As a Gen Xer, I'm terrified when I think about retirement. Yes, I've saved far more than the average. Yet that shift of risk from employer to employee means that I need to be an expert in money...
As a Gen Xer, I'm terrified when I think about retirement. Yes, I've saved far more than the average. Yet that shift of risk from employer to employee means that I need to be an expert in money management to have any reasonable chance to maintain quality of life when (and if!!!) I ever get to retire.
The constant threat that Social Security may become illiquid and that the retirement age may go up further push the possibility of ever retiring further away.
Retirement, once something to aspire to, now feels like a pipe dream privilege solely for the exceedingly wealthy. The rest of us have to work for it, in some form, until we end.
I’m going to tell you a story about my dad and his journey to retirement. While he is a boomer, his path does not follow the traditional career trajectory. He started working as a teenager helping...
I’m going to tell you a story about my dad and his journey to retirement. While he is a boomer, his path does not follow the traditional career trajectory. He started working as a teenager helping farmers in his town up in the Catskills in Upstate NY, doing odd jobs and working in hay lofts. He tried going to art school but wasn’t strong academically. He continued with several jobs in his 20s and 30s, working displays at the Harvard Coop, working on a farm out in Lexington, and doing office plant care and replacement. He was also in a band that did some minor tours, but never went big. Ultimately, in 1992, at 35, he started working on an apple farm outside Albany, near where he was born. He’s been there ever since, mostly doing cider-pressing. He never had a pension, and only got a 401(k) through the apple farm. He did luck out with living on the farm (no commute), but otherwise he didn’t work a lucrative career.
During those thirty years, he was able to save up around $90,000 in his 401(k), and $85,000 in his savings account. Last year he bought his first ever house (a 1/1, 480 sq. ft. on 1/2 an acre, around 30 minutes away, for $85,000), and his second ever new car (a Kia Soul, his first new one was a 2007 Toyota Yaris). He’s done a bit of work to make the new house his own and a bit more comfortable (e.g., a mini-split heat pump for heating and cooling, and a concrete floor in the basement). Even after all this, he still has a good bit of money left over (I think around $75k). While he will depend on social security, his benefits are enough ($1500/month) that even the mandatory cuts (around 25%) that would take effect in 2034 if funding does not improve, he would still have enough to live on with supplements from the 401(k). He also has a lot of skills from his time on the farm that he can save money on home repair (as he has done with his renovations). His hobbies aren’t super expensive (hiking, museums, art, music) and he’s already pretty frugal to begin with.
What I am saying, in this long post, is that you should still be able to enjoy a fruitful retirement where you are comfortable and happy. Based on what you’ve mentioned, you shouldn't have issues with finances.
So there's two types of pension programs: defined contribution and defined benefit. Defined contribution is functionally the same as what we have now; it's just proxied to a 3rd party. I don't...
Yet that shift of risk from employer to employee
So there's two types of pension programs: defined contribution and defined benefit. Defined contribution is functionally the same as what we have now; it's just proxied to a 3rd party. I don't really see a benefit over than administrative ease, but I'd take the pros of owning your own account for that.
For defined benefit, I mean, people don't even believe in social security, which is run by an entity that can literally print money. I wouldn't go as far as to say that defined benefit pensions are "ponzi schemes", but there is an element where it's demanding something unreasonable, and that the result can be epic failures.
The county government where I live still has a defined benefit pension, and its one of the healthiest government pensions in the coubtry. They very carefully manage the investments (which are...
The county government where I live still has a defined benefit pension, and its one of the healthiest government pensions in the coubtry. They very carefully manage the investments (which are substantial). The contribution requirement (a fraction of salary) is going up, but it's still a great perk of working there.
Obviously, many pensions are not so carefully managed (and protected from being raided for other spending), but it's at least an existence proof that it doesn't have to be a scam.
Sure, but I’d argue that’s as much a matter of luck than anything else. A defined benefit pension run by anyone other than the federal government is an invest organization that MUST make back a...
Sure, but I’d argue that’s as much a matter of luck than anything else. A defined benefit pension run by anyone other than the federal government is an invest organization that MUST make back a certain return on its investment over the long term.
That’s just fundamentally not a something you can guarantee. Not even capitalist are so demanding of their property. Investment companies do not guarantee a set roi for perpetuity.
I'd say most people believe in social security. I'd say what most people don't believe is that it won't be perpetually weakened and dismantled by politicians refusing to fund it properly. The fact...
I'd say most people believe in social security.
I'd say what most people don't believe is that it won't be perpetually weakened and dismantled by politicians refusing to fund it properly.
The fact that we still have a cap on social security wages is all the proof I need of that.
We could fix the various deficit and shortage problems in short order if we all collectively understood that we need to revoke pretty much all tax cuts since 2001 for people making over $50k or so.
Same situation as you, and frankly the spouse and I are assuming that we'll remain working in some capacity "from can 'til can't". But a great deal depends on our respective cognitive abilities to...
Same situation as you, and frankly the spouse and I are assuming that we'll remain working in some capacity "from can 'til can't". But a great deal depends on our respective cognitive abilities to maintain marketable skills, if our bodies won't tolerate physical labor.
(archive link) Of course they are selling new products: Retirement savings might not give the full picture due to inheritance? Real estate is more expensive and families are smaller, so each kid...
Now that Americans have amassed $10.6tn in defined contribution plans, asset managers and plan sponsors are trying to hang on to those assets for as long as possible by offering the income products inside the wrapper of retirement accounts.
“Many plan sponsors would prefer to have the money stay in the plan,” says JPMorgan’s head of retirement Steve Rubino. “We are genuinely reaching a tipping point.”
State Street Global Advisors developed a new product for the $32bn University of California retirement system aimed at this issue. It pairs a “target date” fund, which lets workers pick when they want to retire and automatically invests their contributions in a changing combination of stocks and bonds, with an optional annuity that starts annual payments 15 to 20 years after retirement. Retirees can feel comfortable using savings because they have guaranteed income coming later.
Retirement savings might not give the full picture due to inheritance? Real estate is more expensive and families are smaller, so each kid inherits more. This varies widely, though. It’s another source of inequality.
It's also not a sure thing that parents will keep them. A lot of older people fell prey to reverse mortgage schemes without realizing that the money they got for it would have to be repaid at the...
It's also not a sure thing that parents will keep them. A lot of older people fell prey to reverse mortgage schemes without realizing that the money they got for it would have to be repaid at the time of their death. When my grandfather died, my grandmother and I had to move to an apartment because there was no workable plan that would make staying there affordable. Both of my parents died having spent their way out of their houses, and I had zero inheritance.
The pitch is that you’re just spending down the equity of your home. They discourage you from asking too many questions and target people who don’t fully understand what they’re getting into. It’s...
The pitch is that you’re just spending down the equity of your home. They discourage you from asking too many questions and target people who don’t fully understand what they’re getting into. It’s highly predatory.
I find it hard to believe that people were getting giant loans from the bank without realizing they'd have to pay it back at some point. Yes, you're spending down your equity, but presumably you...
I find it hard to believe that people were getting giant loans from the bank without realizing they'd have to pay it back at some point. Yes, you're spending down your equity, but presumably you needed that money because you don't have other cash available to be spent instead. If you're 70 and have 500k in equity and 0 in savings, it's like having 0 in equity and 500k in savings. Your living expenses have to come from somewhere.
You can’t imagine predatory lenders or bankers looking for commission payments not doing a good job of explaining the negative possibilities? I don’t know about you but this is my expectation of...
You can’t imagine predatory lenders or bankers looking for commission payments not doing a good job of explaining the negative possibilities? I don’t know about you but this is my expectation of any lender.
I remember in the early naughts that commercials for reverse mortgages were everywhere. Lenders were raking in money hand over foot at the time.
People often don't have a good understanding of compounding effects, but to wholesale not understand that they have to repay a loan is not something I've come across, no.
People often don't have a good understanding of compounding effects, but to wholesale not understand that they have to repay a loan is not something I've come across, no.
I think it does happen, although honestly I have no earthly idea how. It's like the people who say, "Well, I'm bad with money. I didn't know I had to pay a credit card back, I thought it was free...
I think it does happen, although honestly I have no earthly idea how. It's like the people who say, "Well, I'm bad with money. I didn't know I had to pay a credit card back, I thought it was free money."
I'm not sure what salesperson could ever say that could convince me that they were giving me an infinite money glitch.
You’re talking about elderly people who were dealing with what was at the time an entirely new type of loan that was generally not advertised as a loan but as a way to “get access to money you...
You’re talking about elderly people who were dealing with what was at the time an entirely new type of loan that was generally not advertised as a loan but as a way to “get access to money you already have”.
I’m not proposing any changes. I’m just talking about the way things are, if for nobody else but the people in my life. There were alternative things that my parents and grandparents could have...
I’m not proposing any changes. I’m just talking about the way things are, if for nobody else but the people in my life. There were alternative things that my parents and grandparents could have taken that would have benefit me, but they didn’t make those choices. I wouldn’t even say that the choices they made were selfish. Maybe a little foolish with the benefit of hindsight, but they didn’t have that at the time.
I thought the implication was that you knew, since you said a lot of older people partaking in reverse mortgages do not know the debt has to be repaid. How do you know that without knowing what...
I thought the implication was that you knew, since you said a lot of older people partaking in reverse mortgages do not know the debt has to be repaid. How do you know that without knowing what their thought process is?
At the time they were receiving payments on it I knew little about reverse mortgages and probably had heard about them having it passively one or two times. It only became an issue after my...
At the time they were receiving payments on it I knew little about reverse mortgages and probably had heard about them having it passively one or two times. It only became an issue after my grandfather died. I don’t think that my grandmother understood exactly what that reverse mortgage entailed at the time.
How long until reverse mortgages coming due translates into headlines about violence against the current residents by jilted heirs? Ok, the more likely scenario is that banks have a portfolio of...
How long until reverse mortgages coming due translates into headlines about violence against the current residents by jilted heirs?
Ok, the more likely scenario is that banks have a portfolio of properties they struggle to unload due to hostile squatters rather than a vigilante going John Wick on a family of four who unjustly moved into their childhood home.
Comment box Scope: personal take Tone: neutral, trying to be thoughtful in a direct/slightly 'tell it like it is' way Opinion: yes Sarcasm/humor: none I once remarked on this website what...
Comment box
Scope: personal take
Tone: neutral, trying to be thoughtful in a direct/slightly 'tell it like it is' way
Opinion: yes
Sarcasm/humor: none
I once remarked on this website what exacerbates this issue: the modern cultural insistence that aging parents continue to live separately from their children until they die, whether or not they are retired. In their own homes (which cost money), with their own cars (which cost money), and with all associated amenities (which cost money).
I heard back, "Yeah but I would never be able to live with my mother-in-law. Can't stand her." Well, OK. I can't dispute that. But "finance's hardest problem to solve" becomes much less hard when we don't have a ridiculous amount of duplicative individual spending. Living by yourself fundamentally consumes more resources than sharing space with at least one other human -- this is a fact of the universe -- and resources are finite. Government, markets, and other abstractions do not change that basic reality.
People have their reasons for wanting their own space, and that's fine. I'm not judging your decision-making. I'm sure your unique situation gives you reasonable reasons to do what you do. But it's important to recognize that this decision is probably being subconsciously made for you by collective social impressions of what "the good life" constitutes (at least partly). Intergenerational households are perceived by the American middle class as stressful, argumentative, even unlivable - and something for poor people. There's a stigma. I suspect that stigma informs people's reasons more than they want to admit.
I think most of that stigma is not correct. I also think that most people have gotten so used to this idea of strict family separation that they forget all the great things that come with having a "village" in your household. Some of these are financial -- you don't need as much (or any) daycare if grandpa is home. Some are didactic -- young folks learn a lot from old folks if they're exposed to them, and this learning often contains things that peers, parents, and schoolteachers literally cannot explain or understand. It is also bidirectional: older people learn from their youngers! Our severely age-divided society contributes to severe political divisions because people literally do not attempt to engage with each other, and much of that correlates with age; zero-communication ultimately leads to an intractable state.
I remember some people replying that intergenerational households have more capacity for abuse. I thought about that, and find it vacuously true -- social actions are a function of social systems and expectations, and "solving" every social problem by... dismantling social connections only technically solves it. (A solution to "my finger hurts" is cutting off your arm. Now you don't have a finger, so by definition it can't hurt. But now you don't have an arm, and your arm probably hurts more than your finger ever did.) There are better ways to look at family dynamics than what we've sleepwalked into over the last few decades, which is just isolation.
At a macro level, beyond any particular individuals, Western culture discourages understanding other people. Since at least the 19th century our aspirations have been almost exclusively individualistic, allowing for romantic partnerships and very small family structures which serve individual desires. The expectations that have led to that preference can change -- because they are rooted in culture, and culture is dynamic. I'm not a commune hippie, but there's something to be said for being able to think about living on the Earth with family, friends, neighbors as a collective action, not something everyone is fighting through by themselves.
Obviously my preference would be to redistribute wealth in a more equitable way so that this issue is less pertinent in general, but demographic changes will always result in some resource shortages.
I agree with your take. I think that the loss of the intergenerational household is one of the major victims in the rise of strong individualism, much like you said. It seems like more and more...
I agree with your take. I think that the loss of the intergenerational household is one of the major victims in the rise of strong individualism, much like you said. It seems like more and more people are unwilling or even unable to think in terms of being part of a collective, or even of things like public welfare that doesn't personally benefit them.
I'm one of those people who has some of those exceptional problems you were talking about. My father was abusive; we couldn't do anything about it because he had psychological problems that nobody could force him to have addressed. My grandmother is in a nursing home right now simply because we don't have a house she could move to where anyone would be able to take care of them.
I don't see any of these things as positives; they're simply the only ones that made sense for us to do. Taking care of my grandmother's health while seeing her mental capacity slowly fail would be painful, yes, but at the same time so is not having the availability to see her very frequently and seeing the big drops in her mental health that happen between visits and the guilt that it may be happening faster because I'm not there to trigger her memory to keep it up can also be very overwhelming. And if I had stayed in my father's house, the best case scenario I would have had was becoming imprisioned for a crime or mental illness, and the worst case scenario would have been me being driven to murder or suicide.
Here in the US, socialism has a really bad name because people seem to hate the idea of spending on the public good. But I think one of the reasons why people have this opinion is because of their dislike or hatred of others. That might be the thing we need to fix in order to fix society, but I couldn't even imagine to come up with a solution that anyone would tolerate.
some excerpts Asset managers are offering insurance which some argue can replicate some of the features of defined benefit contribution plans (where you are made minimul guarantees by your employers).
some excerpts
“We are at a critical crossroads. Millions of Americans are at risk of running out of savings in retirement,” said Catherine Collinson, president of the non-profit Transamerica Center for Retirement Studies. “It’s a societal test — how will we help those who are ageing in their time of need, when they no longer have resources available to them?”
Most Gen Xers have 401k plan balances that are woefully inadequate to fund a long retirement. The median Gen X household has just $40,000 saved for retirement, and 40 per cent of all 401k accounts have a zero balance, according to the National Institute on Retirement Security.
Asset managers are offering insurance which some argue can replicate some of the features of defined benefit contribution plans (where you are made minimul guarantees by your employers).
“The annuity is an insurance policy against outliving one’s assets,” said Brendan Curran, SSGA’s US head of defined contribution. “Bridging the spending and savings gap that exists today [is] the next frontier for 401k design.”
But asset managers said they were fighting a battle with customers who have a negative association with annuities as expensive, complex, and illiquid products. “People hear pay cheque for life, they think ‘great’. Then they hear the word annuity,” Ackerly said.
Yea, but generally for most insurance companies there's some legal recourse if they don't do the one thing. And that you can switch insurance companies the day they declare bankrupcy. When talking...
Yea, but generally for most insurance companies there's some legal recourse if they don't do the one thing. And that you can switch insurance companies the day they declare bankrupcy.
When talking about paying a premium for 40+ years to get a return for 20-30ish stability is far more important.
If an insurer starts to have financial troubles, the insurance regulator in the company's home state works with the guaranty association to find another company to take over its business […]
If regulators can't find another insurer, the guaranty association coverage kicks in. Benefit limits vary based on your state of residence. Most states cover $250,000 in annuity benefits, but New Hampshire has a limit of just $100,000 (as does Puerto Rico). Twelve states and the District of Columbia have limits of $300,000 or more. Go to the Web site of Gallanis's group at www.nolhga.com for links to your state association.
Often the state has provisions to ensure that people in this situation are not left in the lurch, usually funded (as with banks) by a levy on the industry. For example in the UK the FSCS will find...
For a life insurer to go bankrupt something usually has to go very wrong (they usually invest in bonds which they hold to maturity and run a diversified portfolio so there's nothing inherently highly risky - of course bad actors do bad things to try to boost profits but hopefully your relevant regulator has teeth to prevent this), and even so the insurer usually has a lot of assets which can go some way to making policyholders whole.
An interesting observation is if you look at the of chart of US Labor Force Participation Rate and US Debt as % of GDP, they are inversely correlated, suggesting that as the population ages,...
An interesting observation is if you look at the of chart of US Labor Force Participation Rate and US Debt as % of GDP, they are inversely correlated, suggesting that as the population ages, Debt/GDP goes up.
But also, the of chart of US Labor Force Participation Rate and US Fed Balance Sheet is inversely correlated as well, so as the population ages out, the balance sheet increases.
So a bit cyclically, as the population gets older and the labor force participation rate goes down, monetary and high street inflationary pressures go up. More entitlements need to be structured to ensure retirees have livable income. But those same inflationary pressures also make it so the purchasing power of that income goes down, so those entitlements need to increase to compensate.
There are all sorts of things that correlate, though, so having two graphs that go up is pretty weak evidence. If you pick from all the graphs of things that go up over time, that’s a lot of...
There are all sorts of things that correlate, though, so having two graphs that go up is pretty weak evidence. If you pick from all the graphs of things that go up over time, that’s a lot of graphs. If you allow inverse correlations then you also have all the graphs of things that go down over time to choose from.
So this is mostly about the stories we tell that connect two graphs. I can think of more stories.
Savings and investment are pretty much the same thing. Equities, debts, and real estate are your major investment types. Rich retirees have a lot of investments, so there being more of them allows for increased debt somewhere else.
What kind of debt? Debt going up is pretty directly connected to increased real estate prices, education and medical costs. Also, increased government debt.
The country getting richer and increased inequality will also tend to result in increased savings and investment among people who have money.
The opposite of that (a country with low investment) is people having little savings and spending what they earn immediately. The US has a lot of that too, but it also has lots of investment. Inequality results in averages being misleading, so graphs of summary statistics hide a lot.
The US Debt climbing is almost exclusively due to the Bush and Trump tax cuts. People who weren't alive in the 90s might not realize: There was much talk about a government surplus and how we...
The US Debt climbing is almost exclusively due to the Bush and Trump tax cuts.
People who weren't alive in the 90s might not realize: There was much talk about a government surplus and how we might finally pay off the national debt. Also much yammering about how the government would waste that money and give it to 'welfare queens.'
So debt started getting paid down, till W Bush took office, slashed taxes on the wealthy, and started a few foreverwars.
To my point above, the 90s had an all-time high peak of US labor force participation. That and the huge stock gains in the run-up to the dotcom bubble led to the US experiencing a rare fiscal...
To my point above, the 90s had an all-time high peak of US labor force participation. That and the huge stock gains in the run-up to the dotcom bubble led to the US experiencing a rare fiscal surplus. It can be also be said Clinton’s tax hikes and austerity measures to trim expenses were a contributing factor among those events.
Tax revenue as % of GDP is relatively unchanged (~19.5%) over last 90yrs even as top income tax rates have come down from >90%. Suggests we can’t tax ourselves out of US fiscal deficit and sovereign debt.
US can tax more if it wants to temporarily rebalance TGA, but inflation and stocks are the only things keeping tax receipts above US interest expenses and Entitlements.
If we really wanted to de-lever the US balance sheet… Treasury tells Fed to revalue gold at $20k/oz, that’s deposits $5T into TGA instantly. Treasury bids $5T in USTs at market prices, that drops debt/gdp from 120% to 70-80% overnight.
In other words, if we increase the top brackets back to those 90% levels (and some capital gains hikes while we're at it), while leaving the bottom alone one of two things happen: We raise more...
Tax revenue as % of GDP is relatively unchanged (~19.5%) over last 90yrs even as top income tax rates have come down from >90%.
In other words, if we increase the top brackets back to those 90% levels (and some capital gains hikes while we're at it), while leaving the bottom alone one of two things happen:
As a Gen Xer, I'm terrified when I think about retirement. Yes, I've saved far more than the average. Yet that shift of risk from employer to employee means that I need to be an expert in money management to have any reasonable chance to maintain quality of life when (and if!!!) I ever get to retire.
The constant threat that Social Security may become illiquid and that the retirement age may go up further push the possibility of ever retiring further away.
Retirement, once something to aspire to, now feels like a pipe dream privilege solely for the exceedingly wealthy. The rest of us have to work for it, in some form, until we end.
I’m going to tell you a story about my dad and his journey to retirement. While he is a boomer, his path does not follow the traditional career trajectory. He started working as a teenager helping farmers in his town up in the Catskills in Upstate NY, doing odd jobs and working in hay lofts. He tried going to art school but wasn’t strong academically. He continued with several jobs in his 20s and 30s, working displays at the Harvard Coop, working on a farm out in Lexington, and doing office plant care and replacement. He was also in a band that did some minor tours, but never went big. Ultimately, in 1992, at 35, he started working on an apple farm outside Albany, near where he was born. He’s been there ever since, mostly doing cider-pressing. He never had a pension, and only got a 401(k) through the apple farm. He did luck out with living on the farm (no commute), but otherwise he didn’t work a lucrative career.
During those thirty years, he was able to save up around $90,000 in his 401(k), and $85,000 in his savings account. Last year he bought his first ever house (a 1/1, 480 sq. ft. on 1/2 an acre, around 30 minutes away, for $85,000), and his second ever new car (a Kia Soul, his first new one was a 2007 Toyota Yaris). He’s done a bit of work to make the new house his own and a bit more comfortable (e.g., a mini-split heat pump for heating and cooling, and a concrete floor in the basement). Even after all this, he still has a good bit of money left over (I think around $75k). While he will depend on social security, his benefits are enough ($1500/month) that even the mandatory cuts (around 25%) that would take effect in 2034 if funding does not improve, he would still have enough to live on with supplements from the 401(k). He also has a lot of skills from his time on the farm that he can save money on home repair (as he has done with his renovations). His hobbies aren’t super expensive (hiking, museums, art, music) and he’s already pretty frugal to begin with.
What I am saying, in this long post, is that you should still be able to enjoy a fruitful retirement where you are comfortable and happy. Based on what you’ve mentioned, you shouldn't have issues with finances.
🙏
So there's two types of pension programs: defined contribution and defined benefit. Defined contribution is functionally the same as what we have now; it's just proxied to a 3rd party. I don't really see a benefit over than administrative ease, but I'd take the pros of owning your own account for that.
For defined benefit, I mean, people don't even believe in social security, which is run by an entity that can literally print money. I wouldn't go as far as to say that defined benefit pensions are "ponzi schemes", but there is an element where it's demanding something unreasonable, and that the result can be epic failures.
The county government where I live still has a defined benefit pension, and its one of the healthiest government pensions in the coubtry. They very carefully manage the investments (which are substantial). The contribution requirement (a fraction of salary) is going up, but it's still a great perk of working there.
Obviously, many pensions are not so carefully managed (and protected from being raided for other spending), but it's at least an existence proof that it doesn't have to be a scam.
Sure, but I’d argue that’s as much a matter of luck than anything else. A defined benefit pension run by anyone other than the federal government is an invest organization that MUST make back a certain return on its investment over the long term.
That’s just fundamentally not a something you can guarantee. Not even capitalist are so demanding of their property. Investment companies do not guarantee a set roi for perpetuity.
I'd say most people believe in social security.
I'd say what most people don't believe is that it won't be perpetually weakened and dismantled by politicians refusing to fund it properly.
The fact that we still have a cap on social security wages is all the proof I need of that.
We could fix the various deficit and shortage problems in short order if we all collectively understood that we need to revoke pretty much all tax cuts since 2001 for people making over $50k or so.
And that’s the rub. It’s not just taxing the rich: the middle class would have to pay, thus any solution immediately gets shut down on election day.
To be fair, I pulled that $50k number of out my butt.
Realistically it could probably be done by just lifting the top two brackets to 1970 levels
Same situation as you, and frankly the spouse and I are assuming that we'll remain working in some capacity "from can 'til can't". But a great deal depends on our respective cognitive abilities to maintain marketable skills, if our bodies won't tolerate physical labor.
We're on the same page.
(archive link)
Of course they are selling new products:
Retirement savings might not give the full picture due to inheritance? Real estate is more expensive and families are smaller, so each kid inherits more. This varies widely, though. It’s another source of inequality.
Unless, of course, your parents live in some place that’s going to be uninsurable due to climate change over the next couple of decades.
It's also not a sure thing that parents will keep them. A lot of older people fell prey to reverse mortgage schemes without realizing that the money they got for it would have to be repaid at the time of their death. When my grandfather died, my grandmother and I had to move to an apartment because there was no workable plan that would make staying there affordable. Both of my parents died having spent their way out of their houses, and I had zero inheritance.
What did they think was going to happen to the debt?
The pitch is that you’re just spending down the equity of your home. They discourage you from asking too many questions and target people who don’t fully understand what they’re getting into. It’s highly predatory.
I find it hard to believe that people were getting giant loans from the bank without realizing they'd have to pay it back at some point. Yes, you're spending down your equity, but presumably you needed that money because you don't have other cash available to be spent instead. If you're 70 and have 500k in equity and 0 in savings, it's like having 0 in equity and 500k in savings. Your living expenses have to come from somewhere.
You can’t imagine predatory lenders or bankers looking for commission payments not doing a good job of explaining the negative possibilities? I don’t know about you but this is my expectation of any lender.
I remember in the early naughts that commercials for reverse mortgages were everywhere. Lenders were raking in money hand over foot at the time.
People often don't have a good understanding of compounding effects, but to wholesale not understand that they have to repay a loan is not something I've come across, no.
I think it does happen, although honestly I have no earthly idea how. It's like the people who say, "Well, I'm bad with money. I didn't know I had to pay a credit card back, I thought it was free money."
I'm not sure what salesperson could ever say that could convince me that they were giving me an infinite money glitch.
You’re talking about elderly people who were dealing with what was at the time an entirely new type of loan that was generally not advertised as a loan but as a way to “get access to money you already have”.
What do you propose changing here? Forcing elderly people to sell their home to unlock money they need?
I’m not proposing any changes. I’m just talking about the way things are, if for nobody else but the people in my life. There were alternative things that my parents and grandparents could have taken that would have benefit me, but they didn’t make those choices. I wouldn’t even say that the choices they made were selfish. Maybe a little foolish with the benefit of hindsight, but they didn’t have that at the time.
There’s not exactly anyone left who can answer that question. 😮💨
I thought the implication was that you knew, since you said a lot of older people partaking in reverse mortgages do not know the debt has to be repaid. How do you know that without knowing what their thought process is?
At the time they were receiving payments on it I knew little about reverse mortgages and probably had heard about them having it passively one or two times. It only became an issue after my grandfather died. I don’t think that my grandmother understood exactly what that reverse mortgage entailed at the time.
How long until reverse mortgages coming due translates into headlines about violence against the current residents by jilted heirs?
Ok, the more likely scenario is that banks have a portfolio of properties they struggle to unload due to hostile squatters rather than a vigilante going John Wick on a family of four who unjustly moved into their childhood home.
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I once remarked on this website what exacerbates this issue: the modern cultural insistence that aging parents continue to live separately from their children until they die, whether or not they are retired. In their own homes (which cost money), with their own cars (which cost money), and with all associated amenities (which cost money).
I heard back, "Yeah but I would never be able to live with my mother-in-law. Can't stand her." Well, OK. I can't dispute that. But "finance's hardest problem to solve" becomes much less hard when we don't have a ridiculous amount of duplicative individual spending. Living by yourself fundamentally consumes more resources than sharing space with at least one other human -- this is a fact of the universe -- and resources are finite. Government, markets, and other abstractions do not change that basic reality.
People have their reasons for wanting their own space, and that's fine. I'm not judging your decision-making. I'm sure your unique situation gives you reasonable reasons to do what you do. But it's important to recognize that this decision is probably being subconsciously made for you by collective social impressions of what "the good life" constitutes (at least partly). Intergenerational households are perceived by the American middle class as stressful, argumentative, even unlivable - and something for poor people. There's a stigma. I suspect that stigma informs people's reasons more than they want to admit.
I think most of that stigma is not correct. I also think that most people have gotten so used to this idea of strict family separation that they forget all the great things that come with having a "village" in your household. Some of these are financial -- you don't need as much (or any) daycare if grandpa is home. Some are didactic -- young folks learn a lot from old folks if they're exposed to them, and this learning often contains things that peers, parents, and schoolteachers literally cannot explain or understand. It is also bidirectional: older people learn from their youngers! Our severely age-divided society contributes to severe political divisions because people literally do not attempt to engage with each other, and much of that correlates with age; zero-communication ultimately leads to an intractable state.
I remember some people replying that intergenerational households have more capacity for abuse. I thought about that, and find it vacuously true -- social actions are a function of social systems and expectations, and "solving" every social problem by... dismantling social connections only technically solves it. (A solution to "my finger hurts" is cutting off your arm. Now you don't have a finger, so by definition it can't hurt. But now you don't have an arm, and your arm probably hurts more than your finger ever did.) There are better ways to look at family dynamics than what we've sleepwalked into over the last few decades, which is just isolation.
At a macro level, beyond any particular individuals, Western culture discourages understanding other people. Since at least the 19th century our aspirations have been almost exclusively individualistic, allowing for romantic partnerships and very small family structures which serve individual desires. The expectations that have led to that preference can change -- because they are rooted in culture, and culture is dynamic. I'm not a commune hippie, but there's something to be said for being able to think about living on the Earth with family, friends, neighbors as a collective action, not something everyone is fighting through by themselves.
Obviously my preference would be to redistribute wealth in a more equitable way so that this issue is less pertinent in general, but demographic changes will always result in some resource shortages.
I agree with your take. I think that the loss of the intergenerational household is one of the major victims in the rise of strong individualism, much like you said. It seems like more and more people are unwilling or even unable to think in terms of being part of a collective, or even of things like public welfare that doesn't personally benefit them.
I'm one of those people who has some of those exceptional problems you were talking about. My father was abusive; we couldn't do anything about it because he had psychological problems that nobody could force him to have addressed. My grandmother is in a nursing home right now simply because we don't have a house she could move to where anyone would be able to take care of them.
I don't see any of these things as positives; they're simply the only ones that made sense for us to do. Taking care of my grandmother's health while seeing her mental capacity slowly fail would be painful, yes, but at the same time so is not having the availability to see her very frequently and seeing the big drops in her mental health that happen between visits and the guilt that it may be happening faster because I'm not there to trigger her memory to keep it up can also be very overwhelming. And if I had stayed in my father's house, the best case scenario I would have had was becoming imprisioned for a crime or mental illness, and the worst case scenario would have been me being driven to murder or suicide.
Here in the US, socialism has a really bad name because people seem to hate the idea of spending on the public good. But I think one of the reasons why people have this opinion is because of their dislike or hatred of others. That might be the thing we need to fix in order to fix society, but I couldn't even imagine to come up with a solution that anyone would tolerate.
some excerpts
Asset managers are offering insurance which some argue can replicate some of the features of defined benefit contribution plans (where you are made minimul guarantees by your employers).
Ugh imagine if folks paid into one of those and then the company declared bankruptcy.
It's the same for any insurance.
Yea, but generally for most insurance companies there's some legal recourse if they don't do the one thing. And that you can switch insurance companies the day they declare bankrupcy.
When talking about paying a premium for 40+ years to get a return for 20-30ish stability is far more important.
There are similar issues with pension funds, too. Apparently there is some protection:
From What Happens When the Insurer of Your Annuity Goes Broke?:
Often the state has provisions to ensure that people in this situation are not left in the lurch, usually funded (as with banks) by a levy on the industry. For example in the UK the FSCS will find another insurer to move the policy to or make good claims directly.
For a life insurer to go bankrupt something usually has to go very wrong (they usually invest in bonds which they hold to maturity and run a diversified portfolio so there's nothing inherently highly risky - of course bad actors do bad things to try to boost profits but hopefully your relevant regulator has teeth to prevent this), and even so the insurer usually has a lot of assets which can go some way to making policyholders whole.
An interesting observation is if you look at the of chart of US Labor Force Participation Rate and US Debt as % of GDP, they are inversely correlated, suggesting that as the population ages, Debt/GDP goes up.
But also, the of chart of US Labor Force Participation Rate and US Fed Balance Sheet is inversely correlated as well, so as the population ages out, the balance sheet increases.
So a bit cyclically, as the population gets older and the labor force participation rate goes down, monetary and high street inflationary pressures go up. More entitlements need to be structured to ensure retirees have livable income. But those same inflationary pressures also make it so the purchasing power of that income goes down, so those entitlements need to increase to compensate.
There are all sorts of things that correlate, though, so having two graphs that go up is pretty weak evidence. If you pick from all the graphs of things that go up over time, that’s a lot of graphs. If you allow inverse correlations then you also have all the graphs of things that go down over time to choose from.
So this is mostly about the stories we tell that connect two graphs. I can think of more stories.
Savings and investment are pretty much the same thing. Equities, debts, and real estate are your major investment types. Rich retirees have a lot of investments, so there being more of them allows for increased debt somewhere else.
What kind of debt? Debt going up is pretty directly connected to increased real estate prices, education and medical costs. Also, increased government debt.
The country getting richer and increased inequality will also tend to result in increased savings and investment among people who have money.
The opposite of that (a country with low investment) is people having little savings and spending what they earn immediately. The US has a lot of that too, but it also has lots of investment. Inequality results in averages being misleading, so graphs of summary statistics hide a lot.
The US Debt climbing is almost exclusively due to the Bush and Trump tax cuts.
People who weren't alive in the 90s might not realize: There was much talk about a government surplus and how we might finally pay off the national debt. Also much yammering about how the government would waste that money and give it to 'welfare queens.'
So debt started getting paid down, till W Bush took office, slashed taxes on the wealthy, and started a few foreverwars.
To my point above, the 90s had an all-time high peak of US labor force participation. That and the huge stock gains in the run-up to the dotcom bubble led to the US experiencing a rare fiscal surplus. It can be also be said Clinton’s tax hikes and austerity measures to trim expenses were a contributing factor among those events.
Tax revenue as % of GDP is relatively unchanged (~19.5%) over last 90yrs even as top income tax rates have come down from >90%. Suggests we can’t tax ourselves out of US fiscal deficit and sovereign debt.
US can tax more if it wants to temporarily rebalance TGA, but inflation and stocks are the only things keeping tax receipts above US interest expenses and Entitlements.
If we really wanted to de-lever the US balance sheet… Treasury tells Fed to revalue gold at $20k/oz, that’s deposits $5T into TGA instantly. Treasury bids $5T in USTs at market prices, that drops debt/gdp from 120% to 70-80% overnight.
In other words, if we increase the top brackets back to those 90% levels (and some capital gains hikes while we're at it), while leaving the bottom alone one of two things happen:
Either way is a net win that reduces inequality.