is immoral is found through out time. Having such easy access to debt/credit from strangers seems not to work well over the long term for human societies.
I suppose shrimp and pork and beef are also unquestionably evil... Debt didn't historically work because property rights were poorly recorded. This meant enforcing one's debt involved mafia tactics. Modern debt is cleaner and subject to bankruptcy, a process that occurs on a case-by-case basis when it's needed, a far better solution than randomly cancelling debt every so many years.
Easy access to credit is an important component to a free market. Making borrowing illegal just leads to all sorts of inefficient contortions to do it another way.
For example, businesses often need to borrow money in order to get started.
For another, "bridge" loans and "revolving lines of credit" allow a business to operate when the timing of receiving payments does not line up with the timing of when bills are due.
Forgiving debts means that interest rates must rise to cover those losses.
I agree credit can be very useful and good, but most people are not using debt to try an investment that allows them to pay back the debt and make some profit. They are buying consumables: dinners out, clothing, gadgets, vacations, cars, even housing is really a cost of something you are using. A depreciating asset and not an investment. I think it would be really good to use some of this education everyone gets to get across the fact that consuming using debt with is very bad. Some counter to all the other marketing in the world that says, "Buy, buy, buy". Not immune to it myself.
The problem again is that consuming using available funds is not possible if you need to work 10 years of median salary for it - that in the more affordable states.
The figures mentioned use full salary, in reality you might get some 50% of that possible to allocate to paying off the debt. You still get to pay utilities, cost of life for the family, transportation, education and probably extras.
Note I've even ignored any savings - and with high mortgage debt, you can be wiped out by any more expensive health problem.
True; house prices are crazy high in some areas. A decent 3 or 4 bedroom house can be built for 100-200 thousand dollars. In these expensive places, land is the major cost. People can bid up the land cost of housing because of loans especially ones with low down payments. If people had to have %50 down, like not that very long ago, buying a house would be much more inline with incomes. Anywhere where rent is much cheaper than house payment + prop tax + upkeep, the prices are being push higher by home ownership subsidies/lock out of one kind or another.
As a counterpoint Arab traders did very well for hundreds of years without interest (until Europeans came). Interestingly they are probably where our free market ideas come from: there should be no worldly market interference, the market is shaped by the invisible hand which means the rules given by god.
Interest based credit is important for capitalism (use money to make more money), but certainly not for market economies (Use money as a tool to exchange goods you want/need). Both are distinct and can exist independently.
Islamic banks are issuing loans without interest to this day. They have a clever fee schedule though, and I'm not sure it works out any differently for the borrower at the end of the day.
There was a Planet Money episode [1] where a bank setup a no-interest loan to a Muslim family because Islamic law prohibits charging interest.
In the end it was basically just a workaround that was effectively the same as charging interest and that same Muslim family ended up taking a conventional loan when they moved instead of an "Islamic-compliant" mortgage because it was a lot easier.
We no longer have a free market. Central banks print and buy stocks, bonds, and mortgage backed securities. China prints and their citizens buy homes in foreign countries.
Most people I know that don't have white collar jobs don't have any expectation they will ever be able to retire. I'd be very surprised if the majority of americans were in a position to be able to retire.
A lot of people with white collar jobs don't have any expectation they'll ever be able to retire either. As much focus as there is on web development/software engineering/other tech related jobs with decent income possibilities, a lot of other white collar jobs don't pay all that well at all.
I'm in my thirties and work for a government funded research organisation doing work on a particle accelerator. I don't expect or want to retire, but then 'retirement' means different things. I would definitely want to retire if I worked as a brick layer.
It may not be typical anymore but CalPERS is a defined benefit plan and the largest public pension fund in the US. [1]
The problem is they bump up those benefits when their fund is doing well but when it isn't doing well there's little or no adjustment. It's so big it's fund is influential in the market and also in politics.
Telling people to "not fall for it" sounds like talking about what people will currently be offered. Given the level of misunderstanding about pensions generally I think just telling people this is dangerous.
Parent says "Pensions are a Ponzi scheme, don't fall for it."
While public pensions like social security have certain features of a Ponzi scheme, they can be sustainable forever, unlike other Ponzi schemes. In fact, they can be more efficient than everyone saving and investing for retirement themselves: https://www.economist.com/news/economics-brief/21727877-fina...
No, the math is very different from a Ponzi scheme. Pensions are awesome if you don't have kids.
Consider if you have a 5% chance to die at or before 65 who get's the money? Well what if you could get together with 10,000 people and split it with those who live. Now your investments are boosted by those who die and there is no downside as who cares what happens after you die.
Unfortunately, such schemes are illegal unless it's though a company. Because really the long tail is living to 120 which means you don't want to aim to be broke at say 95 then turn 95 and be in good health.
PS: Remember, returns after inflation can be <3% over 20 years. I want a hedge for that risk other than just having a massive amount of money I can't really spend.
I agree that private pensions are not necessarily Ponzi schemes. It is possible that they are operated that way. It is also possible that they are operated like an actual investment fund. Without looking at the books, it is difficult to tell.
However, social security and other government funded pensions are Ponzi schemes. The money you pay in is given to people who are retired at that time. The money you get out is paid by people who are working at that time.
Keeping retired people alive requires devoting some proportion of current economic output to their welfare. Whether that proportion is paid from private savings, public savings, or current taxation ultimately doesn't change the fact that it comes out of current production. You can't save (nice) food, health workers, winter heating, etc.
So the real fight is what proportion of current output goes to old people. Private schemes try to ensure wealthy old people get the biggest slice. Public schemes are more vote driven. It doesn't make them Ponzi schemes.
Social Security is running a ~$2.79 trillion dollar 'surplus' as they have collected more than they have paid out. Which means they have not been paying out 1:1 with money paid in.
It's also not just a pension fund as you can receive benefits well before 62. Death of spouse with under age children or permanent disability.
Now, this does not mean it's a great or even a good investment. But, the trade off of safety vs returns is not actually that bad assuming you live longer than average.
PS: Another way of looking at it is there are no 100% safe approaches to investing 10's of trillions of dollars. Your stuck leveraging GDP growth which is only slightly better than inflation and frankly that's what SS does.
Yes, pensions can be awesome. One of my colleagues is retiring soon with a very nice final salary pension the likes of which will not be seen by anyone starting now.
Most pensions also will not be enough to cover long term care costs if you are unlucky enough to get some form of dementia.
Pensions as a concept were a great idea when life expectancy was shorter and most people could mostly look after themselves in old age.
I don't think they can survive large numbers of people living until 90 -100 with dementia and needing 24h care.
Lets hope the Ai/robotics gamble pays out.
I don't get how this is supposed to fit in with the fact that discrimination against older workers is a big thing. Who is supposed to be hiring these 70 year olds with no savings?
I know a dude who makes $800k/yr and still lives paycheck to paycheck. Lack of savings is not necessarily caused by lower income. People tend to shovel money out the door as quickly as it comes in.
I read a great article at some point that advised people who wanted to be writers to just go do that while they were young and poor and not wait until they had saved up money to finance it. Because the reality is that once you have the fancy high paid job and the fancy house, car and clothes that not only go with it but are essentially required, the amount you thought you needed changes.
For certain jobs, expensive suits and other things you might think are frivolous luxuries are nearly impossible to do your job without. It can be nigh impossible to unhook your income from this treadmill where the faster you run, the further behind you fall in certain metrics.
Millionaires are sometimes like the guy who needed the cart to carry cart repair supplies: Once you are rich and famous, now you need that mansion, not for the space or prestige but for security purposes, and you may also need a bodyguard, a bullet proof limo, etc.
I think you are having the wrong mindset. A stronger social net would not solve this problem of relative cost of housing. Already, there are many many homes that are very affordable for the median income.
I agree, but I think it's more expensive to figure out who has brought their fate upon themselves and doesn't really deserve the money and who genuinely just had bad luck. That's why I'm in favor of a universal social safety net, for example via a basic income.
The problem is you're not thinking of externalities of homelessness, much like a functioning health system w/ insurance.
Ultimately, saying neither of these is worth spending communal government revenues on collapses down to "I'm okay with people dying on the street."
Which is not offered as a straw man, but because that's a very possible outcome. And given that, if we're not okay with that, then we're going to spend significant resources to keep that from happening (ER care, homeless programs).
Social security attempts to invest that earlier in a person's life, so that the money treating more dire circumstances can be saved.
... And also allows for some measure of human dignity for those who might not have been taught about compound interest at age 6.
Reverse mortgages are an option too, especially around retirement. I didn't do too much research and I'm sure on paper it's a scam, but with no kids and no one to really give the house to beyond charity when my wife and I kick the bucket, I am considering making my place part of my retirement plan.
Or just sell it to pay rent for the rest of your life. Either way it's a pretty big boon.
There's something called Bare Ownership sale that's popular among widows with no children here in Uruguay, that retain the right to use the property until death :
bare-ownership is a right of virtual ownership. For example, the bare owner of a property has no right to occupy it or rent it out. On the other hand, when the usufruct holder dies, full ownership of the property is carried over to the bare owner without any liability for inheritance tax. He can then dispose of it (by sale, gift, bequest, etc.) as he wishes.
The maximum duration of usufruct generally corresponds to the usufruct holder’s lifetime – in that case, it is called usufruit viager, or life usufruct. But it is possible to set a predefined term (10 years, for example), which is called temporary usufruct.
PARIS, Dec. 28— Andre-Francois Raffray thought he had a great deal 30 years ago: He would pay a 90-year-old woman 2,500 francs (about $500) a month until she died, then move into her grand apartment in a town Vincent van Gogh once roamed.
But this Christmas, Mr. Raffray died at age 77, having laid out the equivalent of more than $184,000 for an apartment he never got to live in.
Not really. End of life care can drag on and is expensive. Even if you're really lucky and net $1 million from your house a single illness could wipe that out quickly. Retirement homes cost much more than comparable rent/mortgages.
Those things can be mitigated with some smart financial planning. You can take your lump sum and buy an annuity and use those annuity payments for health and long term care insurance. I would also add long term care insurance is doubly important for the grandparent commenter who doesn't have children who could help care or support them if something goes wrong.
Annuities are mostly scams with so many knobs & levers that are designed to get unsavvy people on hook with weird mix of investment and insurance. best to keep them separate.
Selling it means I can't live in it anymore. Renting is the ideal option, but if I'm 85 years old, maintaining a rental property or dealing with property managers would be tricky at best.
(My actual goal with my current property is to sell it once I'm having trouble going up the 3 flight of stairs leading to my unit and using the money to live in a much smaller place as people mentionned already)
Of course, you can't ever recognize the value of your house unless you sell it and move somewhere cheaper (or buy a 2nd house and rent out the first one, but that's just another side of the same coin).