BiggerPockets Money Podcast - 540: Renting vs. Buying a Home in 2024 and Do You Have Enough in Your 401(k)?

Starting point is 00:00:00 All right, is renting a home cheaper than buying a house these days? How can you take advantage of the market to stockpile cash in an environment with interest rates as high as these ones? Are you planning for your parents' elderly care and should you be? Kyle, Mast, and I are going to talk about all of these and more on today's episode of the Bigger Pockets Money podcast. Hello, hello, hello, and welcome to the Bigger Pockets Money podcast. I'm your host, Scott Trench, and here today is Kyle Mast, co-host. How you doing, Kyle? Yeah, it's good to be here, Scott.

Starting point is 00:00:26 You know, it's a great show today. You know, bigger pockets in the mission statement is about making a million millionaires. And it's not so that we just have a bunch of wealthy people running around the place, but it's so that people have the flexibility to do what's purposeful for them in their lives, what's most important for them. So that's why we want to introduce people to every money story, because we really do believe that financial freedom is attainable for everyone. No matter where they're starting or when they're starting, they can do it.

Starting point is 00:00:51 And no matter what headlines are in the news telling them they can't. Today we're going to bring you four headlines from the financial news cycle. so that we can discuss how you can make better investment. We're going to cover things like, is it cheaper to rent than to buy in the context of today's high interest rate environment? And in many cases, yes, we'll talk about more depth around that one. We'll talk about strategies to stock pile cash and how to optimize investments you do have in the context of high interest rate environment.

Starting point is 00:01:16 We'll talk about how the average and median 401K balances are perhaps and sadly, unsurprisingly low and the strategy that they should employ to catch up to early retirement or to retirement in general. And last, we're going to talk about how to financially plan for an environment where you might have to take care of your elderly parents at some point. And if you consider adding that into your financial plan, 29 million Americans provide some form of that elderly care. One quick note, Kyle and I are a bit under the weather today. If you hear some scratchy throats, and if you hear some clicking, it's because I am crushing cough drops throughout this episode while trying to have a great discussion with Kyle. With that, let's get into it.

Starting point is 00:01:57 Number one, renting is increasingly cheaper than buying a home. This comes from Newsweek. A recent study by Realtor.com using February data stated that renting a home was $1,000 cheaper than buying a home in the country's 50 largest metros. In larger metros like Austin and Seattle, however, owning a home was twice as expensive as renting. In February, the median asking rent of $1,700 per month was down by about $7.4%. As of June 12th, mortgage on 30-year-old. fixed mortgages is sitting at 7.522%. Now, this is a, you know, this is not a softball question. There are so many different opinions on this one. So Scott, I'm just going to get your first reactions to this article and the data they're providing here. Yeah. So I think my, in a nutshell,

Starting point is 00:02:45 I agree with the article's conclusion and I'm going to complain about the way they got there. So when when people talk about median rents, right, the typical rental unit in most metros is a two-bed one-bath apartment or similar. And the typical median home is a three-bed, two-bath home. So obviously, a two-bed, one-bath apartment is going to be cheaper to rent than a three-bed, then the payment is going to be on a three-bed, two-bath house. So we're comparing apples to oranges when we compare median rents to median mortgage payments. You have to really adjust. Like, what is the cost to rent that three-bed, two-bath house? And I think you get much closer, but in a city like Austin, maybe Seattle, I'll pick on Austin though for as a specific example.

Starting point is 00:03:38 Right now it's hands down going to be cheaper to rent than to buy in most situations, excluding the people who plan to live in a house for 20 plus, 30 plus years. Austin, Texas is a really extreme example of kind of a skewed housing market here. because they have so much inbound supply coming online, both in new construction single-family homes and in new construction multifamily homes. Multifamily inventory is particularly interesting stat about Austin. They're actually going to see 10% increase in multifamily units in Austin in 2024. That is absolutely absurd. It is one of the most in the country. And rents are plummeting in Austin, Texas, year over year. And I think that's not going to change for some time.

Starting point is 00:04:26 So right now is a glorious time to be a renter in Austin, Texas, at least in a relative sense. And rents are not only not keeping up with inflation, they're actually actively deflating. So I think that it's going to be region-specific in many cases. And yes, we'll get into this, I'm sure. But unless you intend to live in a property for a very long period of time, it's going to tend to be better to rent than to buy for many people who are, again, not living, not staying put for decades. Yeah, I think I just want to point out something that Scott said there, you know, the market specificity. You know, we're talking about Austin here. And there's a reason that Austin shows up and Seattle in articles like this because articles need to draw eyeballs and the numbers are high

Starting point is 00:05:11 and fast and extreme in some of these higher price markets that inflated a lot during, uh, during booms and busts. So, you know, that's something that you need to look at. The market specificity, like, which market are you looking at? We're looking at these averages here. And it definitely, as we get into this discussion, that makes a big difference. But, you know, Scott, for people like interested in fire, in achieving fire, is in general, is it waiting to buy a house a better solution to save more or in renting in the meantime? What are your thoughts there? Yeah. I think that, you know, Mindy and I wrote the book, first time home buyer. And in the first section of it, we talk about how many people shouldn't be

Starting point is 00:05:53 buying a home. Like, you shouldn't, you shouldn't, when we wrote that two or three years ago, I modeled it out and made a, you know, fancy spreadsheet for this. But I found that for the median American, you really got a, you really, and it depends on every region, of course, but you really have to plan to live in a property for at least seven years on average for it to be better to buy than to rent, um, from a housing standpoint decision. That varies by market, like San Francisco.

Starting point is 00:06:20 You'd probably have to live in there a lot longer, um, for buying. buying to be better than renting, right? And, you know, somewhere in the Midwest, probably a lot shorter payback period. So it just depends on the market. But because interest rates have risen so much and rents have not risen nearly as much, especially in last two or three years, that decision has been even more skewed. I bet you if I've modeled it out today, it would be closer to 12 to 15 years before renting becomes cheaper. I'm sorry, buying a home becomes cheaper than renting. And I think that's the major dynamic here. Again, if you tend to buy your family home where you're going to live the next 20 years, you should buy it. But if you're not sure on that front, you should probably rent. And I'll throw out like, here's, I did this analysis. I rented or occupied one of my rentals for the last three years, but I recently bought my family home this year. And it's the worst timing from a lot of standpoint. It's so much more expensive to buy this place than to rent it in the near term. But because I plan to live here for the next 20 years, it wasn't really that much of a financial decision. It was something else. It was more like,

Starting point is 00:07:28 this is my home. I want to make sure that I am here for the next 20 years. I'm not going to surrender that power. And I'm willing to make a quote unquote bad financial decision in order to get that outcome. So what do you think about all this? Yeah. This is a discussion that I would always have with clients when I was doing financial planning. And a lot of times, if you talk, if you'll talk to like your older relatives. And you talk about what their greatest asset is. It's their house. You know, like it's usually their house. And that's what they have everything invested in. That's what their retirement is kind of based on, either paying that off or using some of that to downsize and help with retirement. So I've learned to look at this question a lot more

Starting point is 00:08:11 behaviorally over the years. And when you come down to like the financial aspects of it, everything that you just pointed out, Scott, is spot on. You know, the time frame, and I agree with you. I think if you did that analysis now, that timeframe for the break even of the house being a better investment would be much further out. You know, three years ago, affordability was at an all-time low or like compared to incomes. And now it's like at an all-time high when you, with the mortgage rate increase. But what I've realized is that owning a home is, it's like, and I hate to say this, it's like whole life insurance in some ways. And by that, I mean that in most ways it's not. But by the only way that I say that it is, is that it's a forced savings plan. Okay. I don't like buying a

Starting point is 00:09:03 home anymore, Kyle. I'm out. I'm done. I would agree with you on that. The reason that people have such a huge asset in their home is because they care about it. They buy it. They care about it. They take care of it. They don't blow money on other stuff. Whereas if people rent, you may come out ahead financially, but I would say the majority of people, the tendency is to spend the extra financial bandwidth that you have. Now, in the fire community, of course, we would never do that. We would save it all. But that's where, that's what you run into. You need to have this behavioral thing in mind. And that's the reason why people have such a huge asset in their home. And that's why your grandparents and your parents will tell you to buy a house because it was that for them.

Starting point is 00:09:47 And it turned out to be a good savings plan because it forced them to rather than spending things away. And there's other things that you can do over time when you own real estate. And we can, you know, this is bigger pockets. We can definitely get into like leverage and all those things. But we just also had to bring that behavioral piece in here because it is, it's a real thing. And a lot of people would not have the, the assets accumulated that, they have if they hadn't bought a house, even though it's the less optimal financial thing to do. And I've just seen it over and over again, looking at people's balance sheets. That's why it happened. If they would have rented for a certain amount of time or moved to a different area and bought

Starting point is 00:10:24 rental properties instead of owning their own house, you come out way ahead. You're not, you know, you're not fixing a well pump without being able deduct the expense or you're not decorating it in ways that are super expensive that you don't need to as you would with a rental property, you let a lot more things go. So yeah, I just want to bring that into the discussion that it's not quite as easy as crunching the numbers. It's the actual behavior of people. So, you know, jumping ahead a little bit on this, Scott, you know, you can react to some of that what I said. But I also like to know, like if you want to achieve, you know, this financial independence goal through real estate, like how would you go about home ownership? Like optimally,

Starting point is 00:11:04 Scott Trench, what would you suggest people do? I think you take the question, is it better to rent or buy? And you say, okay, if you're, if you are min-maxing your way to financial independence, then the less you spend on housing, regardless of whether that is a home you own or a place that you're renting, the faster you're going to be able to accumulate wealth and invest. So by that, you can logic your way to an incredibly ridiculous position. I'll use that word nicely to describe what Craig Curlop, one of my colleagues and friends did, where he lived in the living room behind a curtain and rented out the bedrooms in his house. Obviously, that's a very efficient way to move toward financial independence. So when you get into like mid-max and you can get

Starting point is 00:11:47 all these weird places about where, what's the best, the optimal approach. And clearly that is better than him renting out an apartment. And that will still be true today for someone that's trying to do that. So when you get into like house hacking or the live in flip, those are going to be almost always better alternatives to renting, right? Yes, in a 50-year time horizon, you're going to get unlucky ones when you're doing a live-in flip. If you do 20 of them, and one time it's going to be worth less after the flip process because there'll be a housing crash. But the other 40, you know, other 19 times you do it over that period, you're going to make a lot of money and it really efficiently moved toward financial independence. So I think

Starting point is 00:12:27 that owning and using a home as an investment in the context of a, fix and flip, a house hack, or otherwise getting creative with that approach, you're probably going to be able to find ways to get ahead of renting. Another example is this assumable mortgage world in like Colorado Springs, which is just south of Denver, big Air Force base down there. And so there are a lot of people are using VA loans. There's also a lot of FHA loans down there. Those are assumable mortgages that can help a first time, you know, someone contemplating this rent versus buy decision, maybe stack those chips more in favor of the homeownership if you're willing to get creative and find those needles in the haystack. Those are relatively rare. I thought they'd be a lot

Starting point is 00:13:06 more popular today than they were than they actually ended up being. But that's a great creative approach to doing this. So you can general, you almost always can find a way for buying the home to be better than renting if you're trying to minx your way to financial independence. But if you're just looking to occupy a place and not get creative with any strategies and make it like a normal living in a situation, then renting is going to be better than buying in a lot of places, and especially in places that are outliers like Austin, Texas. All right, we've hit our first headline, but we have three more, including managing savings in high-rate conditions.

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Starting point is 00:16:28 Kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BP Money. And we're back with the Bigger Pockets Money Podcast. All right, let's move on to our next headline. This one's from Yahoo Finance. And it says how to manage retirement savings with interest rates remaining elevated. Basically, the premise here is that interest rates are going to stay higher for longer, according to the Federal Reserve meeting on June 12th.

Starting point is 00:16:54 They're only going to do one rate cut, they say, in 2024, which is a big change from the four plus that they were talking about were going to happen this year. This is maybe, if you want to spend it this way, positive news for some short-term savers where you can still get a high yield on your savings account, your money market or your CD. But it's really tough for a lot of people who are looking to build long-term wealth by investing in the stock market or real estate, as obviously higher interest rates are impediments to growth in those areas. So, Kyle, what are your initial reactions to this headline? Yeah. So any, any headline that talks about interest rates, whether it's including the Federal Reserve or it's

Starting point is 00:17:31 mortgages, or it's, especially in relation to savings accounts and inflation, I always try to make sure I take a step back and not look at the numbers themselves, but look at the relative comparison of the numbers. And by that, I mean, when we first started seeing the rates rise from the reserve. People were like, man, I'm getting 5% on my savings account. This is amazing. And that is, if you leave it at that, but when you're losing 9% to inflation, it's no longer amazing. You have a negative 4% spread there that you're now experiencing that before when you were getting a half a percent on your savings account and inflation was half a percent, you were breaking even. Or even if inflation was 1%, you were only losing half a percent on your money in your savings account. So do not

Starting point is 00:18:20 look at the numbers only. And these articles, you really got to pay attention. And one of the things that's unique about this article is that some of the inflation coming, the news of it coming down, it's actually starting to appear to dip below what current savings rates are. And that is a positive thing. That, that you have a positive spread there. So I think there's some opportunity here. I think, you know, I'm of the, in my investing, I am, I am not looking for like 1% returns. I'm for like 10 to 20% returns. And that's basically through real estate and work in real estate and leverage and cash flow. But if you're looking to be ultra conservative, you know, locking in a CD rate at 5% for two years when inflation is now coming down to 3%. It's not a

Starting point is 00:19:10 bad route to go. You know, if you don't need to push for the fences, if you're later in retirement, like these are positive things to try to lock in some of those. It's not going to stay that way forever, those rates are going to equalize and come back towards inflation because the banks need to make money. But some of those stay in place for a little bit longer. There's a little bit of a lag there. So that's my initial reaction. Just make sure you're paying attention to what the rate of the savings or return is in comparison to what actual inflation is or what you think it might be in the coming year or two. What do you think, Scott? Yeah, I mean, I don't see first, I'm not surprised. I could, I, Jerome Powell, after making a mistake in 2021, which I think even he would say, yes, we've made a mistake here and being way too slow to raise rates, has aggressively managed inflation and done exactly what he said he was going to do up into this point with this.

Starting point is 00:20:04 I was a little skeptical coming into the year that we were going to lower rates. You know, I never bet on interest rates, but I like to talk about them like an uneducated pundit on the, the show here on the, but like it doesn't make any sense to me. There's so many long-term headwinds to slowing inflation with so many folks exiting the workforce. That's an increase in wages, or that's going to put upward pressure on wages for those who remain in the workforce, which is a driver of inflation. There's so many, you know, underlying factors here that I think are going to drive this forward so much still such a huge increase in the money supply. I mean, rates would have to come down dramatically 10 times for the yield curve to basically state

Starting point is 00:20:44 where it is at this point for the 10-year and longer-term items there. And that's a disaster. So I think we're going to see these rates, these higher rates here to stay for much longer than we thought. I think that the rates getting lowered is bad news. Something bad is happening if the Fed is at lowering rates, which is not good for your retirement savings, by the way, there. And it makes everything hard. The stock market's trading at like a 25 times price to earnings ratio. Real estate is trading at a five cap, which means 20 times price to earnings on that front, investing in debt is really hard way to build wealth. It's a great way to potentially preserve wealth for those who have portfolios. But if you're looking to approach financial independence, you need something

Starting point is 00:21:30 that's going to grow. And it's really hard to believe in the stock market. It's really hard to believe in the like double-digit returns and at least an unlevered real estate, for example. It's really, you're going to put it all on Bitcoin. You're going to put it all in private business. So I think that that's really the struggle that these higher rates and the much slower lowering of rates than what people anticipated are really bringing to the table here. And I think it means that the core focus, the fundamentals are just that much more important in terms of keeping your expenses low, really playing good defense, looking for those opportunities in the job market, which is also fairly tough right now. And then making sure that you're comfortable with

Starting point is 00:22:10 investing on a really long time horizon because there is a lot of risk in every single asset class as far as I can tell at this point. How's that for Dyer? No, I love it. Yeah, I think that's so I'm going to turn the Dyer into opportunity a little bit, I think, because I see, you know, this is, I agree with you completely. I when when there was a lot of talk at the beginning of the year about the Federal Reserve like doing four to seven rate cuts, I mean, people were talking crazy, crazy stuff out there. And it's just, just like you said, the Federal Reserve never said they were going to do that, right? This was other, this was like pundits saying they were going to do that. So the Federal Reserve has done exactly what they said they were going to do the whole time and just markets didn't believe them.

Starting point is 00:22:52 100%. Yeah, the markets were trying, they were trying, I think they were trying to force the Federal Reserve's hand and it just didn't work. So I think they're going right in line with what they said they were going to do. And it, it's looking like they're going right in line with what they should do because we're not seeing a plummet in the economy or we're seeing. currently like the soft landing that they were looking for. I mean, that can always change on a dime if something happens. But what I'm seeing currently, so high interest rates suppress prices. You know, it slows the money down a little bit. And what I have started to see, and I've been looking for maybe another property or

Starting point is 00:23:30 to a short-term rental property in a couple markets that I really know and I really like. And it has just been tight. Like there's just no houses on the market, the ones that are on the market are just. not good and they're not going to cash flow at the prices that they are, but literally within the last month or so, because the spring buying season is going longer now, I'm seeing price cuts in this specific market I'm looking at. Me too, by the way, here in Denver. Yeah. Yes. And I think, like, if you're a long-term investor, you, this is, I was worried that I'm looking to maybe buy sometime in the fall. So that's kind of my time frame. And I was worried that interest rates are

Starting point is 00:24:05 actually going to go down too much and the market's going to heat up and you're not going to get a deal. And I actually think that I might get an off-season deal now because of interest rates staying there. So this is an opportunity if you can find a property specifically in real estate. And, you know, like your long-term dollar cost averaging in the market, too, don't stop doing that. That's still, these are times to continue to do that. But in real estate in particular, having the interest rate sticky where they are right now, people are now getting a few years into this high interest rate environment where they were sitting on properties that they have these low.

Starting point is 00:24:39 interest rates on. They're locked in. They don't want to leave them. But now life is pushing them a different way. They're like, okay, I need to unload this one. I bought a different vacation property somewhere else. I need to sell this one. I need to move to a different job. I'm going to make way more. I need to sell my house. Doesn't matter if I have a 2.95% interest rate. So this is starting to happen. And it's going to create some opportunity in the meantime with some of these prices being suppressed and people not being able to afford the mortgage. So if you're able, if you're able to be a little bit creative in some of these deals, like maybe pick up a property that's been price cut and you offer a little bit under it. You get a decent purchase price on it. You know, there's some opportunity

Starting point is 00:25:17 for flipping, I think. You need to have some cash to be able to do this. But I think there's definitely more opportunity going to happen this year than what people were saying at the beginning. I think it's going to stretch that out a little bit. So it's not a completely dire situation. If you're trying to refinance a property or if you're trying to like reduce like increase your at your cash flow by by getting your interest expense down that's not going to happen or it's not going to happen very well this year or pulling some equity out to do another property that's going to be harder to do but the actual purchase prices are looking a little softer and the inventory is looking a little bit better so you have to move so fast and make a bad decision you can wait a little bit and kind of work the seller a

Starting point is 00:25:59 little bit. So I'm, I'm liking what, what I'm seeing from a long-term investing standpoint. And, and I think that I always say this. I just don't see in, in the U.S., a better long-term investment than well-leveraged cash flowing real estate. Like you just, from the security standpoint of it, if you have it cash flowing and if you have reserves, and you can lock something in, even at a high interest rate, but you're in it for 25% down and it's cash flowing. But you get, the inflation of the 4% appreciation on the full amount of the purchase price, not your down payment, you're now pushing 15 plus percent returns in the long run. This is not a day trading thing, but in the long run, this is going to build you wealth. And that can happen today, even with high

Starting point is 00:26:44 interest rates. How's that for flipping the die or two opportunity? I completely agree. And I think the way I'll summarize the wonderful points you made there is, I think if your goal is to take income from a job and put it into something totally passive and make double digit returns, you're out of luck. You're going to have to take on some crazy amount of risk at this point, and you may be really frustrated and disappointed. But if you're willing to get hands on and actually know your real estate market, maybe do the work yourself, self-manage, and find those opportunities, they are starting to sprout up

Starting point is 00:27:21 at this point in the market. And I think that that's the lesson here. Same thing with like private businesses, another great opportunity. out there. Like a lot of the folks are struggling in the context of the current environment. You know, you said that there was getting that soft landing. I'm sure a lot of people will disagree with that term because that's not what they're feeling right now in this current situation, but the stats at the official level at least support that call. And if you can find pain that is not showing up there and go and solve it, that's a great opportunity. So there's a lot

Starting point is 00:27:49 of active and involved opportunities in the market right now, but you can't just like stick your money and something totally passive or publicly traded right now. and really expect to get awesome returns, I think. I wouldn't count on it. I'd have a much longer-term outlook and be willing to accept mediocrity over a long period of time and build my strategy around that if I wasn't going to get active. All right, we do have to take one more quick break to hear a word from our sponsors, but stick with us.

Starting point is 00:28:14 We have one final headline about financial planning and caring for your elderly parents. While we're away, make sure to search for the Bigger Pockets Money Podcasts in your favorite podcast app and hit that follow button. So you never miss an episode of the show. And we always appreciate it in our eternally grateful. for you following us. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing.

Starting point is 00:28:38 And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments,

Starting point is 00:28:58 net worth and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch's subscription with the code Pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves the needle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple.

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Starting point is 00:31:27 Registeredagent.com slash money free. Getting ready for a game means being ready for anything. Like packing a spare stick. I like to be prepared. That's why I remember 988, Canada's suicide crisis helpline. It's good to know just in case. Anyone can call or text for free confidential support from a train responder anytime. 988 suicide crisis helpline is funded by the government in Canada. All right, welcome back to the show and let's just jump right in. All right, good stuff. Let's move on to the headline number three here. This is the average 401k balance for ages 55 to 65 to 65. And this is from the Motley Fool. And we're basically kind of talking here in this article about what people have saved in this closer to retirement age bracket. According to Vanguard's How America

Starting point is 00:32:22 Saves 2023 report, it was reported that Americans from 55 to 65 have an average. average of 207,000 in their 401k. However, the median number was only 71,684. So we kind of raise some questions here of if the average American worker will even be able to retire, you know, where they collect only 1900 in Social Security is what they say is the average that people collect from Social Security. So Scott, you know, again, we're going on averages and medians here. What's your first reaction to this article? What would you say, I guess, guess an encouragement in hearing an article like this. I think we want to try to maybe spend this one a little bit more positive. Sometimes these articles are all about people just not having enough

Starting point is 00:33:05 saved for retirement. Yeah, well, I think it's good that people have something saved for retirement on average and at the median level here. I think that another encouraging thing is that this is just in the 401k. I think for many people in this age bracket, we can assume that they have positive equity in a home, not all, but many, maybe even most folks. in this bracket will potentially have that. There may be other investments as well. So we can, we can probably bump these numbers up by 30 to 50% in terms of looking at their overall wealth picture. But I think that the headline remains consistent with things that we've talked about for years on the show here, which is that's not really enough to plan a really nice retirement

Starting point is 00:33:48 without having to be dependent on Uncle Sam, which is not what we want. And so I think that there's going to, I think there's going to be a, I'm hopeful that there will be a big movement in the next couple of years where people wake up and say, I need to actually hustle and start sacrificing, gain control of my spending, downsize my lifestyle, and get on top of this so I can catch up and maybe get as close as possible to that million dollar number for retirement, which, you know, a million bucks at the 4% rule with 40 grand a year in distributions and some Social security and the Medicaid benefit can get you pretty close to a pretty comfortable retirement. But I think it's going to require a lot of hustle and some creativity and some some pretty

Starting point is 00:34:32 major lifestyle cuts and sacrifice in order for the median American to be able to have a crack at getting there. And I think that that's that's not a new headline. That's just restated here in this great article from The Motley Fool. What do you think, Kyle? Yeah, I would agree with with that. You know, just like what you just said, this is something that happens every year. We have an article come out like this that states that people are not saving enough. But yet, every year we have people retire. And we have current retirees that are continuing to live and have enough to live on and make it by. So how are they doing that?

Starting point is 00:35:08 So one of the things that I just preach all the time is that, and it doesn't show up in these articles, hardly ever, is part-time employment in retirement and for the rest of your life. Because there's just so many amazing things about it. It's, for one thing, it helps you live longer because you don't retire and you don't, like, sit on your duff and do nothing. It helps you benefit society, which in itself has health benefits, you know, feeling good about yourself and that you're still a help to the people around you. This is something that I would always work with clients on. And even here's an example. This is a cool example.

Starting point is 00:35:45 I grew up on a Christmas tree farm. If people have listened to this before, they probably heard that. And my family would wholesale Christmas trees all over the place. But we also did retail lots. And my grandpa and my uncle would set these retail lots up in Phoenix, Arizona, like 20 or 30 lots every year. Just it's crazy industry. If you ever want to do something crazy and fun, go run a Christmas tree lot in the winter

Starting point is 00:36:06 in Arizona. But who ran our lots? Retired people in RVs that came to work on our lots for free, had a blast talking to people all day long. What's a retiree like to do? Talk to people all day long, at least most of them. So that's what they would do. And they would sell trees. They would make commission on it. Some of them would crush it. And at the same time, so they're living for free. They're making an income that probably in the span of a month and a half provides for their living expenses for the next four to five months, regardless of the social security they're receiving, regardless of any other retirement income.

Starting point is 00:36:42 And they have a great time doing it. And then they go to court site in Arizona and park for like three months in the desert with all their friends and hang out. So this is something that people don't realize. You can be so productive in retirement, have such a good time. I had another example, and this always comes back to the Christmas tree farm. There was, there's a family friend of ours who retired from the post office, and he lived super simply, but he loved to work in retirement. He would go to Idaho and work on a farm for like a month and a half for a harvest. He would count trees for as they were going on the truck to be shipped to Arizona. There's all kinds of jobs and interesting things.

Starting point is 00:37:20 Like you could be a park ranger somewhere. You could be a museum like an instructor that teaches people about something. All of these different things is just there's so much opportunity to do part-time work. And that fills the gap huge. Like what if you made $20,000 a year in retirement just from a part-time job that you work three months a year somehow? It's a game changer. is a game changer.

Starting point is 00:37:43 You can do that in your Social Security and you're pretty much good if you have a paid for house. You can live. You can live simply and you're fine. So that's the one thing that just jumps out to me. I wish they would always throw that in these articles because we're always assuming that it's like,

Starting point is 00:37:55 save, save, work your tail off and then stop and you've got to spend through your stuff. And it's just not true. I got a little bit of passion behind that if you can't tell. Kyle, that is an amazing insight. Obviously you're correct. I never would have thought of it. I don't know.

Starting point is 00:38:09 I can see why the person who wrote the article never thought of it. And I can see why someone who's 55 and has $70,000 in their 401K, you know, would think they're just way behind and screwed at this point without, without that nugget there. But I think that that's a really healthy way to think about it. When you stack in $20,000 a year and part-time work, which should definitely be achievable and maybe even happy types of work, I don't know if I would want to pick corn in Iowa

Starting point is 00:38:36 during harvest time in my retirement, but maybe at Park Ranger job would be. a little bit more fun there. But when you add that and another maybe $2,000 a month in Social Security at the minimum probably level, that goes a long way. That's $40,000 right there. That's like a million dollar portfolio between those two things alone. You know, you add in, I still think that the takeaway here shouldn't be, oh, I'm going to be fine. And I'll just use Social Security and my Park Ranger job for 20 grand when I'm 75. I still think there should be a fire in the to go and get to as close as I can to that million dollar mark and use all the great advantages that we actually just talked about on the Vicar Pockets Money podcast with Bill Yunt and Jackie

Starting point is 00:39:22 from catching up to Fye here. But I think that that's a, like you have all these advantages. Use this stat to go and light a fire and see how close you can get, but know that you don't have to become a millionaire to live a probably pretty good retirement with what you've said here. And by the way, some of those advantages you should be thinking about. The HSA, you have additional contribution limits that you can put into either your Roth or your 401K as part of this. And a whole, yeah, you've got, there's a number of advantages that you should be pursuing at this point if you are in that age bracket and trying to catch up.

Starting point is 00:39:57 All right. Should we move on to the next headline here? Yeah, let's do it. All right. Headline four. This one comes from the Wall Street Journal. When caring for your parents comes at a cost to your career. Key item here is that a lot of Americans are essentially working two jobs.

Starting point is 00:40:11 where one is they're working their full-time job at 40 hours a week, turning down promotions and assignments, but they're also spending this part-time 20 hours a week taking care of their elderly parents. They talk about one individual who is 37 taking care of his 82-year-old parents in there. And this is not an uncommon situation, an estimated 29 million workers in this country work full-time while being a caregiver to their elderly parents or elderly relatives. Americans are also living longer and they're living longer with chronic illnesses, which put an increasing burden on their family members.

Starting point is 00:40:48 So people can be living to their 90s or even as close to up to 100 with chronic conditions that make them unable to care for themselves. And a lot of companies, most companies, I would imagine, do not extend benefits for their workers, for their elderly care for their relatives, friends and family. So, Kyle, any reactions to this headline? Yeah. Well, I mean, this is a hard one because you see it all the time. And I just think this is just a reality of maybe modern medicine and being able to live longer, that there's a lot more like expensive care that happens later on in life where, you know,

Starting point is 00:41:25 in generations past, people just wouldn't live as long. That expense wasn't there. But my first reaction is, you know, what can I, what can I do for my kids? You know, so that that's my first thought is if this is the case and this is happening and it's probably a trend that's going to continue to happen. And this is what I see with, I've seen with clients and even friends that have parents that they're caring for, it lights a fire in them to be like, I don't want my kids to have to do this. So I think, you know, it's another benefit of the financial independence movement of really

Starting point is 00:41:56 trying to shore up your own financial situation that, so that you aren't a burden to your kids or your grandkids later on in life. And there's a lot of things you can do to, to say for that, you know, investing in assets that appreciate long term. You know, honestly, invest in in high growth assets, even when you're 55, 65, a lot of people would have assumed too much to make their portfolio, all of it go down to be really conservative at those ages. And you just can't play that game.

Starting point is 00:42:25 You need to have some of it invested for long term to beat inflation so that you have assets later on for some of these larger expenses later. You know, you need to have 30-year invested assets at age 60 because of we're not. one of you or your spouse is going to live to 90 very highly likely so that you need to have something that is going to fluctuate more but it's going to be appreciating more than the inflation that's out there so that there is an asset down the road if there's large expenses but that's my first reaction like what can I do if this is something that's going to happen because I have the time you know that the kids have the time you know we can get into what people that are

Starting point is 00:43:04 caring for for other people can can do but this is a tough one you know this is a tough one to come around because everyone's situation is so different. What do you think, Scott? I think it reinforces financial independence in a huge way, right? I mean, this is this is why I think it's so important. A lot of people are like, oh, live your best life, you know, all these things, spend money, you know, with that, you know, don't, but like I spent my 20s going all out, living in duplexes. When my wife moved in, I did not have a heater in my home at that point because it was the spring. I didn't need it until the fall with all that, you know, and those things. And I just like a kind of, and I think, and I'm not saying like everyone can or should do that, but I think that this concept should light a

Starting point is 00:43:48 fire under more people to achieve fire early in life. Because those, you don't know what's going to happen in 10, 20 years. When you're 20, your parents are probably in their late 40s, early 50s, in there. And by the time you're 30 or 40, they're going to be in their 60, 70s, 80s at that point. And you may have children of your own there. And the more flexibility you can build by just knowing that things are going to change downstream, have your fun, live your best life in there. But try to accumulate as rapidly as you can towards early financial independence, I think, and make those sacrifices early so that when that time comes and you feel and and there is an obligation that you feel in some way to take care of, you know, elderly parents, it's not going to come at the expense of your future

Starting point is 00:44:37 children, your current children, or, you know, a career that is absolutely necessary to preserving your way of life. I think that that's the lesson here is it is, I think your instinct is perfect, Kyle. What can I do here? And I think parents should be thinking about how do I create enough wealth for myself and my family that I don't I will not my children will not be required to work to care to sacrifice their lifestyles to care for me and how can I as a child of make sure that I have enough flexibility to be there for my parents and I think if more people thought from both of those extreme both of those diametrically opposed viewpoints but in a in a healthy way I think that's the only way to plan for it because you can't control what your children or your parents are

Starting point is 00:45:24 going to do. You can only control what you're going to do. And that building that flexibility in there by focusing on building your own wealth and giving yourself your own optionality, I think is the only answer to a number of major life problems when you have the opportunity. Because if you're in this position, now you can't give up, make a bunch of changes and go after fire in a really hard way. You have to be there for the people you love. So I think that's the hard takeaway from this. And I think that the planning element goes into is embedded directly into what we talk about every day here in Bigger Pockets Money, which is trying to achieve fire. The closer you get, the more optionality and the less hard this situation will be if you

Starting point is 00:46:08 are faced with it. Yeah, I think just highlighting the words optionality and flexibility, you know, I'm glad you pointed those out because you can talk about finances of the parents and not having, you know, maybe, so let's, let's flip it to, you know, like you're the generation that has like five to 10 year old kids, but you're now maybe going to have to take care of your parents in some way. You know, I think there's definitely has to be conversations with your parents. And this is relation specific. You know, some parents will not want to talk about this.

Starting point is 00:46:40 Some parents will expect you to take care of them. Some parents will not expect you to take care of them and want you to live, you know, the life that you're meant to live with your family. So this is, it just has to be an ongoing conversation. And then like you're talking about the flexibility, you need to build your life to fit what might come your way. And that's just like these plan Bs and Cs and Ds that you talk about as you build the financial independence. You know, what if I lose my job? How much is that going to hurt?

Starting point is 00:47:09 How can I build it out? What if my parents need care two or three days a week? Am I building to flexibility within the next five or 10 years to where I could do that? And it's not going to hurt my family or my financial situation. and still allow wonderful time with my parents. You know, those are things that you need to, you need to have those conversations with your, within your current family, with your parents.

Starting point is 00:47:32 But yeah, these things are so hard to plan for too because you can't predict someone's longevity. You can't predict the, even in specific illnesses, how long they last or how short they are. It's just a really hard thing. But just coming back to, it does not hurt to build financial and, dependence and build flexibility.

Starting point is 00:47:54 There is that you can't go wrong doing that. Best case scenario, your family, your, your parents live to 110. They're healthy the whole way and then they die and they just go right away, you know, and your financial independent. And the whole time you can spend a whole bunch of time with them and your grandkids. Worst case scenario, you have to maybe you feel obligated to take care of your parents, but you have the flexibility to do it and you get more time with them. Maybe your kids get more time with their grandparents because you're taking care of

Starting point is 00:48:22 them the financial independence and the flexibility just it helps in so many situations but this one you know there's there's just no for sure answers other than trying to prepare as much as you can and i think that's the answer is it's preparation right because i you know i feel i i i am i try to empathize with the folks that they highlighted in the article like this uh this this this one woman who's taking care of her elderly parents and has children in there while working a full-time job and i'm not going to sit here and say like, oh, yeah, that person should pursue financial independence right now. No way. Like, they need to get through each week and each year. They're doing great for their, they're doing great by their family, the best they possibly can do. And there's not,

Starting point is 00:49:04 there's not really a lot of like planning advice you can give someone in that situation. All you can do is create that optionality way ahead of that point in time to the best of your ability, because you never know when you're going to need it and what you're going to need. Well, Kyle, thank you so much for joining me today here on Bigger Pockets Money. This was a tough and in some parts fun conversation and some parts really hard and real. Really appreciate the wonderful perspective and ideas that you bring in from your experience as a financial planner. And I'm grateful to have you here on the show today. Likewise with you, Scott.

Starting point is 00:49:37 This is good stuff. Even the hard topics, it's just really good to be thinking about all this stuff. Well, from this episode of the Bigger Pockets Money podcast, I am Scott Trench saying, Tudaloo, kangaroo. Two can play at that game. Oh, Kyle, with the big outro. See you next week, everybody. Bigger Pocket's Money was created by Mindy Jensen and Scott Trench. This episode was produced by Eric Knutson.

Starting point is 00:50:01 Copywriting by Calico Content. Post production by Exodus Media and Chris Micken. Thanks for listening.

BiggerPockets Money Podcast - 540: Renting vs. Buying a Home in 2024 and Do You Have Enough in Your 401(k)?

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