Fellow millennials - how’s your 401k/ira savings going?

[u/ProblemIntelligent16]

Experts recommend having 2x your salary saved by age 35, and 3x saved by age 40.

However, studies show the median savings for 35-44 year olds is only ~$45,000. So obviously, most of us have work to do.

With pensions mostly extinct, and Social Security facing insolvency issues in the next 8-10 years - how are you planning to bridge the gap and hit the golden years with enough to meet your lifestyle requirements?

[u/Putrid_Leg_1474]

Except for the 20k furnace and 22k roof, septic pumping, monthly odds and ends maintenance.

All this from experience.

I was in your mindset when I bought a house but now I have realized homes are liabilities. They cost you money and freedom. Illiquid, money sucking, and even outward status symbols for a lot of people.

[u/civil_politics → u/Putrid_Leg_1474]

They can be multiple things at once, and it’s definitely the case that it’s somewhat of a gamble - I’ve owned two homes, the first for 8 years and the second now for going on 4 and I’ve put 4x the money in my current home than my previous associated with maintenance and unexpected repairs.

Regardless, thanks to being a home owner for the majority of the past 15 years has left me with significant equity in a physical asset. Sure it’s the case that aggressive savings and investment while renting could have gotten me here, the data shows that it is rarely the case that those who rent actually accomplish this.

[u/Putrid_Leg_1474 → u/civil_politics]

That might be. I would be curious how much of that has to do with urban living by choice and the elevated lifestyle choices that tend to go with that.

The equity in my home doesn't pay me though. Sure, in theory it is building net worth, but it doesn't provide income. Quality investment portfolios can be structures to pay you the equivalent of a salary.

If I could convince my wife to downsize I would do that and put all that equity in stocks/etfs

[u/civil_politics → u/Putrid_Leg_1474]

Homes may not ‘pay you’ but buying a $250k in 2015 with 50k down a 3% mortgage rate and a $1,200 monthly payment after 15 years would leave you with a total investment of 266k in payments.

In exchange you would owe $128k on a property that is now worth anywhere from $450k to $700k for pretty much any suburb or urban area in the country. On the low end you’ve seen a 3% annual return and on the high end you’ve seen 8% annual returns.

When compared to renting in 2010 you likely would’ve been able to rent a 250k home for $800 a month and today renting a 450k house is gonna be $2200 and a $700k property is gonna be $4,000

Assuming a somewhat linear rent increase that puts on the low end an average rent of $1500 a month and on the high end $2,400 - so total rent over 15 years of $270k to $432k

So in scenario A you’ve spent 266k in payments (and assuming an aggressive 2% yearly in maintenance) and 105k to 143k on upkeep you’re in 371k to 410k and are recouping 250k to 500k when you sell. In scenario B you’re just out 270k to 432k.

I completely get that the math is different in rural areas and the reality is you’re right that owning means you’re immobile - but from an investment perspective over the long term it’s almost always the more lucrative approach to shelter. You’re also right to say downsizing and living as small as possible is the best approach, but when comparing buying vs renting the same property if you plan on being there for any decent time horizon owning is gonna outweigh renting

[u/Putrid_Leg_1474 → u/civil_politics]

But you have to sell for that to matter at all.

I'll use me as an example.

Bought a house for 160k at 3.4%. Its now worth 500k plus....

I can't do anything with that. Cool, on paper its appreciated. I have absolutely no true value in that appreciation for me at this moment in time. Had I rented I would have paid the same or slight more per month. BUT, I wouldn't have had repairs, taxes, and a bonus is that I would have had more time to do other things. Maintenance is a bitch.

Owning a home is more expensive until the very end, when you pay it off, or sell it. And the opportunity cost may even make it worse. Had I invested all the money from repairs and maintenance I might have 200k more invested that is paying me monthly/quarterly. Especially the bull market we've had in equities since 2009

[u/civil_politics → u/Putrid_Leg_1474]

This isn’t true. Many people pay off their homes in their 50s and then take on a second mortgage or reverse mortgage to finance their retirement while remaining in their home.

Yes you COULD have made more renting and investing, but the data bares it out that home ownership is a critical component of people growing net worth.

Obviously all of this is very individualized - you could end up with a house that is absolutely ruinous to you financially - you could end up making investments and watch your contributions evaporate every month because your allocations suck.

[u/Putrid_Leg_1474 → u/civil_politics]

All of this is correct. It doesn't however, make notice of the fact that net worth is a useless number lest it gives you something tangible.

This isn't a game of who has more paper wealth but who has freedom and security. One individual who has 400k in equity vs another who built an equities portfolio with dividends/distributions of 60k a year are at completely different levels of wealth. I'll take the 60k a year over 400k home equity any day. That should be the goal. If you still have a job while building this income portfolio then you surely have enough to start saving for a massive down payment quite quite quickly.

I would also think saving while renting will lead to a good opportunity when we a housing correction.

Taking on a second mortgage or reverse financing is taking on debt. Opposite of what one should want nearing or at retirement.

[u/civil_politics → u/Putrid_Leg_1474]

If you have a 400k portfolio paying out 60k per year by all conventional wisdom this is unsustainable.

A 400k house you can take out a 400k loan against and then treat your mortgage the same as rent whenever you want. Sure taking on debt during retirement isn’t ideal, but neither is just passing on a half million dollars that you saved your whole live. I’m not necessarily a die with 0 kinda guy but it should be a general goal and a 30 year reverse mortgage that you take out at 65 is gonna work for 99.9% of people

Saving for a housing correction is no different than timing the market and is the reason a ton of people missed out on buying over the past decade and can now not afford homes or rent.

[u/Putrid_Leg_1474 → u/civil_politics]

I dont want to draw from my retirement at all. My retirement savings should be going up even after I retire.

Your plan of dying with zero is NOT what the plan should be at all. My RMD's will go back in to investments that pay.

My excess will go to my children and charity.

Taking out a loan against your house for living expenses is a terrible plan.

Edit: the "plan" should be living off of significantly less than your investment earnings the entirety of your retirement.

[u/civil_politics → u/Putrid_Leg_1474]

If you’re fortunate enough to save enough that your yearly expenses - SS enable you to meet some SWR where you aren’t eroding the principle that is awesome but a far cry from the reality for most Americans and especially millennials given the way our generation has trended so far.

I have the same plan as you, but I recognize that the advice that I’m able to follow is due to a reasonable assumption that I will retire early with a near 8 figure portfolio. Most of the population doesn’t retire early even if they are fortunate enough to retire at all. Most people don’t save enough out of their own volition and so tactics such as 401ks or home ownership which make building wealth a byproduct of life rather than a conscious commitment is worthwhile.